Risk-On Still Rules, but Leadership Quietly Changing — Evening Brief – 03.03.26

Despite dour headlines and periodic volatility, global asset-allocation trends remain firmly tilted toward risk. An ETF-based gauge tracking the ratio between aggressive and conservative multi-asset portfolios — specifically the aggressive allocation ETF (AOA) versus its conservative counterpart (AOK) — continues to skew positive. The signal suggests that, from a broad asset-allocation perspective, betting against the prevailing bullish trend has remained a losing strategy. 

Yet beneath the surface, market leadership is undergoing a meaningful rotation. International equities have staged a sharp resurgence relative to U.S. stocks. The prior dominance of total U.S. equities (VTI) has fully reversed against developed markets ex-U.S. (VEA), while a similar U-turn is unfolding between U.S. stocks and emerging markets (VWO). The shift implies renewed investor appetite for global diversification after years of U.S.-led outperformance. 

Within domestic equities, leadership is also changing. Large-cap value (IWD) has recently gained the upper hand over large-cap growth (IWF), interrupting a decade-plus stretch of growth dominance. While the pivot appears technically solid, history counsels caution: since 2010, several short-lived value revivals have quickly faded. 

If this rotation deepens, the implications could be significant. Secular value-led markets have historically coincided with contracting price-to-earnings multiples, more modest S&P 500 returns and greater macro volatility. 

For now, the broader message remains constructive: risk appetite is intact. But the drivers of that optimism are evolving — and investors ignoring the rotation may find themselves positioned for yesterday’s market.