Animal spirits have come off the boil lately, but these are still early days for deciding if risk-on sentiment for equities has hit a wall or is in a holding pattern that allows markets to consolidate the gains of late.
There’s no shortage of reasons to be cautious about the near-term outlook for markets, but reviewing trend behavior via several sets of ETF pairs continues to reflect a positive trend for risk assets.
On paper, the set-up sounds toxic. An ongoing war on Europe’s eastern border, a new conflict in the Middle East that could turn into a regional battle, and sharply higher interest rates to combat inflation.
Markets are churning as various threats raise questions about the path ahead, but for the moment it’s still not obvious that investors are throwing in the towel on risk assets.
One of Wall Street’s famous maxims is that bull markets climb a wall of worry. On that score there’s no shortage of real and potential hazards lurking.
Mr. Market doesn’t explain himself, but he does drop clues about preferences. Interpretation is mostly art, but it can be worthwhile when there are clear signs of trend changes. One approach for monitoring such events is comparing ETF pairs.
The search for the holy grail in diversification never ends and, unfortunately, rarely if ever turns up productive discoveries not already widely known.
