Market Risk Report as of October 21, 2019

From Chief Investment Officer Tom Veale,
“This is the 6th week of the MRI being at 24% suggested cash reserves for diversified stock portfolios. All four components are in their neutral territory as is the overall MRI value (Median value is 26%). The MRI Oscillator comes in at +1 suggesting only slight upward risk pressure after last week’s trading.”

“It appears the markets, rather than fretting about “trade wars”, have decided to await whatever the outcome might be. We see market breadth improving along with better consensus from investors. A neutral MRI doesn’t mean there’s no market risk, only that it is more toward the center of the historical bell curve of risk data.

 Current inflation (CPI “All Urban”) is still higher than the current 13 week Treasury Coupon rate. Both are historically low at this point with treasuries of all maturities well below historical norms. Typically the 13 week Treasury Coupon rate is higher than the CPI inflation rate but that hasn’t been the case for most of the new Millennium.”

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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