The shorter-term risk indicators have teased the possibility in recent weeks, but now for the first time in a year, our longer-term Risk Indicator has moved into Risk On territory.
More Context: This risk indicator is made up of 20 (intermarket and intramarket) ratios that pair various risk on and risk off assets. It ebbed and flowed over the course of 2022 but remained in Risk Off territory all of last year. Paired with the turn higher in our net new high advance/decline line, this is evidence of an improving backdrop for risk assets. These are not discrete signals (like so many breadth and momentum thrusts) but are continuous indicators of the environment in which we, as investors, are operating.
I have long leaned on breadth thrust signals in my work. But with more and more of them popping up all the time, it is now a case of thrust but verify. In contrast to what we saw last year, our risk indicators and the new high vs new low data are providing important confirmation of market strength (as opposed to just seeing more noisy volatility). The persistence of such strength will be important if the rally is to be sustained. How far the indexes can rally remains to be seen - the December highs for the S&P 500 (near 4075) appear to be the next important threshold.
In our Market Notes, we take a Deeper Dive into the evidence of an improving backdrop for risk and where we are seeing evidence of leadership.
