Market Risk Report as of October 12, 2020

From Chief Investment Officer Tom Veale,
“If we’re checking the immune system response of the Stock Market, we’d have to conclude it’s been taking its vitamins and getting plenty of exercise. The major indexes are again flirting with new highs even with the Presidential Election and uneven earnings expectations on the near horizon. We enter the 12th week of our Market Risk Indicator giving a bearish signal with a reading of 35, unchanged from last week.”

“The MRI Oscillator comes in at +2 showing modest upward pressure on risk this week. Two components continue to contribute to the MRI’s bearish stance. The Relative Valuation Index remains bearish with uncertain Price to Earnings reports to soon be released. The IPO Activity Index is now 3 weeks into its own bearish range with the number of available stocks for investors to consider swelling rapidly. We’ve mentioned before that new issues act in a dilutive way by syphoning more speculative investing dollars away from the established listed stocks.

Interest rates from government debt remain unattractive while stocks offer at least reasonable yield. This week’s Value Line report shows, out of their 1700 stock universe, an average dividend yield of 2.3% can be expected from those stocks that pay dividends. This is slightly above the 2.2% historical average yield.


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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