From Chief Investment Officer Tom Veale,
The early Summer rally has been helpful for most investors so far. It has favored very large cap stocks to a greater degree than the mid and small caps, however. In last week’s Risk report we discussed the unusual nature of the rally versus the downward trend of market risk. This week’s data seems to have corrected that oddity. Our Market Risk Indicator reversed course and moved slightly upward with all four MRI components rising in risk profile, also.
Maybe it’s just taken the MRI time to catch up with the markets positive attitude. Or, maybe those few leading stocks are now being joined by more dormant areas of the market. We are watching market breadth along with new highs and lows in this regard. Breadth has been improving and new 52 week highs are outnumbering new lows.
With the rise in stock prices we’re seeing the Price to Earnings ratio moving upward, too. The 13 Week Treasury rate has been relatively steady at 5+% for some time now. Average stock dividend yield is softening (2.3%/yr) with the rise in stock prices. With a differential between dividends and short term interest rates, the markets are going to need compelling positive news to keep the rally moving forward. Low risk treasuries currently outshine average stock dividends.
SignalPoint’s Market Risk Indicator moved upward one point to 30 this week. The MRI Oscillator moved to +4 indicating upward risk pressure building. As mentioned, all four MRI components moved up in risk profile this week.