Monitoring Risk Appetite With ETF Pairs
2022.06.15 15:41
The trend has turned ugly, at least for the usual suspects in the land of asset classes. The question is when will it be comparatively safe to start raising risk exposures?
Unclear, but when the tide begins to turn we’ll likely see early clues in price trends via several ETF pairs.
Portfolio Strategy
As a starting point, the risk-on/risk-off profile for portfolio strategy remains in a holding pattern, based on the ratio trend for an aggressive portfolio mix (AOA), the other a conservatively run allocation (AOK).
It’s a bit surprising that this ratio hasn’t decisively tumbled…yet. Is that a sign that the current market correction is more light than heat? Or is this the calm before the storm?
Global Portfolio Strategy Regime Trend
US Stocks-US Bonds
A similar holding pattern applies to the US stock/bond ratio via SPDR® S&P 500 (NYSE:SPY) and Vanguard Total Bond Market Index Fund ETF Shares (NASDAQ:BND).
The explanation here is that both slices of this mix are suffering at the same time. Which side will blink first?
US Stocks-US Bonds Regime Trend
Inflation/Reflation
Meanwhile, the red-hot reflation/inflation trend continues to show no signs of slowing, much less reversing, via iShares TIPS Bond ETF (NYSE:TIP)/iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF).
Inflation/Reflation Price Ratio Chart
US Treasuries
Ditto for the risk-off trend for US Treasuries—IEF/iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY), which has accelerated since CapitalSpectator.com’s previous update on this front.
US Treasuries Regime Trend
Equity Risk-On/Risk-Off
One measure of US equity risk appetite—SPY/iShares MSCI USA Min Vol Factor ETF (NYSE:USMV)—confirms what’s already obvious: relative safe havens are in high demand.
Equity Risk Appetite Chart
Renewable Energy Stocks
Meanwhile, the risk-off bias for renewable energy stocks—iShares Global Clean Energy ETF (NASDAQ:ICLN)/Energy Select Sector SPDR® Fund (NYSE:XLE)—persists.
Renewable Energy Stocks Regime Trend
Copper/Gold Ratio
Finally, the ratio for United States Copper Index Fund, LP (NYSE:CPER)/SPDR® Gold Shares (NYSE:GLD) prices—considered a leading indicator for the 10-year Treasury yield—suggests the recent run-up in rates is due to pause.
That’s a contrarian view at the moment. Let’s see if this ratio continues to suggest otherwise in the weeks ahead.
Copper/Gold Ratio Chart
