From the desk of Willie Delwiche.
Both our Risk On Index and our Risk On and Risk Off (RO/RO) Ratio have climbed to their highest levels since early last year and in the process crossed back above key levels that provided support during 2021 but were violated as conditions deteriorated in 2022.
Why It Matters: After an unprecedented combination of volatility and weakness in 2022, we are looking for evidence that the strength that has been seen in January marks a sustainable departure from last year and not just more of the same. There is still work to be done from a longer-term trend perspective and macro questions linger. Unlike the rallies that emerged and faded in 2022, however, this year’s gains are being accompanied by more appetite for risk. As long as the Risk On index and the RO/RO ratio are showing improvement (and that improvement is being confirmed elsewhere) it is probably premature to lean against the strength we have seen. That being said, not all opportunities are created equally. Rather than trying to anticipate a turn we are most interested in following the trends that have turned higher. The strength of a move is ultimately revealed on the test.
Inside we take a Deeper Look at our Risk indexes, areas of potential improvement that would confirm recent strength and what one of the best January’s ever for the EAFE could mean for the remainder of 2023.
