2024 | September Risk Odometer

Our Risk Odometer moved back up to +3 in September after briefly falling to +2 last month.  Despite the recent small changes, our Current Outlook remained at Positive, where it has been all year.  Slight changes up and down are common but not always meaningful.  Our ensemble approach of multiple indicators is what helps us decipher noise from more meaningful risks.  Recently, they appear to be noise.  The big picture remains consistent, which is a positive outlook despite some near-term volatility.

While last month proved to be noise, there are some noteworthy events on the horizon which could have more meaningful impacts.  The Federal Reserve is widely expected to begin to lower rates at their September meeting, reversing their aggressive rate hikes in 2022 and 2023 which took rates to their highest levels since 2000.  Although the level or rate of change of interest rates is not a direct input to our Risk Odometer, it will have indirect impacts.  Interest rate declines are widely accepted as positive forces for both the stock and bond markets.  We believe this has been and should continue to provide positive tailwinds for our indicators and the markets.

The second major event on the horizon is the US presidential election.  This will garner much more media attention than interest rates.  As we have stated many times, we do not view the election as a major risk event.  Markets tend to experience volatility leading into the election and rally following it, despite whether a Democrat or Republican wins.  We do not believe either candidate to be a bad outcome for markets in general.  For this reason, we believe the Fed’s stance on future rate cuts will have more impact on the markets than the election.

We remain concerned about a slowing economy, but we do not envision it turning into a contracting economy in the near future.  The Feds desire to lower rates alleviates some of those concerns.  We will continue to monitor it closely.

 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.