From the desk of Willie Delwiche.
Key Takeaways:
- Custom Risk On / Risk Off Ratio breaking out of an 8-month consolidation
- Risk On environment favors Emerging Market strength and leadership from Financials
- Intermarket analysis shows higher risk assets outperforming across multiple timeframes
Our ‘Risk On’ / ‘Risk Off’ Ratio is getting back in gear after spending most of 2021 going sideways. The ratio first peaked in February and while it visited and revisited that level multiple times as Spring became Summer, which then became Fall, it had not been able to break out until last week. The improvement in the ratio has been fueled by both an up-turn in the ‘Risk On’ index and a more pronounced down-turn in the ‘Risk Off’ index. On the following pages we will take a closer look at what is driving improvement in one and deterioration in the other.
The break-out in our ‘Risk On’ / ‘Risk Off’ ratio is consistent with the improving momentum backdrop being seen at the sector level and would be consistent with a more favorable seasonal backdrop as we move toward year-end. This ratio getting back in gear would be consistent with Emerging Markets continuing to show strength and Financials remaining in a leadership position.
