Risk Appetite Still Holds Firm as Equity Signals Stay Near Multi-Year Highs — Evening Brief – 10.23.25
Investor sentiment toward risk assets remains resilient, even amid a backdrop of high valuations, policy uncertainty, and persistent macro headwinds, according to several ETF-based market indicators through Thursday’s close. The data points to a market environment where investors are maintaining aggressive positioning rather than retreating toward defensive allocations.
The ratio between two global asset allocation ETFs—the aggressive iShares Core Aggressive Allocation ETF (AOA) and the conservative iShares Core Conservative Allocation ETF (AOK)—continues to climb, trading just below an all-time high. This ratio serves as a proxy for global risk appetite, and its sustained strength highlights a continued preference for equities and other growth-oriented assets over safer, income-focused holdings.
Within the U.S. equity market, risk-on sentiment remains equally evident. The SPDR S&P 500 ETF (SPY) versus the iShares MSCI USA Minimum Volatility ETF (USMV) ratio—a classic gauge comparing broad-market exposure to a lower-volatility proxy—has pulled back only slightly from its recent record levels, suggesting investors remain confident in riskier segments of the market despite tightening financial conditions and mixed macroeconomic signals.
A similar dynamic is seen in the cyclical-versus-defensive rotation, tracked through the Consumer Discretionary Select Sector SPDR Fund (XLY) relative to the Consumer Staples Select Sector SPDR Fund (XLP). The ratio has broken above its prior peak and continues to hover near multi-year highs, indicating persistent strength in economically sensitive sectors like consumer discretionary stocks—typically a sign of optimism about growth and earnings resilience.
In contrast, small-cap equities continue to lag. The ratio of the iShares Core S&P Small-Cap ETF (IJR) to SPY remains in a downtrend, reinforcing expectations that small-cap stocks will underperform large caps in the near term. This divergence reflects investor caution toward smaller companies more exposed to financing pressures, interest-rate sensitivity, and slower earnings growth.
The value factor also remains under pressure. The iShares Russell 1000 Value ETF (IWD) continues to trail the iShares Russell 1000 Growth ETF (IWF), signaling that growth-oriented strategies—particularly those tied to technology and innovation—are still dominating equity market leadership.
Taken together, the ETF ratios depict a robust risk-on bias that persists despite multiple market challenges, from global policy crosscurrents to concerns over stretched valuations. Investors appear willing to look past near-term volatility, betting that the macro environment will remain supportive for risk assets—at least for now.