Resilience and hopes of pivot propel rally
Risk assets rise on pivot possibility
- October started with risk assets experiencing the effects of U.K. market turmoil after the Truss government had announced stimulative budget measures during September.
- As the Bank of England helped pension funds to unwind distressed positions and fiscal news incrementally improved, risk assets moved up and down with headlines.
- A high inflation report caused only a brief reaction, as a resilient economy boosted earnings and expectations.
- Later in the month, the risk appetite surged after the Fed hinted at a pause or moderation in interest-rate increases.
- Although global rates ended October higher, risk assets also gained ground during the month.
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 '21
Easy monetary policies and reopenings supported risk assets.
Central bank tightening expectations along with the Russia-Ukraine crisis raise market volatility.
Source: Putnam. Data as of October 31, 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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