This week’s Market Risk AlertTM rating remains at 2, (1 to 5 ranking, 5 being max risk-off) despite large increases in several equity v TSY correlations. For actively managed accounts, we support adding to risk here with the acknowledgement that markets are mired in a state of tepid optimism where the risk/reward is only modestly positive.
Regional Market Risk Heat Map (see original report)
The U.S. Equity Markets (All major indices included) remains the major source of risk globally. Our interpretation is that this risk is, for the near term, to the upside.
Outlook: Near term positive on risk assets, medium term bearish for reasons discussed in our 2014 Market Overview.