Why ‘Risk On’ and ‘Risk Off’ Are How the Markets Roll

Sometimes markets are described as “risk on” or “risk off.” The analysts using those terms generally say them with great confidence. Many people hearing them feel like they kind of know what they mean, but aren’t absolutely entirely sure. Or that they’d like to ask for a little more detail -- you know, for a friend.

They’re both shorthand for global market sentiment. When investors are optimistic about the outlook for the economy, or feel that markets are mispricing the outlook, they will bid up the price of riskier assets. That’s “risk on.” Sometimes fresh data or alarming news drives up uncertainty about the future, as on a day when doubts piled up about everything from the Turkish lira to nuclear talks with North Korea. When that happens, investors tend to sell risky assets in a hurry and buy assets seen as safe havens, ones that are usually less vulnerable to a weakening outlook or deteriorating investor confidence. That’s “risk off.”