2024 | December Risk Odometer
Our Risk Odometer remained at +3 and our outlook “Positive” for yet another consecutive month. Strong equity markets, which have been the norm for the past few years, can be boring for reporting risk factors because we are not identifying many. Though boring for risk reporting, it is typically positive for investors account values.
The US economy appears to be a large tanker, on a mission and difficult to knock off course. Despite higher interest rates, economic growth remains above long-term trend growth rates, and appears to be accelerating in the final quarter. Earnings in 2024 are expected to finish with growth rates near 10% and accelerate even higher in 2025. Volatility remains low and supportive of the stock market. Technical price action also remains supportive with momentum on its side. The only risk factor the Odometer identified is Economic Indicators, but this warning is offset by the strong economic growth we are witnessing and all other indicators which consistently remain positive.
Our concerns outside of the Risk Odometer remain the uncertainty the Trump tariff policy may have. We know Trump is a norm buster and much of what he says can be discounted as negotiation tactics. Nevertheless, he seems to thrive on unpredictability, and this will remain a concern going forward. Yet, since this is only in theory and yet to be implemented, its impacts are not existent. We discount those concerns but remain on high alert for measurable warning signs. If we do get warnings signs, we would expect to see it in our Volatility indicators first.
Despite the uncertainty Trump may bring, we continue to view his election victory as supportive for equity markets. His pro-growth policies and his agenda to lower taxes, cut wasteful spending and deregulate industries should be a tail wind for the equity market for the next four years. We envision our Risk Odometer remaining positive for the near future.
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.