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A surprising number of Risk On signals (and what that typically means)

Jay Kaeppel
2026-06-30
Investors need to be in a buying mood to sustain a bull market. To measure this mood, we track a variety of "risk on/risk off" indicators. Despite the seeming overextended nature of the stock market's recent advance, a surprising number of these indicators have recently flashed green. Details herein.

Key points:

  • There is an important difference between bullish sentiment and risk-on behavior
  • A high degree of bullish sentiment (i.e., how investors "feel") often signals trouble for stocks; But a high degree of risk-on behavior (i.e., what investors are actually doing with their investment capital) typically suggests a more sustainable bull market
  • There has been a noticeable flurry of risk-on behavior among investors recently in Microcaps, High Beta stocks, and IPO activity
  • While these signals are generally more "weight of the evidence" than "pure trading signals," the sheer volume and proximity of recent signals appear to be a favorable sign for the stock market

Microcaps flash several "Risk On" signals

As the name implies, our Micro Cap / S&P 500 Relative Ratio Rank indicator looks at the relationship between the performance of very small companies (as measured by market capitalization) versus the S&P 500 Index. This chart shows where the ratio is relative to its range over the past four months. When the relative ratio is high, investors are showing risk-on behavior. When the ratio drops to a low level, they are exhibiting risk-off behavior. This relationship can be viewed in a variety of ways.

The chart below highlights

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Risk Disclosure: The information and tools provided are for research and analytical purposes only and are not intended as investment advice. Market analysis involves uncertainty, and outcomes may differ from expectations. Users should conduct their own due diligence and consider their individual circumstances before making any financial decisions. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

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