Weekly Risk Signals

Investors also seem to be underestimating the conditions that would necessitate rate cuts in the first place. Current sentiment may carry risk assets higher in the near-term thanks to unnaturally low volatility at the moment, but that also runs the risk of a sharp reversal with the right catalyst. Conditions look more neutral than bullish and that could mean a December where risk asset prices move in either direction.

Inflation report and Powell's tone pulled investors back into the market, resembling a previous market bottom. Small-caps' performance is crucial as valuations become more important, potentially indicating a shift away from expensive mega-cap growth stocks. Short-term risk-on conditions may continue, but December could bring a shift, potentially impacting the year-end rally and signaling new market regimes.

All four signals are back to risk-on as sentiment builds for a second week. Under the surface, however, there’s still some confusion. It’s just been really difficult to get a consensus view because so many intermarket relationships are telling different stories. The fact that last week’s gains were, again, driven mostly by the mega-cap names indicates to me that the current consensus risk-on signaling may not be as strong as it appears.