Market Risk Report as of September 28. 2020

From Chief Investment Officer Tom Veale,
“Another troublesome week passed with SignalPoint’s Market Risk Indicator (MRI) still bearish at 35 for the 10th consecutive week. The MRI Oscillator is minus 1 indicating only mild pressure to reduce risk.”

“Two components of the MRI are in their own bearish territories, the Relative Valuation Index and the IPO Activity Index. Relative Valuation is 13 consecutive weeks in its bearish range and, while the IPO Activity component has been rising for a while, it is only in its 1st week of being bearish. Increases in the number of issues available for investors tends to be bearish in that it offers new alternatives to traditional stocks as investment vehicles and is therefore dilutive. With quarterly earnings season about to start we will see if there is any relief for valuations going forward.

Federal Reserve interest rate management has changed the concept of ‘Safety’ with government bond funds not offering much as flight destinations. The following table gives an idea of the oddity of the yields and risk/reward profiles:

Yield of Various Classes of Investment

9/25/2020

Category Current  Yield
TIPS ETF 0.81%
20+ Year Treasury ETF 1.95%
1-3 Year Treasury ETF 2.05%
7-10 Year Treasury ETF 2.05%
Corp. Conv. Bond Fund 2.52%
Short Term Corp Bond ETF 2.57%
US LargeCap Dividend ETF 2.84%
Intl Midcap Dividend ETF 2.88%
Investment Grade Corp Bnd ETF 2.91%
Intl SmallCap Dividend ETF 3.18%
US MidCap Dividend ETF 3.37%
US SmallCap Dividend ETF 3.45%
Intl High Dividend ETF 4.35%
REIT ETF 4.55%
Emerging Markets Dividend ETF 5.33%
Preferred Stocks ETF 5.59%

Last week’s trading even frustrated gold/precious metals investors as a safe haven as a small amount of tarnish appeared. Much like the airlines, Destinations available for Flights to Safety seem to have limited seats available. Some might want to say, ‘You can’t get there from here’.”

 

 

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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