Risk Odometer

The Equity Market Risk Odometer is a rule-based system for judging risks in the equity markets. We use it as a guide for making tactical asset allocation decisions between higher yielding equity securities and defensive bond securities. We use the Risk Odometer to help guide our investment decisions in our Core Equity Strategy, our flagship strategy we use to manage client assets.

LEARN MORE ABOUT OUR RISK ODOMETER

 

2018 | December Risk Odometer

FCWS View December 2018 | Outlook: Cautiously Positive
Tuesday, 04 December 2018

2018 | December Risk Odometer
Current Outlook

Cautiously Positive

Our Risk Odometer remained stable at +4 this month and the current outlook remains as “Cautiously Positive”. Despite the modestly high Odometer reading, many of the indicators sit near inflection points and could quickly turn from positive to negative. This means our outlook could easily change in the coming months.

Intra-month, the Risk Odometer had dropped to +2 but recovered to +4 by month end following a sudden market turn-around at the end of November. It is key during these inflection points to monitor incoming data and remain objective. Recently, markets have moved with unprecedented speed and velocity and this can elicit many emotional responses. In these environments it is best to divorce yourself from those emotional responses and have a plan for dealing with unavoidable aspects of the markets. Ideally, these plans are disciplined and objective. This is the objective of our Risk Odometer, to provide a disciplined and objective approach and avoid emotional responses. It will never be perfect, but it will provide a structure for removing emotions from challenging decisions.

2018 | November Risk Odometer

FCWS View November 2018 | Outlook: Cautiously Positive
Thursday, 08 November 2018

2018 | November Risk Odometer
Current Outlook

Cautiously Positive

Our Risk Odometer had its first move lower in many months, moving from 6 down to 4, causing our Outlook to change from “Positive” to “Cautiously Positive”. This is our first outlook change in several years and reflects prudent risk-mitigation steps we have taken in our proprietary strategies. Most of our indicators remain positive and we continue to have a positive outlook about the US Economy, but recent market developments have created some caution around that stance. Should the recent developments recede, we would return to a Positive outlook, and if conditions deteriorate, we would take further risk-mitigation steps and further lower the outlook. Our investment stance has always been that we do not believe in predicting the markets, rather we react to the data we know in a consistent and disciplined fashion. This stance keeps us objective and removes our emotions from the decision process. Emotions are our enemy in the challenging world of money management.

In last month’s Risk Odometer synopsis, I highlighted some of the potential risks (valuations, rising rates, trade wars) but noted they were not having a material impact on the markets. That gave way in October as equity markets experienced sharp corrections. There was no obvious reason that caused the sharp corrections. Events like this serve as a reminder that volatility should be expected and anticipated. Having a plan for dealing with inevitable fluctuations can make substantial differences to long-term returns. Our advice has always been to remain objective with consistency and discipline.

2018 | October Risk Odometer

FCWS View October 2018 | Outlook: Positive
Thursday, 11 October 2018

2018 | October Risk Odometer
Current Outlook

Positive

Our Risk Odometer remained Positive and unchanged yet again at +6 for the fourth consecutive month. The Odometer has had a Positive outlook since March 2016. The high reading continues to keep our big picture outlook positive. The foundation of the Odometer, The Big Three (Economic Indicators, Earnings and Technical Price Action), continue to confirm the positive outlook, further solidifying our stance.

 

2018 | September Risk Odometer

FCWS View September 2018 | Outlook: Positive
Wednesday, 12 September 2018

2018 | September Risk Odometer
Current Outlook

Positive

Our Risk Odometer remained Positive and unchanged at +6 for the third consecutive month.  The Odometer has had a Positive outlook since March 2016.  The high reading continues to keep our big picture outlook positive.  The foundation of the Odometer, The Big Three (Economic Indicators, Earnings and Technical Price Action), continue to confirm the positive outlook, further solidifying our stance.

