Big Picture: S&P 500 (SPY) Over a Simple Risk/Reward
I like to follow the course of 'risk appetite' but there are many definitions of sentiment from the perception of confidence in a particular asset up to an assessment of the entire financial system as a whole. I like the top down approach in this case as much of what happens in individual assets on a regular basis roles up to an industry/region/asset class or the broader financial system. For me, gauging 'risk appetite' answers much of the market activity currently unfolding in the market.
For measures of market-wide sentiment, I have made very simple to very complicated. This is very simple. Going by the standard 'risk/reward' perspective: a singular (but imperfect) 'risk' measure is the $VIX and a similar 'reward' metric is the US 10-year yield. Of course, there are many issues with the VIX and it is derived from US markets (S&P 500 specifically). However, the US equity index is one fo the most ubiquitous gauges of investor activity in the world. As for the US 10-year, there is certainly better yielding assets, but most of it is based on a 'prime-plus' and this benchmark is treated as the prime.
All that said, this risk/reward gauge seems to have just recently rounded off as the rate regime starts to taper off and volatility start to stir. Longer-term relationship has skewed - a sign of equities ($SPY S&P 500 here) inflating over time and the lack of return in a traditional portfolio one makes in zero rate environments. You can rise the SPY wave or FAANG or meme stocks or crypto to try and get greater return; but it invites ever greater risk relative to the expected returns.
Are there any other good 'risk/reward' measures that are both indicative of the global market and simple?
For measures of market-wide sentiment, I have made very simple to very complicated. This is very simple. Going by the standard 'risk/reward' perspective: a singular (but imperfect) 'risk' measure is the $VIX and a similar 'reward' metric is the US 10-year yield. Of course, there are many issues with the VIX and it is derived from US markets (S&P 500 specifically). However, the US equity index is one fo the most ubiquitous gauges of investor activity in the world. As for the US 10-year, there is certainly better yielding assets, but most of it is based on a 'prime-plus' and this benchmark is treated as the prime.
All that said, this risk/reward gauge seems to have just recently rounded off as the rate regime starts to taper off and volatility start to stir. Longer-term relationship has skewed - a sign of equities ($SPY S&P 500 here) inflating over time and the lack of return in a traditional portfolio one makes in zero rate environments. You can rise the SPY wave or FAANG or meme stocks or crypto to try and get greater return; but it invites ever greater risk relative to the expected returns.
Are there any other good 'risk/reward' measures that are both indicative of the global market and simple?