With tariffs seemingly capped—this weekend’s US/China talks suggest 30% is more likely theceiling than the floor—markets are shifting focus. Quant Insight's Risk Model shows economic data has become the primary driver of risk assets. So, what needs to happen to pivot from fading rallies to buying the dips?

1. Macro share of risk continues to fall:

It still sits close to the post Covidhighs, but will the pain elastic now revert?

See the first chart below for IWM, where this fear gauge remains extended.

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2. Economic growth expectations build momentum

It now sits front & centre of the market mindset – at the index and sector level it is now the leading driver of IWM (Small Caps) and XLF (Financials), respectively.

Growth exposure is close to multi-year highs. See the second chart below

The IWM / SPY ratio is closely tracking the Citi US Economic Surprise IndexAt the heart of Qi’s Risk model is the revelation of an asset’s factor exposures.

What are the implicit bets I am taking?

How sensitive am I?

Which factors are becoming more / less important?How does this compare to benchmarks?

Solving for factor exposures uses the full capability of our algorithm to connects daily asset returns to daily factor returns. Together, with our macro factor covariance matrix, we can also ascertain the “all in” impact of any shock what if analysis.

Perhaps that IWM and XLF are highly sensitive toGDP growth in intuitive, but now you can track this by stock for your portfolio.

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