From the desk of Willie Delwiche.
Key Takeaways:
- Risk pairs moving toward risk off extremes
- Risk On is weakening more than Risk Off is strengthening
- Risk indicators point to risk off environment across multiple time frames
After highlighting our Risk Off - Risk On Range-O-Meter last Friday, I want to do a deeper dive into what we are seeing from a risk perspective. A majority of our Risk Off vs Risk On asset pairs (13 of 20) have seen more strength out of the Risk Off component than the Risk On Component in recent weeks. Over the past month the average pair has dropped below the 50% threshold and is now in the bottom half of its recent range. Financial sector pairs (Broker Dealers vs S&P 500, Regional Banks vs REITs) stand out as exceptions - areas where Risk On assets are showing strength and working toward new highs).
When we view this through the lens of our Custom Risk On - Risk Off Ratio we see some weakening in Risk On assets but the ratio mostly remains the sloppy mess that it has been for a year. Going through the charts of components of that ratio drives that point home. Risk appetite has waned though we are not seeing classic examples of risk aversion at this point. For example, bonds continue to sell off (and yields are rising to their highest levels in years around the world) and gold has struggled to hold a bid.
