Risk appetite plunges
Fed hikes 0.75% with focus on inflation
- Inflation continued to rise in June, pushing U.S. Treasury yields higher and spoiling hopes for risk assets.
- Turbulence in rate markets, including in Europe, was high.
- High-yield corporates underperformed as recession risk increased.
- Most equities underperformed, with the notable exception of U.S. small caps.
- All commodity indexes dropped together for the first time since financial tightening started in late 2021.
This 10-year illustration captures the cyclicality of investors' appetite for risk.
March '16–Jan '18
Risk assets rally amid improving commodity prices, perceived stability in China's macro data, and expectations for gradualist Fed policy.
March '20–Dec '21Easy monetary policies and reopenings supported risk assets.
Jan '22–presentCentral bank tightening expectations along with the Russia-Ukraine crisis raise market volatility.
Source: Putnam. Data as of June 30, 2022. To create the Global Risk Appetite Index, we weigh the monthly relative returns of 30 different asset classes over 3-month T-bills relative to the trailing 2-year volatility of each asset class. The higher the relative return and the lower the volatility, the greater the risk appetite; conversely, the lower the relative return and the higher the volatility, the stronger the risk aversion.
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