Risk Aversion Index

While macro data has turned from “bad” to “less bad,” a lot of hope for a quick recovery in economic activity has been priced in. We recommend staying within range of the Fed’s fire power for the time being.

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March’s mad dash for cash didn’t stop with rates/credit/FX markets. Among equities, there was also a strong preference for cash liquidity. The market rewarded companies that had strong cash positions and punished those without—which explains why traditionally defensive styles actually underperformed.

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We will remain cautious toward lower-grade credit until we see the peak in new coronavirus cases. It all comes down to the recession call and the coronavirus has significantly increased recession risk.

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We are turning more cautious toward lower-grade credit and will likely remain so until we see the peak in new coronavirus cases.

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While the overall near-term tone is still positive for risky assets, complacency seems widespread too. This tempers our enthusiasm to chase risky assets at this point.

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We are turning favorable again toward credit, especially emerging market sovereign debt.

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Recent data has certainly increased the risk of an imminent recession, but more confirmation is needed to move us into the recession camp.

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More and more signs are pointing to investors’ loss of confidence in central banks’ ability to revive the global economy. We maintain “neutral” on all credit classes.

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A hawkish Fed cut, immediately followed by Trump’s new tariffs, caused quite a bit of market indigestion, a clear reminder of how quickly things can change.

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Our Risk Aversion Index fell in June but stayed on the “Higher Risk” signal generated in May.

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Our Risk Aversion Index rose sharply in May and generated a new “Higher Risk” signal. We continue to monitor EM assets closely, given their leading tendency. Both Chinese stocks and the Yuan have stabilized a bit lately, which is encouraging... but they are not out of the woods yet.

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Our Risk Aversion Index ticked lower in April and stayed on the “Lower Risk” signal. Most risky assets participated and the rally was broad-based. The only fly in the ointment is EM assets. The recent weakness in both Chinese stocks and the Yuan is certainly worth paying attention to.

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With most major central banks now turning dovish, our view on credit is more constructive. We still view pull-backs in EM assets as better entry points. Investment grade corporate bonds are also attractive, and we maintain a neutral view on Munis and High Yield bonds.

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While global central banks’ dovish turn provides a supportive backdrop for the risk rally, short-term overbought conditions are everywhere too.

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With the Fed now pausing its rate hikes, and the PBoC recapitalizing banks and reactivating lending, our view on credit has turned from defensive to neutral, with a more constructive bias. One of our biggest concerns, global central bank liquidity withdrawal, has been eased by the recent policy moves.

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Despite some near-term oversold conditions in risky assets, we continue to recommend defense and expect higher volatility to remain across all asset classes.

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Despite the recent signal whipsaws, we have been cautious toward all risky assets and we continue to recommend defense amid higher volatility across all asset classes.

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We have been leaning toward the defensive side despite the recent signal whipsaws and we continue to recommend caution in light of the increase in volatility across all asset classes.

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Our Risk Aversion Index fell sharply last month and triggered a new “Lower Risk” signal. Caution is still strongly recommended, and we favor higher-quality credit within fixed income.

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Our Risk Aversion Index reversed higher last month and triggered a new “Higher Risk” signal. We recommend a defensive stance within fixed income.

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