Macro Monitor
Anatomy Of A Tightening Cycle
Overall, our historical study shows that the onset of a tightening cycle isn’t too concerning. Yet, the more aggressive the hikes and the longer the hiking period, the more likely monetary policy becomes too tight.
Risk Aversion Index—New Higher Risk Signal
The surge in global bond yields has shifted market sentiment rapidly toward the cautious end of the risk spectrum.
2026 Midterm—Less Typical, More Like The Last Two
Evidence suggests a favorable post-midterm setting for stocks, particularly with a Republican President/Democratic Congress. 2026 is clearly not a textbook midterm cycle, and long-term bond yields (not the election result), are the key driver of all markets.
Private Credit Contagion Watch—Improving But Not All Clear
The latest data proposes that the acute phase of the early 2026 private-credit contagion has been restrained so far, but the stress is still real. While FSK showcases how a credit cycle can be properly managed, the 777 failure is a sobering reminder of the systemic vulnerabilities deeply embedded in this space.
Recession Dashboard Update
Despite a long list of worries, the economy is healthy and the risk of an imminent recession is low. Market-based measures are favorable, and the war-driven confidence shock has largely dissipated.
Risk Aversion Index: A New “Lower-Risk” Signal
Our Risk Aversion Index (RAI) fell and triggered a new “Lower-Risk” signal, which closed out the “Higher-Risk” message generated at the end of March.
Green Light For Leverage, Red Light For Luck
The KOSPI Index crash from its June all-time high has been as breathtaking as its meteoric upsurge beginning in 2025. Korean retail investors are the biggest contributors and victims of the volatility. In fact, they have a long history of spectacular speculative misfortunes.
Real Yield Tantrum—The Pain Before The Real Gain
The renewed backup in bond yields has been driven by higher real yields and lower breakeven rates. This dynamic typically emerges when the market is expecting a hawkish Fed.
Risk Aversion Index: Stayed On “Higher-Risk” Signal
The balance of risk still tilts toward overheating and higher inflation for the next few months.
AI Funding Goes Public—The Risk Follows
The dot-com era was mostly a public-market event, while the AI boom has been largely funded through the balance sheets of hyperscalers and private capital. That distinction is quickly eroding. Once quietly contained on private balance sheets, the risk is now going public.
Too Hot To Handle—When Good News Goes Bad
Elevated readings in Citi’s U.S. ESI have lately been regularly accompanied by disappointing market returns. Our study of 27 past instances finds that “good-news-is-bad-news” episodes have tended to be self-correcting. Strong economic surprises eventually become harder to beat, and the ESI rolls over.
Risk Aversion Index: Stayed On “Higher-Risk” Signal
The massive private-sector stimulus package—AI spending—continues to drive earnings and economic activity. Tighter financial conditions have only begun to nibble at investor confidence. The balance of risk has shifted from growth to inflation over the last few months.
Too Concentrated To Fail
A recent paper by Kritzman and Turkington addressed this timely issue and gave a refreshingly simple conclusion: Concentration may look unsettling, but historically it has not been a reliable predictor of poorer returns or higher risk.
Everything Is Fine, Except The Bond Market
The biggest macro story in May was the sharp rise in G5 10-year bond yields.
Stayed On "Higher-Risk" Signal
The favorable seasonal window has ended, and higher interest rates are already tightening financial conditions for the Fed.
Private Credit Contagion Watch—Uncomfortably Numb
We compiled a list of indicators to watch for potential private-credit contagion, sorted into three tiers. The first tier, with the most direct private credit exposure and sensitivity to liquidity risk, is flashing a red flag; whereas the other two are graded as “cautionary” to “okay”—early signs of contagion, but not yet serious.
Recession Dashboard Update—Risk Still Low
Market-based measures are favorable, and the war-driven confidence shock has partially reversed. Despite recent volatility, the employment picture improved a bit, although full-time employment is a persistent reminder that labor market health remains fragile.
Risk Aversion Index: Stayed On “Higher-Risk” Signal
The favorable seasonal window is ending, at the same time that monetary easing has become less certain due to worsening inflation pressure. It’s still not time to declare the coast is all clear.
A Bottom-Up Case For Energy Stocks
Stocks in the Energy sector have massively outperformed since the Iran war onset; yet prior to that, the fundamentals in this space had already strengthened and the oil price surge is an extra bonus. Expectations have remained low while positive surprises have been delivered, making for a favorable setup.
Broken Up By War—Changing Relationships In A Changing World
For much of the last year, we’ve noted markets have persistently underpriced geopolitical risk, treating it like background noise versus a real threat. Recent events have forced a correction to that stance. Oil, in turn, has reclaimed its function as a geopolitical risk hedge—a role it had abandoned for a long time.
Perception for the Professional
October 2026 Issue
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October 2026 Issue
