Broker Check

2024 | March Risk Odometer

For the second consecutive month, our Risk Odometer score deeply in positive territory at +3 and our Current Outlook remains at its highest level of “Positive”.  All of the individual indicators remained unchanged from the previous month.

Despite our Risk Odometer remaining unchanged this month, we are growing more optimistic on the markets.  Our only indicator flashing a warning sign is Economic Indicators.  Although it remains negative it has begun to improve.  Despite it being a historically reliable indicator, we discount our concern at this time with the number of offsetting positive indicators and its initial stages of improvement.

Another positive sign for the markets is their ability to trade so well this year despite the rise in interest rates.  The recent stock market rally began in late 2023 when the Fed hinted that they were done raising rates.  Following that, rates fell, and stocks rallied.  Yet this year, the timing of eventual rate cuts keeps getting pushed back and rates have begun to rise.  Despite their rise this year, stocks continue to climb, a further sign of strength.

While not part of our Risk Odometer, the US presidential election remains an upcoming event that could cause market volatility.  We are not concerned about the event at this time because we do not believe that either outcome will necessarily be a concern for the markets.  With a Biden victory, the markets would interpret it as “status quo” which is typically a positive outcome for markets.  A Trump victory could cause unknown changes, which typically is negative for markets, yet his policies have typically been market friendly.  For these reasons, we do not see the presidential election as a major risk at this point.

Our biggest concern for the markets remains a slowing economy, which we are not witnessing at this point.  Growth remains above trend and the labor market healthy.  Higher interest rates have not yet had the impact they have historically had on the economy.  We will continue to monitor whether they will have a widespread impact which could slow growth and increase unemployment.

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.