This is the final Market Risk Report of April 2019. From Chief Investment Officer Tom Veale,
“This week we see all four Market Risk Indicator components (MRI) rising in their own risk territories. All four come in neutral, but the rise was enough to push the MRI to an indicated 27% suggested cash reserve for diversified stock portfolios.
That is a two point rise this week and puts the MRI one point above its median value. The MRI Oscillator rings in at +5 suggesting more rapid upward risk pressure. This is occurring as the NASDAQ Composite and the S&P 500 Index both hit new all-time highs.
The 13 Week Treasury Coupon Rate was 2.422% at this previous week’s close. Value Line shows an average yield of 2.2% for stocks paying a dividend in their 1700 stock universe. This suggests the risk free rate of return is now beginning to compete successfully with common stock average returns.
It has been a very long time since we’ve had this sort of comparison. Through the years of quantitative squeezing of short term rates stocks had higher yields by more than two percentage points. That was quite rare, historically.”
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.