My Risk-On/Risk-Off ratio has reached a 22-month low, dropping below a key level that acted as resistance in 2021/22, which transformed into support from 2023 to the present.
Here’s the chart:
Let's break down what the chart shows:
The black line is my Risk-On/Risk-Off ratio.
The Risk-On components consist of Copper (HG1), High Yield Bonds (JNK), Aussie Dollar (AUDUSD), Semiconductors (SOXX/SPY) & High Beta (SPHB/SPY).
The Risk-Off components consist of Gold (GC1), US Treasury Bonds (TLT), Yen (JPYUSD), Utilities (XLU/SPY) & Staples (XLP/SPY).
If this ratio rises, the numerator (risk-on) is outperforming the denominator (risk-off); if it is falling, the denominator (risk-off) is outperforming the numerator (risk-on).
The Takeaway: The message right now continues to be… we are in a Risk-Off environment.
This looks to be a pivotal moment for the US stock market. With this key level now broken, it reinforces the weak market conditions I’ve been...
Three of my key Risk-On/Risk-Off ratios are reaching new lows.
Here’s the chart:
Let's break down what the chart shows:
The blue line in the top panel illustrates the relative ratio of High Beta vs. Low Volatility. In the middle panel, the gray line represents the relative ratio of High Yield Bonds vs. Treasury Bonds. Lastly, the black line in the bottom panel depicts the relative ratio of Equal Weight Consumer Discretionary vs. Equal Weight Consumer Staples.
If these ratios rise, the numerator (risk-on) is outperforming the denominator (risk-off); if they are falling, the denominator(risk-off) is outperforming the numerator (risk-on).
The Takeaway: These three ratios are my go-to favorite Risk-On/Risk-Off barometers: High Beta vs. Low Volatility, High Yield Bonds vs. Treasury Bonds, and Equal Weight Consumer Discretionary vs. Equal Weight Consumer Staples.
In healthy bull markets, these ratios move up and to the right on the chart.
As we near the end of the first quarter of 2025, the average stock in the S&P 500 has a negative return of -0.2% year to date.
Here’s the table:
Let's break down what the table shows:
Each row in the table represents the average stock within each S&P 500 sector. The first column shows the average year-to-date percentage. The second column reflects the average percentage relative to the 50-day moving average. The third column indicates the average percentage relative to the 200-day moving average. The fourth column displays the average percentage from the 52-week high, while the fifth column shows the average percentage from the all-time high.
The Takeaway: The average stock within the S&P 500 index has dropped by -0.2% year-to-date. Among the sectors, the average energy stock is performing well, showing an increase of 7.2%. In contrast, the average technology stock is struggling, down by -5.1% year-to-date.
Overall market leadership has become increasingly narrower in Q1 of 2025.
