2024 | June Risk Odometer

For the fifth consecutive month, our Risk Odometer remains unchanged and deep into positive territory at +3 with a Positive Outlook. All of the individual indicators also remain unchanged for the fifth consecutive month.

The lack of change in our Risk Odometer is common when the economy chugs along in a resilient manner as it has been this year. Despite elevated interest rates and inflation, the economy continues to grow, company earnings continue to grow, and the labor market remains healthy. The steady Positive Outlook in our Risk Odometer is reflective of the resilient economy which has powered the stock market higher this year.

With the Fed expected to keep interest rates steady for the near future and the economy remaining resilient, we struggle to identify risk factors that will have a meaningful impact on the markets. We have often been concerned with elevated rates, an inverted yield curve, and negative Leading Economic Indicators. We continue to discount these concerns given the overwhelming offsetting positive indicators in our Risk Odometer.

We are not concerned about the risks surrounding the upcoming presidential election. Although there will be some short-term uncertainty, we do not see either outcome of the election as bad for markets. A Biden victory will be status quo which is typically a good thing for markets. A Trump victory should also be positive given his previous market friendly policies.

At this point, our only credible concern would be the economy slowing dramatically and entering a recession. We believe the economy’s growth has recently cooled but it does not concern us at this point given how resilient it has been over the last few years. We would have to witness a dramatic slowdown before the concern rises. We will monitor and adjust to it, but we do not see it occurring in 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.