From Chief Investment Officer Tom Veale,
Market Risk and Potential are related. When we last had the SignalPoint Market Risk Indicator at this level (mid-2022) and showing median risk, we then had a recovery in the S&P 500 Index of around 10% through mid-2023. So, risk was modest and returns over around 12 months were positive. Lower risk, higher potential for positive returns going forward.
It appears we’re near that same measurable risk level now. Does this guaranty better market returns over the next 12 months? Sorry, no guarantees here, but there is certainly better potential for positive returns than when the mid-Summer 2023 peak was realized. The other side of this coin is now there is also less downside risk.
The MRI’s four scans of the market internals show:
- Market Valuations are down considerably from the end of July, 2023 (SignalPoint’s Relative Valuation Index is now 21.6 compared to 23.7 then)
- Speculative activity is well off from the end of July (SigtnalPoint’s Speculation Index is now -0.4 compared to +15.0 back then)
- Investor consensus on market direction is better aligned from the end of July (SignalPoint’s Divergence index is down to 2.4 from 3.6 at July’s end)
- IPO and New Issue activity remains very low as it has been since the end of July, 2023 (-2.5 now vs -2.9 at the end of July)
We’re in the last Quarter of 2023 and there will be tax loss selling from now through the end of the year. This will most likely make ‘bad” performing stocks look worse with the added selling pressure. Short term money market funds now yield far more than the average stock dividend, so it can be assumed cash raised from loss sales will sit on the sidelines until the start of the new year. (13 Week Treasury Coupon Rate = 5.5%/yr)
We continue to monitor our equity inventories for profit opportunities through sector rotation and other actions.
Best regards,
Tom Veale
This week’s MRI comes in down another point at 25 with an MRI Oscillator value of minus 2. None of the MRI’s components are currently in their cautious territories. Two are currently giving ‘proactive’ signals.
