Market Risk Report as of June 12, 2023

From Chief Investment Officer Tom Veale,

So far the stock market’s recent move upward hasn’t put much upward pressure on market risk.

In fact, we’ve seen the MRI decline slowly since late April of this year. That’s about when the most recent market rally started, by coincidence. This is unusual. Generally our Market Risk Indicator trends with the markets, not against. What’s different this time? Since late April, 2023:

  • Value Line’s Price to Earnings ratio has declined from 17.3 to 16.5 (good news)
  • CPI Inflation Rate has been in decline, dropping about a half point (good news)
  • SignalPoint’s Speculation Index has declined from around “8” to around “3” (good news)
  • SignalPoint’s Divergence Index has remained generally “neutral” (good news)
  • SignalPoint’s IPO-New Issues Index has remained proactive, showing very little activity (good news)

While these positive signs are welcome, as is the general market improvement, this is all looking in the rear view mirror. It is still unclear whether we’re still facing possible recession later this year or next. The Federal Reserve still feels it’s efforts in controlling inflation are incomplete. There are still several geopolitical hot spots that need to de-escalate for comfort. In other words, “Headlines” will still be affecting where the markets go next.

We decided to look at SignalPoint’s Relative Valuation Index as it contrasts with the Garzarelli calculation and then with Value Line’s P/E plus their weekly Dividend Yield to see if we could gain some clarity. Here’s how the three compare since the start of 2021.

Our Relative Valuation Index combines Value Line’s P/E with the larger of either the 13 Week Treasury Rate or the CPI Inflation Rate. The Garzarelli Index combines Value Line’s P/E with only the short term treasury rate. Finally, the Value Line P/E is combined with Value Line’s weekly Dividend percentage. What becomes apparent is that the Garzarelli Index missed in not being immediately responsive to inflation. Our Relative Valuation Index showed greater caution through this time frame. Lastly, we see the P/E + Dividend shows stock yields have yet to respond to higher interest rates and remain less competitive than short term Treasuries. So, we see one cautious, one about neutral and one somewhat bullish. However, only our Relative Valuation Index has actually declined since the first of 2023.

Best regards,

Tom Veale

The SignalPoint Market Risk Indicator dropped another point to 29 this week. The MRI Oscillator remains at minus 1, indicating a slight downward pressure on market risk. Relative Valuation remains cautious while IPO-New Issues remains proactive. Speculation and Divergence remain neutral.

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