Wall Street’s Risk-On Momentum Train Gains Speed
Despite a slight dip in stocks on Friday, Wall Street’s risk-on momentum train is charging into September with full force, with few investors showing signs of hesitation. The markets have been resilient, with the S&P 500 notching a fourth straight monthly gain, and risk appetite spilling into various corners of the market, including corporate bonds, cryptocurrencies, and cyclical currencies.
The rationale behind this momentum appears to be simple: the Federal Reserve is expected to cut interest rates, the US consumer has proven to be robust, and the artificial intelligence story continues to gain traction. This logic has held up despite mounting risks, including trade frictions, a cooling labor market, and conflicting bond signals. In fact, these risks have hardened bets that monetary support is imminent, and the expansion, although aging, still has legs.
Measuring Bullishness
A cross-asset momentum gauge maintained by Societe Generale SA blends 11 components, including copper versus gold, cyclical stocks versus defensive, crypto, high-yield bonds, and more. This gauge has flirted with the most bullish thresholds at least five times since the tariff-spurred fallout in April, including again this month. According to Omar Aguilar, chief executive of Charles Schwab Investment Management Inc., “investors are realizing that the impact of tariffs is not as catastrophic as initially feared, and that’s giving them more confidence — a confidence now underscored by solid fundamentals.”
Volatility, or the lack thereof, is also a significant factor. Short-term implied volatility across major assets has fallen below long-term averages, reaching levels not seen consistently in around four years, according to Cboe Global Markets. This stretch of cross-asset calm belies the disruption from the shock jobs report just weeks ago. With US growth revised up to 3.3% last quarter, investors have another reason to stay the course.
Economic Story and Market Calm
Mandy Xu, Cboe’s head of derivatives market intelligence, attributes the prevailing calm to the economic story. “Despite all the tariff chaos, the consumer has held up, inflation is still in check, and the Fed is about to cut,” she said. “Until that narrative changes, I think volatility is likely to remain in check in the near term.” Even a well-supported rally can start to look overconfident, as Friday’s stumble made clear. Still, the S&P 500 ended the week only 0.1% lower, for all the noise.
Junk bonds extended gains for a fourth week, as 10-year Treasury yields advanced. However, some investors are cautioning against complacency. Peter van Dooijeweert, head of strategic investment partnerships at Capstone Investment Advisors, said, “having every asset decline simultaneously in terms of volatility is a sign of complacency. The Fed appears to be under severe pressure from the administration, and the economic impact of tariffs over the next 12 months is not clear yet. The market seems too relaxed given how much uncertainty remains ahead.”
Investor Sentiment and Caution
Despite this caution, many investors are not showing signs of retreat. Data from Barclays Research shows that institutional investors ramped up equity buying in August, led by hedge funds, commodity trading advisors, and risk-control funds as volatility collapsed. Max Wasserman, co-founder and senior portfolio manager at Miramar Capital, said, “the only way to spook the market is if interest rates go up or if tech stocks really show a decline in the rate of growth.” Wasserman holds Microsoft Corp., Broadcom Inc., and Alphabet Inc., which together make up about 15% of his portfolio.
James St. Aubin, chief investment officer at Ocean Park Asset Management, said he’s holding positions where momentum still looks strong, but with long-term rates proving unpredictable, he’s wary of chasing further gains. Manish Kabra, chief US equity strategist at SocGen, noted that the strongest and most consistent signals are coming from the riskier corners of credit and equity markets, including crypto assets and cyclical currencies.
Some investors are using the calm to rotate into less obvious corners of the market. At Schwab, Aguilar and his team recently rotated into small caps, betting the segment would benefit most from imminent Fed easing. For more information, visit Here
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