2025 | August Risk Odometer

The Risk Odometer remained stable at +3 with a “Positive” Current Outlook.  The outlook improved last month to its highest level after a surge in warning signals following the introduction of higher-than-expected tariffs in April.  The markets have traded very well following peak tariff fears and our Risk Odometer is confirming.

As tariff bombshells reside and the One Big Beautiful Bill is in the rear-view mirror, fear-mongering headlines have abated as well.  Lack of fear keeps sellers away, which is beneficial for markets.  This has allowed the stock market to quietly grinder higher.  Seasonality helps too as trading desks are lightly staffed in the later summer months.  “Never short a quiet market” is an old Wall Street saying and recent stock market gains is a reminder of that.

Many Wall Street analysts were expecting slowing economic growth and tariff impacts to negatively impact corporate earnings.  Those fears did not materialize in the latest corporate earnings reports.  This served as a boon for markets and also helped propel them higher.

All of our individual indicators remain positive with the exception of Leading Economic Indicators.  That indicator has been negative for the majority of the past several years.  With this being offset by all the other positive individual indicators, we ignore it as a false signal.  False signals across many indicators are common.  This is why we implement an ensemble approach to analyzing risk indicators.

As prudent risk managers of our client’s capital, we are always looking for risks that could derail markets.  Optimism is necessary for successful investing, but blind optimism is dangerous for protecting capital.  Although the majority of the indicators we track have us feeling optimistic, there are some risks we are monitoring. 

The most recent monthly employment report, arguably the most market-moving statistic, raised some concern this month when it showed weakening labor market gains and severely revised down previous month’s growth as well.  The revisions were the most troubling aspect because it showed that the economy was slowing more than previously thought over the past three months.  Time will tell as more data will confirm or discredit the thesis of a slowing economy.  For now, it stands as something we are monitoring which could have a large impact later but not material yet.   

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.

_______________________________________________________________________________________________________________________

^{This information does not have regard to the specific investment objectives, financial situation and the needs of any specific person who may view this information.  Statements, opinions, and forecasts made represent a particular observation and assessment of the market environment at a specific point in time and are not intended to be a forecast of future events or a guarantee of future results.  Statements regarding future prospects may not be realized and may differ materially from actual events or results.  Past performance is not indicative of future performance.}

^{FC Wealth Solutions and its representatives do not provide legal or tax advice.  You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.}

^{Michael Fickell is an investment advisor representative of FC Wealth Solutions}

^{Securities and investment advisory services offered through FC Wealth Solutions, a registered investment advisor.}

^{CRD#:  4209688}