Market Risk Report as of August 21, 2023

From Chief Investment Officer Tom Veale,

Settling back from its cautious territory this week, the Market Risk Indicator is responding to drops in all the major indexes. One of its components was unchanged while the remaining three dropped in their own risk ranges.

Currently the average dividend of the Value Line 1700 Stock Index is at its median point of 2.2% yield. This isn’t high enough to compete with the 13 Week Treasury Coupon Rate of 5.456%/yr but does offer a first step toward reasonable total return. With the Value Line P/E at 16.9 being above its median value (16.1) we see this as resistance to the markets upward 2023 move so far. In the meantime some of the earlier investment enthusiasm has paused for a rest.

Another market risk measure we study is derived from Value Line’s weekly “Appreciation Potential” numbers. You’ll notice similarities to the Market Risk Indicator’s pattern and the one called the v-Wave.

Note it also has shown good correlation with market direction. It was approaching a cautious level recently as the three indexes were rising. The v-Wave also did a pretty good job of suggesting a lower risk profile in late 2022. We offer this not as a guide in place of the MRI but to show Value Line’s black box of “Appreciation Potential” is also sensitive to market risk for investors.

Best regards,

Tom Veale

The MRI dropped one point to 32 this week and the MRI Oscillator switched from +2 to -1. A slight negative Oscillator indicates risk pressure is declining. This makes sense as the major stock indexes pause and consolidate their gains.

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