The Risk On/Off framework categorizes market conditions into four primary cycles: Risk On, Risk Off (Cash), Short, and Cover. Our directional market outlook is guided by an internally calculated equity risk premium. When the equity risk premium rises above a predetermined threshold, it signals an opportunity to increase equity exposure. Conversely, a low equity risk premium indicates the need to reduce equity risk.

During Risk On periods, investors should consider increasing their equity exposure, as markets show signs of recovery and stability, supported by broad fundamental improvements.

Risk Off (Cash) phases signal early caution, as divergences between fundamentals and prices widen, potentially leading to corrections; investors should focus on maintaining quality and avoiding overvalued, speculative assets.

Risk Off (Short) periods occur when markets experience broad price corrections, often accompanied by heightened volatility and sharp declines in speculative investments. 
 

Cover periods represent potential market bottoms, marked by peak in braoder investor fear gauge and widespread undervaluation, offering opportunities to rebuild equity exposure strategically.