04 Jan Market Risk Report as of January 04, 2021
From Chief Investment Officer Tom Veale,
“Wishing that market risk was less doesn’t seem to be working for the start of 2021. The SignalPoint Market Risk Indicator remained unchanged and bearish at 38 for the 24th straight week. The MRI Oscillator remains at +5 indicating upward risk pressure remains. Three of the four MRI components are also bearish while the sentiment indicator (Divergence Index) remains bullish.”
“The roll-out of the Coronavirus antiviral continues and should expand in daily inoculations rapidly over the next month. This should help get people back to work, help lower the number of new hospital admissions and get our schools back on more normal schedules. Further, as the percentage of the population that has been immunized increases both domestic business and leisure travel should start to resume. With 350 million people in the U.S. to treat it’s going to take some time.
Earnings for the last Quarter of 2020 will start to be reported over the next month and this will tell us if the current high Price/Earnings ratios are early in their anticipation of economic recovery. There is very little room for disappointment on the earnings front. Since interest rates are about as low as they can go, our Relative Valuation Index remains bearish with no relief available except remarkable earnings or a broad market correction. Further, broad based speculation in equities continues. Our Speculation Index shows it takes a 13-week gain of 88% to make Value Line’s “Best Performers” list where a drop of just 10% over the same period puts a company on the “Worst” list. Clean Energy companies have been on a race to the mountain top with the Value Line Best Performer coming in with a 13-week gain of 247%. By comparison the Worst Performer is down just 37% over the same period. This can’t be sustained.
SignalPoint’s diversified portfolio strategies are holding cash in reserve for any unfortunate trip-up that the markets may see in 2021. Portfolio performance during a difficult year was good with U.S. domestic stocks doing better than most exUS equities. Late in 2020 some improvement in emerging markets brought that segment up. Fixed Income yields remain very low by historical measures and offer little incentive over holding stocks. We will continue our vigilance in capturing profits where it seems appropriate and searching for opportunities for future gains.
Value Line dropped Waste Management (WM, yield 1.82%) from its Model Portfolio II this week and replaced it with J.P. Morgan (JPM, yield 2.92%) stating that JPM’s superior yield and upside appreciation potential give it a brighter future than WM has currently. No changes were made to VL’s Portf III this week. “
Best regards and Happy New Year,
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.