From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

We’re beginning to see signs that risk-on behavior is re-entering the market.

Commodities are ripping in the face of a rising dollar.

Cyclical stocks are back in gear as the S&P 500 High Beta ETF $SPHB posts higher highs and higher lows relative to its low-volatility alternative $SPLV.

Meanwhile, classic risk-appetite barometer AUD/JPY sliced through a critical level of former support-turned-resistance earlier this week.

All of these point to an increasing risk-on environment. 

But what does the bond market have to say about investor positioning toward risk?

Let’s look at a couple credit spreads that speak to investors’ willingness to incur risk.

First, we have the Investment Grade Corporate Bond ETF $LQD relative to the US Treasury Bond ETF $IEF:

Investment-grade...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

Back in August, we presented two opposing views of the relationship between stocks and bonds.

The question was, after running into resistance at a key extension level, in which direction would the $SPY/$TLT ratio resolve?

Would stocks break higher relative to bonds, in the direction of the underlying trend?

Or would the ratio roll over in favor of bonds? It would certainly be a logical level for a trend reversal...

Fast forward two months, and we finally have our answer.

Turns out it was the former -- stocks are breaking higher relative to bonds. Here's a look:

An upside resolution indicates stocks have begun to outperform bonds again. Now, bulls just need to see this ratio stick the landing, in which case we’d anticipate a strong leg up from here.

And if we’re in an environment where the intermarket landscape favors stocks over...

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

We’re finally starting to see resolutions in the bond market.

The 30-year yield is back above 2.00%, the 10-year has reclaimed 1.40%, and the 5-year yield has cleared 1.00% for the first time since February 2020.

Now that it appears rates have picked a direction, what are the implications for the other two major asset classes, stocks and commodities?

As we highlighted last week, we want to look at cyclical and value stocks along with economically sensitive commodities, specifically energy and base metals.

And, in case you haven’t heard, higher yields should also put a bid in financials.

Earlier in the month, we pointed out the relationship between the 10yr-3mo spread and Regional Banks $KRE relative to the S&P 500 $SPY.

Today, we want to follow the same train of thought but apply the analysis to Broker-Dealers $IAI.

Here’s the chart of the 10-year 3-month treasury spread...