Weekly Risk Signals

The market bulls are already partying like it’s the new year, but I don’t think we can say this was a bull market all along just yet. If the Russell 2000 breaks through where it’s at right now, that would certainly help confirm the bull case in equities. If it gets rejected, then I think there’s still work to be done and overall strength probably isn’t quite what the market thinks it is.

Both short-term signals move to risk-off as volatility remains quite high overall. Even though the relative strength of most equity sectors and style are in or near overbought territory, the signals suggest that market sentiment is still largely mixed and unsure. Treasuries got a small attitude check with last Friday’s jobs report, but bonds still look like they’re in control here.

Powell’s attempts at trying to recapture the narrative and threaten additional rate hikes so far have failed miserably. Rates on the long end of the curve continue falling rapidly and stocks are seemingly an unstoppable force. The signals, however, suggest a much more tepid view of the markets. A lot of investors are talking about “powerful” rallies right now, but this market isn’t nearly as strong as it looks.