Putnam Investments | The Macro Reportmarket
PUTNAM GLOBAL RISK APPETITE INDEX | January 2023

The Putnam Global Risk Appetite (RA) Index is a proprietary quantitative model that aims to measure investors’ willingness to invest in risky assets, including equities, commodities, high-yield bonds, and other spread sectors. With a composite view of risk-appetite signals across a broad mix of asset types, Putnam’s RA Index provides a framework for discussing investor preferences and can signal trend changes in broad market sentiment.

Backup in rates reduces risk appetite

SHORT-TERM TREND

December was a turbulent month. Investors celebrated the slowdown in inflation in October and November, but lower inflation did not come along with lower rates in December. As rates backed up, the risk rally faltered.

Risk

  • Global macro data is currently confusing and can offer some evidence to many points of view
  • U.S. markets continue to show hopes of a soft landing founded on the idea that the Federal Reserve can cut rates as inflation comes down
  • High global savings are contributing to a new higher interest-rate environment
  • Improving strength in Europe and China will weigh on the dollar
  • The Bank of Japan is widening the yield curve control range as it gradually exits its accommodative policy framework

risk key

LONG-TERM CYCLE

This 10-year illustration captures the cyclicality of investors' appetite for risk.

risk key

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.

Jan '22–present

Central bank tightening expectations along with the Russia-Ukraine crisis raise market volatility.

Source: Putnam. Data as of December 31, 2022. 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.

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon as research or investment advice regarding any strategy or security in particular.

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