30 Dec Market Risk Report as of December 30, 2019
From Chief Investment Officer Tom Veale,
“There will be plenty of reports on how 2019 shaped up for investors in the coming days. Many will be self-congratulatory; many will be predictive of 2020. I feel the urge to do the same but will try to refrain. It’s not that 2019 wasn’t good as much as the end of 2018 wasn’t very pretty. For SignalPoint our Market Risk Indicator (MRI) had suggested we were seeing rapidly decreasing risk at the start of 2019 due to the nasty correction that took place. For ten weeks straight the MRI was in its bullish territory. The end of 2019 only has it at 26% suggested cash (unchanged), its median value. While 8 percentage points ahead of the year’s start, it is comforting to see it at just median risk. While median isn’t “no risk”, it’s acceptable. This week’s MRI Oscillator is +2 suggesting only mild upward risk pressure.
The average gain in the NASDAQ Composite over 12 months from an MRI Bullish signal is around 23%. This year all the indexes were up at least that amount with the NASDAQ coming in at roughly +36% for the year.”
“All four MRI components remain neutral this week with two up and two down slightly in their own ranges.
The median gain per year since 1982 has been around 8%. With median risk, I’ll go out on a limb here and guess at an 8% gain for 2020 in the S&P 500 Index. (sorry, I couldn’t resist making a prediction…)”
The Market Risk Indicator is an assessment tool that serves as a guide through all markets as to the prudent use of a liquid cash cushion. It helps determine an approximation of the amount of cash reserve relative to a diversified equity portfolio. (this is depicted by the graph above)
At times of high risk in the market, the MRI will suggest a higher level of cash reserve. At times of low market risk, the MRI will suggest a lower level of cash reserve. This investment process helps to measure and manage market risk.
Because of this, the fear associated with the uncertainty of the market can be replaced by the security of a sound investment strategy.