 

2018 | August Risk Odometer

FCWS View August 2018 | Outlook: Positive
Wednesday, 08 August 2018

2018 | August Risk Odometer

Our Risk Odometer remained Positive and unchanged at +6 for August.  The high reading continues to keep our big picture outlook positive.  The foundation of the Odometer, The Big Three (Economic Indicators, Earnings and Technical Price Action), are confirming the positive outlook, further solidifying our stance.

2018 | July Risk Odometer

FCWS View July 2018 | Outlook: Positive
Wednesday, 11 July 2018

2018 | July Risk Odometer

Our Risk Odometer turned up one notch for July to +6. The change, largely irrelevant given the high reading, was attributable to Reportable Positions going from negative to neutral.

2018 | June Risk Odometer

FCWS View June 2018
Wednesday, 13 June 2018

2018 | June Risk Odometer

Our Risk Odometer remains unchanged for the month of June at +5.  This continues to be a very high score, maintaining the positive outlook for the stock market.  The foundation of the Odometer, The Big Three (Economic Indicators, Earnings and Technical Price Action) continue to maintain a positive outlook.


Disclosures:

This information does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may view this information. Statements, opinions and forecasts made represent a particular observation and assessment of the market environment at a specific point in time and are not intended to be a forecast of future events or a guarantee of future results. Statements regarding future prospects may not be realized and may differ materially from actual events or results. Past performance is not indicative of future performance.Each investment type has different investment risk characteristics. Risk is the variability of investment returns.An investment in a money market fund is not insured or guaranteed and seeks to preserve the value of your investment at $1.00 per share. It is possible to lose money by investing in a money market fund. U.S. Treasury bonds are guaranteed as to the timely payment of principal and interest.

TIPS offer a lower current return to compensate for the inflation protection. TIPS are tax inefficient and should belong in tax-deferred accounts.Tax-exempt municipal bonds offer the opportunity to maximize your after-tax return consistent with the amount of risk you're willing to accept. Municipal bonds offer a higher net yield to investors in higher tax brackets. Municipal bonds may be subject to AMT. Corporate bonds are considered higher risk than government bonds. Corporate bonds have higher interest rates than government bonds. The higher a company's perceived credit quality, the easier it becomes to issue debt. High yield bonds experience higher volatility and increased credit risk when compared to other fixed income investments. Bonds have fixed principal value and yield if held to maturity. Prices of fixed-income securities may fluctuate due to interest rate changes. Investors may lose money if bonds are sold before maturity. REITs do not necessarily increase and decrease in value along with the broader market. However, they pay yields in the form of dividends no matter how the shares perform based on different criteria than stocks. Stocks can have fluctuating principal and returns based on changing market conditions. The prices of small company stocks generally are more volatile than those of large company stocks. Growth stocks are more volatile than value stocks. International investing involves special risks not found in domestic investing, including increased political, social and economic instability. Investing in emerging markets can be riskier than investing in well-established foreign markets. The price of physical materials is subject to supply and demand. It is not possible to invest directly in any index. The performance of an unmanaged index is not indicative of the performance of any particular investment. The performance of an index assumes no transaction costs, taxes, management fees or other expenses. Past performance does not guarantee future results.

Sector investing that concentrate its investments in one region or industry may carry greater risk than more broadly diversified investments.There is no assurance that by assuming more risk, you are guaranteed to achieve better results.Historical performance relative to risk and return points to, but does not guarantee, the same relationship for future performance. Diversification through an asset allocation plan is a useful technique that can reduce overall portfolio risk and volatility. Diversification neither ensures against a profit nor protects against a loss. Diversification offers returns which are not directly related over time and is intended for the structure of a whole portfolio to reduce the risk inherent in a particular security.

Data Source: YCharts

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Michael Fickell is an investment advisor representative of FC Wealth Solutions
Securities and investment advisory services offered through FC Wealth Solutions, a registered investment advisor.


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