Market Risk Report as of October 5, 2020

From Chief Investment Officer Tom Veale,
“The news is beginning to play as a Soap Opera might with lots of drama, head fakes and raised eyebrows. As the plot thickens we’re now seeing the 11th week of our Market Risk Indicator (MRI) being in its bearish territory with no current relief. The MRI remains at 35 this week, two points above the bearish threshold. The MRI Oscillator is ‘0’ showing no upward or downward risk pressure.”

“Three MRI components rose this week with only one declining. Two remain in their own bearish territories (Relative Valuation and IPO Activity indexes) while two are neutral. As mentioned before, having a bearish signal from the MRI doesn’t mean the world is going to end, just that the likelihood of average or above average returns is less than the chance the markets will be flat to downward over the short term.

The Value Line “Worst Performers” list is still littered with stocks from the Energy related sectors while the “Best” list has several stocks that reacted favorably to the C-19 pandemic. It currently takes nearly a 52% gain in the latest 13 weeks for a company to make the “Best” list while a drop of just 26% will find a company listed on the “Worst.”

Current bond fund yields continue to be well below historical levels. By comparison, the median yield shown by Value Line is currently 2.3% for all stocks in their universe that pay dividends. For those interested in yield it appears that even though valuations are high on the stock side, the dividends are also better than most points on the Yield Curve.”


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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