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Markets: Normal

How investors are pricing risk right now. Risk appetite is close to its 20-year middle.

Score -0.45 on a −2 to +2 scale: the average of 3 indicators, each placed by where today sits in its last 20 years. Indicators where a higher number means less risk appetite are flipped.

Indicators

Connections

• Fed balance sheetsupportsNasdaq CompositeData agrees

  Fed asset buying adds liquidity, often supportive for risk assets. Typical lag: weeks-months. Strongest match 10 months later (correlation 0.26, 266 observations since 2003).

• 10Y real yieldpressuresNasdaq CompositeData agrees

  Higher real yields lower the present value of future profits; growth stocks are most sensitive. Typical lag: same period. Strongest match 1 month later (correlation -0.27, 274 observations since 2004).

• High-yield credit spreadsignalsNasdaq CompositeUntested

  Widening spreads signal stress, usually alongside falling stocks. Typical lag: same period. Not enough overlapping history to test yet.

• VIXsignalsNasdaq CompositeData agrees

  Volatility spikes usually come with selloffs. Typical lag: same day. Strongest match in the same period (correlation -0.44, 371 observations since 1996).

• Broad dollar indexpressuresNasdaq CompositeData agrees

  A strong dollar shrinks overseas earnings of multinationals. Typical lag: 1-2 quarters. Strongest match in the same period (correlation -0.51, 239 observations since 2007).

• Corporate bond spread (Baa minus 10Y)moves withNasdaq CompositeData agrees

  Credit stress and falling stocks usually arrive together. Typical lag: 0 months. Strongest match in the same period (correlation -0.54, 371 observations since 1996).

• VIXsignalsS&P 500Data agrees

  The VIX is built from S&P 500 options; volatility spikes come with selloffs. Typical lag: same day. Strongest match in the same period (correlation -0.52, 109 observations since 2017).