The signals got ahead of last week’s volatility and continue to indicate that risk-off conditions are still holding the upper hand here. Modest losses in the S&P 500 masked how weak equities really were last week. If you take the totality of the financial market picture at the moment, especially in lumber/gold, there’s a strong case to be made that investors should be exercising a lot of caution here.

Even though the S&P 500 and Nasdaq 100 remain at or very near all-time highs, we’re getting one of the stronger sets of risk-off signals we’ve seen in a while. Which makes the continued rally in large-cap (and now small-cap) stocks all the more deceptive. These factors have the potential of reversing conditions sharply & suddenly and could spike volatility with little warning.

That pushed stock prices higher and bond yields lower; the kind of “everything is awesome” sentiment that’s been pushing the major large-cap averages to new highs for weeks. Thanks to the cyclical upturn, we see lumber/gold flip back to risk-on. The underlying reality may be a little more sinister.