Closing Thoughts for the Week

This week’s action in the markets only reinforces the idea that stocks are at high risk of experiencing another major downturn and next week could be the point where it accelerates. Treasuries still look like they are still tied to inflation expectations. The bottom line is that next week will be very consequential with inflation and the Fed meeting taking center stage.

Risk-off behavior is looking more and more like a high probability outcome. This is a market that’s demonstrating more reasons for caution than bullishness. The move that’s happening in Treasuries is a really big deal, mainly because it’s the conditions in which it’s happening. The past four weeks have unquestionably been the best period for Treasuries since the early days of the COVID pandemic.

The composition of the market’s gains shows that risk-off sentiment continues to take hold. This is a trend that continues to build strength and investors should not ignore it. We’re approaching the point where all four signals might be risk-off by the time the calendar turns to December. That being said, the melt-up scenario is still in play with the most likely catalyst still being the Fed pivot.