04 Nov Market Risk Report as of November 4, 2019
From Chief Investment Officer Tom Veale,
“Consider this: The NASDAQ Composite and the S&P 500 Indexes closed at 12 month highs and new records last Friday. Even with that the SignalPoint Market Risk Indicator remains below its median value since 1982 and slightly bullish. At 24% suggested cash reserve for diversified stock portfolios it is again unchanged this week. We see slight upward risk pressure in the MRI Oscillator with its +3 reading this week.
Earnings for Q3, 2019 have continued to support the markets through the end of October and bode well for Q4. Year-To-Date gains in the major indexes show around +20% right now. Year-over-year gains are all double digits but not as generous as the YTD gains.”
“All four MRI components are in their own neutral range as is the MRI itself. Most components remained nearly unchanged from a week ago. Further we find that market breadth remained healthy last week with advancing stocks outnumbering decliners by better than a 2:1 margin.
The Yield Curve, which has been troubling for most of 2019, has flattened out from short term paper all the way through the 10 Year Treasury coupon rate. While not the same upward slope as a year ago it would be hard to call it “inverted” right now. If we compare the Value Line Median Yield for dividend paying stocks to the 13 Week Treasury Coupon rate we find that stocks seem a better value right now (VL Yield = 2.2% vs 1.654% T-13 Coupon rate).”
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.