What a risk-off tape actually is, and what it is not

Every edition opens with a label: risk-on, risk-off, or mixed. It is worth knowing precisely what that means, because the phrase gets used elsewhere to mean almost anything.

How we compute it

It is not a view. It is arithmetic on leadership. We take the one-month return of four cyclical proxies (technology, discretionary, financials, small caps) and subtract the average one-month return of four defensive ones (utilities, staples, long Treasuries, gold). Then we add the S&P proxy’s own distance above its 200-day average and its one-month return.

Positive means cyclicals are leading and the index is above trend, risk-on. Negative means the defensive complex is winning, risk-off.

Today that reads risk-on: cyclicals leading defensives with the index above its 200-day average.

What it is useful for

Context on everything else. A stock up 15% in a risk-on tape has mostly done what the market did. The same move in a risk-off tape is far more likely to be about the company.

It also flags when diversification is failing. In sharp risk-off periods, correlations converge toward 1.0, things that normally move independently stop doing so, exactly when you need them not to.

What it is not

It is not a forecast, and it does not tell you to do anything. Leadership can flip in days, and the measure is backward-looking by construction, it can only report on the month that already happened.

It is also not a market-timing signal. The historical record on acting mechanically off this kind of measure is poor, mostly because the transitions are only obvious afterwards.

Read it as weather, not climate. Useful for deciding what to wear today; useless for deciding where to live.

Screenline publishes impersonal, rules-based rankings on a fixed schedule. Nothing here is tailored to your circumstances or a recommendation to buy or sell. Past performance does not predict future results.