Risk aversion continues as rates rise
The risk appetite stayed low in October for the third consecutive month. The sell-off for the month was less significant than in September, but some of September’s better-performing sectors were hit harder. Risk assets tried to recover during a couple of rallies in the course of October but ran into the headwinds of higher Treasury rates and mounting geopolitical risks.
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, inflation, and Russia-Ukraine War increase volatility and uncertainty.
Source: Putnam. Data as of October 31, 2023. 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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