Risk Appetite Remains Robust

Equity indexes remain in rally mode, but beneath the surface fragility persists

Portfolio Applications update: Our latest update to the Systematic Asset Allocation portfolios is now available. Key takeaways: Global equities remain in rally mode but have not been able to overtake commodities on a relative trend basis. Our models continue to incrementally increase exposure to US equities, relative to global equities, while steering clear of those sectors (Financials and Utilities) that have falling absolute trends.

Our broad, cross-asset risk appetite indicator shows an ongoing surge in risk on behavior. This is consistent with ongoing strength from equities. This sort of behavior, like increasing optimism, fuels bull markets. Risks rise when risk on behavior fades and they become more acute when evidence of a risk off environment emerges.

Beneath the surface, however, evidence of the rally’s fragility remains on display. A breadth thrust is conspicuous by its absence at this point and while the S&P 500 closed at new highs every day last week, every day also brought more stocks in the index declining than advancing. This matches the longest such daily breadth losing streak since 2024.

To be clear, despite the uneven daily breadth performance,