PUTNAM GLOBAL RISK APPETITE INDEX | July 2022

The Putnam Global Risk Appetite (RA) Index is a proprietary quantitative model that aims to measure investors’ willingness to invest in risky assets, including equities, commodities, high-yield bonds, and other spread sectors. With a composite view of risk-appetite signals across a broad mix of asset types, Putnam’s RA Index provides a framework for discussing investor preferences and can signal trend changes in broad market sentiment.


Risk appetite plunges

SHORT-TERM TREND

Fed hikes 0.75% with focus on inflation

Risk

  • 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.
risk key

LONG-TERM CYCLE

This 10-year illustration captures the cyclicality of investors' appetite for risk.

risk key

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 '21

Easy monetary policies and reopenings supported risk assets.

Jan '22–present

Central 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.

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon as research or investment advice regarding any strategy or security in particular.

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