24 Feb Market Risk Report as of February 24, 2020
From Chief Investment Officer Tom Veale,
“The bad news is markets gave back over a percent and a half last week. The good news is the U.S. markets are still up for the Year-To-Date. Headlines have been driving the markets with mood swings of interesting proportions. The SignalPoint Market Risk Indicator (MRI) in attempting to filter the noise out of the moves shows 28% suggested cash being held in reserve for diversified stock accounts, unchanged from the previous two weeks. The MRI Oscillator is +1 showing slight upward pressure on market risk.”
“There wasn’t much movement in the MRI Components last week with two up, one down and one unchanged. All remain in their neutral ranges as is the overall MRI this week. Our Relative Valuation, IPO Activity and Speculation Indexes are all close to their median values with just the Divergence Index being above median.
While average risk doesn’t mean “no risk” it does suggest that it is manageable with a process designed to be proactive during market swings. Our current cash reserves appear to be appropriate for current market conditions.”
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.