Has the Risk-On Sentiment Peaked for Current Market-Cycle?

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Investor sentiment has wobbled recently, but there’s still room for debate on whether the appetite for risk has peaked for this market cycle. Using a set of ETF pairs to gauge conditions shows that the strongest case for optimism resides in a global asset allocation framework. A more granular view of markets, however, paints a mixed picture, based on prices through Wednesday’s close .

Let’s start with the good news: A big-picture profile of global asset allocation has rebounded sharply. After testing support levels in the past two months (seeThe implication: market sentiment remains bullish and prices appear on track to set new highs in the near term. If this ratio takes out its previous peak, the news will strengthen the case for maintaining a risk-on bias in global strategies.

Although this ratio has recovered some of its upside momentum lately, it remains well below its previous peak, which suggests market momentum in this space is still modest at best.Semis are thought to be a useful proxy for the business cycle and so the modest rebound for these shares in relative terms suggest a degree of caution endures for the near-term outlook.

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