(Bloomberg) — Even after Friday’s stock dip, Wall Street’s risk-on momentum train is barreling into September at full steam — and few investors are showing signs of hesitation.
Markets barely flinched this week — despite fresh political pressure on the Federal Reserve and tepid Nvidia Corp. revenue guidance — until a tech-led pullback Friday, amid thin trading. Yet the late-week wobble only offered a flicker of doubt in an otherwise resilient summer, with the S&P 500 notching a fourth straight monthly gain.
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Risk appetite continues to spill into nearly every corner of markets, from corporate bonds and cryptocurrencies to cyclical currencies. The rationale feels deceptively simple: the Fed looks poised to cut interest rates, the US consumer has so far proved the doubters wrong, and the artificial intelligence story still commands momentum.
That logic has proven resilient even in the face of mounting risks. Trade frictions, a cooling labor market and conflicting bond signals haven’t derailed the rally. If anything, they’ve hardened bets that monetary support is imminent — and that the expansion, while aging, still has legs.
One way to dissect the bullishness is a cross-asset momentum gauge maintained by Societe Generale SA. It blends 11 components, including copper versus gold, cyclical stocks versus defensive, crypto, high-yield bonds and more. It has flirted with the most bullish thresholds at least five times since the tariff-spurred fallout in April — including again this month.
“Investors are realizing that the impact of tariffs is not as catastrophic as initially feared and that’s giving them more confidence — a confidence now underscored by solid fundamentals,” said Omar Aguilar, CEO of Charles Schwab Investment Management Inc.
Then there’s volatility — or the lack of it. Short-term implied volatility across major assets has fallen below long-term averages, reaching levels not seen consistently in around four years, according to Cboe Global Markets. It’s a stretch of cross-asset calm that belies the disruption from the shock jobs report just weeks ago. With US growth revised up to 3.3% last quarter, investors have another reason to stay the course.
For Mandy Xu, this prevailing calm is rooted in the economic story.
“Despite all the tariff chaos, the consumer has held up, inflation is still in check and the Fed is about to cut,” said Xu, Cboe’s head of derivatives market intelligence. “Until that narrative changes, I think volatility is likely to remain in check in the near-term.”
Even a well-supported rally can start to look overconfident, as Friday’s stumble made clear. Still, the S&P 500 ended the week only 0.1% lower, for all the noise. Junk bonds extended gains for a fourth week, as 10-year Treasury yields advanced.
“Having every asset decline simultaneously in terms of volatility is a sign of complacency,” said Peter van Dooijeweert, head of strategic investment partnerships at Capstone Investment Advisors. “The Fed appears to be under severe pressure from the administration and the economic impact of tariffs over the next 12 months is not clear yet. The market seems too relaxed given how much uncertainty remains ahead.”
Yet that caution hasn’t translated into investor retreat. Many see this not as ignorance, but a studied surrender to a market that has humbled skeptics all year. Calling it complacency is easy — stepping aside, harder.
Case in point: Data from Barclays Research shows that institutional investors ramped up equity buying in August, led by hedge funds, commodity trading advisors and risk-control funds as volatility collapsed — dubbed an “unusual” re-risking that has pushed overall positioning to above-average levels.
“The only way to spook the market is if interest rates go up or if tech stocks really show a decline in the rate of growth,” said Max Wasserman, co-founder and senior portfolio manager at Miramar Capital. “I am not optimistic about this overall market because it’s dominated by a handful of stocks.”
A dividend-growth investor, Wasserman holds Microsoft Corp., Broadcom Inc. and Alphabet Inc., which together make up about 15% of his portfolio. While his other holdings have been “languishing,” he’s hedging with energy — which he expects to benefit from a weaker dollar — and healthcare.
His concern isn’t just valuations. It’s crowding.
A similar caution can be heard among credit participants. James St. Aubin, chief investment officer at Ocean Park Asset Management, said he’s holding positions where momentum still looks strong. But with long-term rates proving unpredictable, he’s wary of chasing further gains. “It’s a bad set up for risk taking right now, no matter where you look,” he said. For now, he’s focused on clipping steady income — and staying nimble if conditions shift.
The strongest and most consistent signals are coming from the riskier corners of credit and equity markets, according to Manish Kabra, chief US equity strategist at SocGen. Crypto assets and cyclical currencies like the Australian dollar and Swedish krona are also flashing green. Commodities — particularly the copper-to-gold ratio and oil — have delivered the most uneven readings.
Against this backdrop, some investors are using the calm to rotate — quietly, deliberately — into less obvious corners of the market. At Schwab, Aguilar and his team recently rotated into small caps, betting the segment would benefit most from imminent Fed easing. Earlier this summer, they added exposure to the middle of the fixed-income curve to lock in yield before rates fall. At the start of the year, they shifted into international equities, looking for diversification and upside in regions less tethered to US policy.
“Given that all the activity we have seen this summer, I think the rally is healthy,” he said. But “I would not be surprised if we see a pullback.”
