2025 | April Risk Odometer
Our Risk Odometer moved down from +3 to +1 this month, causing us to downgrade our outlook from “Positive” to “Cautiously Positive”. The downgrade in our Risk Odometer and Outlook is primarily related to heightened volatility related to tariffs.
Tariffs are not an input to our Risk Odometer, but they are indirectly impacting our individual risk indicators, such as Technical Price Action and Volatility. These indicators have recently turned from positive to neutral causing a downgrade in our outlook.
The uncertainty around tariffs is causing a slowdown in the economy. The slowdown has not been dramatic, though, and the labor market remains healthy. Maintaining a healthy labor market is the most important element to avoiding a recession. We believe the longer the tariffs remain in place and/or the longer they create economic uncertainty, their indirect impact will bleed into more of our risk indicators, specifically Economic Indicators and Earnings.
Earnings growth remains positive but is also slowing. Analysts have downgraded their outlook for first quarter S&P 500 earnings from 11.1% in November (prior to tariffs becoming a focal point) to 6.7% currently. For all of 2025, analysts have downgraded earnings growth from 12.5% to 9.4%. This is still positive growth, but the downward trend is alarming to us.
We continue to believe Trump is using his tariff policy as leverage to renegotiate terms of global trade. We believe he is shooting for the moon at the onset and will negotiate lower as time passes. This should alleviate risks and improve the outlook going forward. As disciplined investors though, we recognize there are risks to how Trump is executing his good intentions. We believe there is a greater chance this matter resolves itself in a positive manner, but we cannot deny it has raised risks and have downgraded our outlook to reflect this reality.
Despite risks rising we continue to believe the capital markets are still the best way to grow your wealth. Our markets have endured many recessions and economic shocks and have always eventually recovered. The short-term can be volatile though. The intention of the Risk Odometer Report is to focus on some of the more relevant short-term dynamics to help us dynamically tilt our portfolios to be more aggressive or conservative. Near-term risks do not impact our long-term belief that investing in capital markets is still the best way to grow your wealth.
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.