It’s been over a month since the S&P 500 made a new year-to-date low and market volatility has cooled somewhat. After averaging a 1% move (in either direction) every other day in the first half of the year, the S&P 500 has only had 5 such moves so far in July (16 trading days). The last one was over a week ago.
A couple 9-to-1 up volume days on the NYSE and an uptick in bulls on the sentiment surveys is providing some hope that the bear market environment may be fading. Our Risk Indicators (as well as the continued presence of more stocks making new lows than new highs) argue that it is premature to jump to that conclusion.
We have seen some improvement over the past month, and of the 20 risk off - risk on asset pairs, 14 are closer to their risk-on extreme than they were a month ago. But even with that improvement, only 3 of the pairs are closer to the risk-extreme than the risk-off extreme. In this fight over field position team “Risk Off” is winning. As we get into the details, this story is more about a lack of risk appetite and risk on weakness rather than broad strength out of risk off components.
