Weekly Risk Signals

Investors enjoyed a big relief rally last week and while, in isolation, it very much had a risk-on feel to it, we shouldn’t jump the gun just yet. It’s easy to see one huge week of returns and conclude that the good times are back, but the data just doesn’t support it yet. “Higher for longer” means that things can still break.

The sharp risk-off turn the market has taken over the past few weeks remains firmly in place, led by outperformance in utilities, gold and low volatility stocks. This week, we may finally be seeing a rebound brewing in Treasuries. Powell is likely to keep confirming the higher for longer story and that’ll keep putting the pressure on both equities & junk bonds. Overall, there are just too many signs and sectors flashing warning signs to ignore.

Market signals are indicating that we might finally be getting dangerously close to a more significant market correction in the coming weeks. Signals that have been more neutral over the past month are moving more decisively in the risk-off direction and some of the longer-term signals are also starting to confirm the change in sentiment. If investors finally begin moving back into Treasuries as well, it’s probably one of the strongest risk-off setups we’ve had in quite some time.