Market Risk Report as of June 1, 2020

From Chief Investment Officer Tom Veale,
“At this point in the market’s recovery from the March lows it seems appropriate to look at our Market Risk Indicator in a couple of ways. First, this week the MRI rises another point to 17 and shows significant upward risk pressure with the MRI Oscillator at +7.”

”The dramatic fall of market risk earlier in the year is now drifting back toward the mean and more normal market risk levels. That’s quite livable if one looks at 2019 as an example. In that year the markets rose nicely even as the MRI remained close to its median value.

If we look at the MRI data as the amount it shows above or below the median value and accumulate it we see that positive Slope occurs when market risk is above median and negative Slope when below. Note how Slope was near zero during much of 2019 with cumulative risk effect being negligible.”

“The steep negative slope of the Cumulative MRI since the market’s decline shows how much the bullish aspect of the MRI has affected it. While the MRI is now almost back to its Neutral range this is now the 11th week of it being Bullish. I hope the MRI has helped both you and your clients during this unusual time.

Two components remain neutral this week with two being bullish. The Speculation Index component is on the cusp of returning to its Neutral level after 13 weeks of bullish signals. It and the Relative Valuation Index were the first to signal bullish conditions the week of 03/13/2020. Even while measuring two different aspects of the market they sang in perfect harmony as the markets bottomed.”

 

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.

 

 

 

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