What Is a Risk-Off Market?

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It’s when investors are buying safer assets like treasuries, rather than risky ones like stocks. 

Recently, we’ve had a massive rally in stocks off of their 2020 lows, which represented a bear market. Then, investors began buying stocks because the potential reward — wit the price so low — looked to be worth the risk (the volatility stocks bring). 

But when we had the sell-off, bringing stocks 34% below their all-time highs, investors were moving into treasuries. Yes, there were a few days where treasuries and stocks both were sold off because investors were selling anything that wasn’t cash, but largely, treasury prices rose in that period. 

That was a risk-off market. 

Treasuries are safe because the investor will not lose his or her principal. Nobody is worried about the government’s credit. But they offer a low interest rate, or yield. Stocks are risky because the price is so volatile because the expected earnings stream is volatile. But stocks offer a premium rate of return compared to tussores (and compared to ant asset usually). 

So when investors pile into treasuries and sell stocks, it’s because there’s not point in taking the risk of being in stocks if they think prices are sure to plummet (the Coronavirus was the culprit). Just accept the low yielding treasuries — there’s no risk of principal loss and the yield will outperform the falling stock prices in that period. 

To see how this applies to today's market conditions, watch the quick video above. 

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