From Chief Investment Officer Tom Veale,
“This week’s MRI value stays the same at 28% suggested cash held in reserve for diversified equity accounts. The MRI Oscillator stands at +1 showing very little upside risk pressure. Again this week the Relative Valuation Index declined on a combination of good earnings and market indexes dropping. It is now back below its median value and makes room on the upside for either P/E expansion or for interest rates to rise. The Speculation Index is modest but our Divergence Index is the main driving force of the current MRI value. It’s in its second week of being bearish. As seen below, the confusion generated by tariff and trade news has investors confused, which shows up well in our Divergence component.”
Also included in this week’s Market Risk Report is the histogram of the Divergence Index, which is shown below and mentioned throughout Tom’s statements.
Continuing with Tom, “Without the pressure from the Divergence Index the overall MRI would most likely fall below its median value. We continue to watch for other signs of risk pressure but only our shortest term component, Divergence, has been sensitive to the current news cycle.”
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.