Risk-Off Moves Deepen While Markets Wait for Data and Fed Signals

Synopsis

This week’s Lenses highlights a further risk-off shift, with Growth and Value weakening, sector rotation accelerating, and earnings surprises driving re-pricing. Technical and macro factors remain volatile as health innovation, rate sensitivity, and cyclical themes all saw retracements or mixed signals—keeping institutional positioning cautious. With pivotal data and policy decisions on the horizon, investors should brace for heightened volatility and prioritize flexibility in sector and factor exposures.

Lens 1: Surprise Metric

Our “Surprise Metric” reveals factor movements outside of their historical return distributions for different horizons (Surprise 1W, 1M, 3M columns below). Values above 1 (below -1) standard deviation suggest outsized strength (weakness) relative to history (data sourced from our open ecosystem of risk model providers).‍‍

End Date: 8/8/2025

^{* Arrows represent directional change in 1W Surprise Metric. Single arrows indicate 1X or larger difference from previous week and double arrows indicate a 2X or larger difference. Horizontal arrows indicate minimal change.}‍

Highlights

• Risk-off sentiment is gaining momentum. Further weakness in Growth and Value underscores a rising risk-off tone. Quality continued to surprise to the upside, while Earnings Yield surged—likely reflecting strong earnings surprises. Whether earnings strength in leading sectors like Tech and Financials continues through Q3/Q4, and if earnings breadth in lagging sectors like Staples and Industrials improves, will be critical for positioning.
• Rates and Commodities Beta remain on edge. These factors had modest surprise moves but remain in negative trends over 1M and 3M. These factors track rate policy, which remains hawkish. With a pivotal FOMC in September and rising calls for a dovish pivot, expect increased volatility in these factors ahead.
• Technical signals flash mixed messages. Beta continued to decline, while Vol and Momentum showed some revival. It’s too early to attribute these shifts to broad sentiment or isolated drivers, so no conclusions (or inferred positioning changes) are being drawn for now.

Lens 2: Thematic Crowding

This snapshot reveals thematic hedge fund exposure by measuring the beta of a Wolfe Hedge Fund Crowding factor portfolio to key market themes, calculated from residual return data. Higher beta indicates greater crowding in the theme, while lower beta suggests contrarian or avoided positioning to the theme. Data used for this analysis extends back to Jan 1st, 2024. How to read this graph‍

Highlights

• Health innovation faces renewed headwinds. The Health innovation theme pulled back this week, likely due to political pressure placed on pharma imported from the EU and Switzerland. Broader Healthcare also showed weakness, pressured by macro headwinds despite its defensive status.
• Rate sensitivity is still the market’s favorite theme. Rate sensitivity retraced again but remains the most widely traded theme among institutions. All eyes are on this week’s CPI report, which could reveal how tariffs are impacting consumers—any upside surprise could challenge dovish expectations for a September rate cut.
• Cyclicals vs. Defensives stay volatile. This continues to be the second most volatile theme, and edged lower as the market awaits more data and policy updates. Last week’s weak labor data shifted sentiment dovish, but whether this reflects supply-side issues or weakening demand will shape investor positioning.

For Further Discussion:

As you digest this week’s Lenses, consider further discussion on the following points:

• Are we positioned to navigate intensifying risk-off shifts and sector rotations?
  With Growth and Value showing fresh weakness and Quality and Earnings Yield leading on positive surprises, are we agile enough to pivot between defensive and cyclical sectors as market leadership evolves?
• How are we balancing technical signals and factor volatility amid shifting rate and policy expectations?
  As Beta declines and Volatility and Momentum stir, and with rate-sensitive themes and commodities swinging on policy speculation, is our exposure properly calibrated for both upside surprises and downside risks?
• Are we capturing opportunity without overreacting to headline-driven volatility?
  With health innovation and rate sensitivity themes retracing on tariffs and macro headlines, are we able to filter out short-term noise—positioning for sustained moves while avoiding whipsaw from crowded trades and data surprises?

Omega Point can help you surface and explore these questions with data-driven clarity. Reach out if you'd like to dig deeper into any of these themes.