Broker Check

2023 September Odometer

For the fifth month in a row, our Risk Odometer remains unchanged at +1 with a Current Outlook of “Cautiously Positive”.  The indicators below the hood continue to paint the same picture, positive technical indicators and negative fundamental indicators.  The number of positive technical indicators continue to outnumber the negative fundamental indicators, therefore giving us a “Cautiously Positive” outlook.


Each continued month with a “Cautiously Positive” outlook increases our confidence, yet our caution in the markets has not fully subsided yet.  Although the US economy remains remarkably resilient this year, our fundamental indicators, which are more forward-looking than readings on current economic growth such as GDP or labor market statistics, remain negative.  We would be much more confident if our forward-looking fundamental indicators confirmed the positive technical indicators we have been witnessing for many months. 


Our best guess for why we are witnessing this continued dislocation of negative fundamental indicators, yet a resilient economy, is the lagged effect of interest rate increases.  Monetary policy (i.e., higher interest rates) impacts the real economy with long and variable lags.  The recent lag has been longer than most anticipated.  Some are starting to question whether they will ever have the intended consequences of contracting economic growth to reduce inflation.  We share those questioning thoughts but prefer to use history as a guide rather than believe this time is different.  We will use our indicators as our guide.  For now, that leads us to a cautiously optimistic outlook that is improving over time but still with some doubt.


We want to be clear that although we have some near-term caution, we still believe the stock market is one of the best ways to grow your wealth.  The boom-bust characteristics of our economy can cause the stock market to be very volatile over short periods of time.  Long-term investors should view periods of volatility as opportunities to buy attractive assets at attractive prices and improve long-term returns.  The Risk Odometer is our objective way of mitigating that volatility, so it does not lead us to make poor short-term investment decisions.


As always, we continue to believe our Risk Odometer provides guidance in making better investment decisions because it keeps us objective and disciplined.  We use this methodology and advise our clients to do the same.  Emotions are our enemies in investing. 


It is important to understand that our Risk Odometer is not designed to anticipate small to medium corrections, typically those in the 5-15% range.  Instead, it monitors for conditions which have typically preceded larger corrections.  We believe trying to anticipate small to medium corrections sounds attractive but more often results in lost opportunity than savings.


The Equity Market Risk Odometer is our guide for judging risk in the equity market.  It is used as a guide for investment decisions in our proprietary investment strategies.  It is composed of various indicators based on leading economic indicators, earnings, technical price action, breadth, and volatility.  Its score can range from +5 to -5.  Readings greater than one are positive and readings less than or equal to zero are negative.