Risk Appetite Remains Weak as Trade Tensions Remain High

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Risk Appetite Remains Weak as Trade Tensions Remain High

The year  as markets extended 2024’s rally. But as details of the dramatic shift in US tariff policy emerged,  as 2025 unfolded. The defensive stance persists, based on a set of ETF pairs that map the crowd’s appetite for risk via prices through Monday (May 5).

A proxy for global asset allocation sentiment continues in a risk-off posture, according to the ratio for an aggressive strategy () vs. its conservative counterpart (). Although the indicator has rebounded recently, a weak trend endures, based on the ratio’s 50-day average holding below its 200-day average. A recovery in the short average above its long counterpart would signal a resumption of a bullish

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. That shift, presumably, would require greater clarity on tariffs, a development that doesn’t appear to be imminent after the White House asked companies and consumers for patience with its policy agenda.

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An even stronger risk-off signal continues via US stocks via a broad measure of American equities () vs. its low-volatility counterpart (). This ratio has fallen sharply in recent months and remains deeply negative from a sentiment perspective.

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A weak trend is also conspicuous for US stocks () vs. foreign developed-market equities ().

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The risk appetite for US shares (SPY) is also frail vis-à-vis US bonds ().

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Sentiment for US small-cap stocks () was already caught in a bear-market trend going into the trade war relative to a broad measure of equities (SPY), and more of the same applies through early May.

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Markets are looking for signs of progress that reduce global trade tensions, but so far the negatives still outweigh the positives. President Trump says that deals are coming, but on his terms:

“We’re negotiating with many countries but at the end of this I’ll set my own deals because I set the deal, they don’t set the deal, I set the deal,” he told reporters Sunday. “This is not like a big deal that’s gonna be signed — in some cases we’ll sign them, but we don’t have to sign them. I’ll be setting the deal, I’ll be setting the tariff.”

As talking points go for boosting optimism, those comments are weak tea. Markets, as a result, are still waiting for more substance in the news flow before reversing the risk-off signaling that weighs on the risk appetite.

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#Risk #Appetite #Remains #Weak #Trade #Tensions #Remain #High

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