2025 | February Risk Odometer

Our Risk Odometer score moved up from +3 to +4 this month, the first change in over a year.  Our Current Outlook remains at its highest level of highest level of “Positive,” a level it has also consistently been for over a year.  The improvement in the Risk Odometer can be credited to an improvement in our Economic Indicators signal.

Although our Current Outlook has remained stable, a lot has recently transpired recently which is having sizable market impacts.  The two most notable developments have been newly implemented tariffs and Deepseek, an AI development out of China that sent shockwaves through the AI industry.  Although tariffs and Deepseek are not direct inputs to our Risk Odometer, we believe their impacts could have indirect effects on the Risk Odometer, so we wanted to share our thoughts on them.

Tariffs were our primary concern following the presidential election in November.  Those concerns are now front-and-center as new tariffs were introduced not just on our adversaries, but also on our allies.  We continue to believe that Trump will use tariffs as negotiation tactics rather than long-term policies.  For this reason, we believe they will be short-term in nature and have minimal long-term economic impacts.  Nevertheless, the uncertainty around them will create headwinds for markets, leading to bouts of volatility. 

Stock market volatility is cyclical.  Given the lack of volatility in the past few years, coupled with elevated valuations, we would not be surprised to see increased volatility this year.  We would welcome volatility, though, as opportunities to purchase good investments at cheaper prices so long as the economy remains strong.  The improvement in our Economic Indicators signal gives us increased confidence that the economy will remain strong despite tariff headwinds.

The second major recent development has been the release of Deepseek, an AI development out of China.  The release of Deepseek sent shockwaves through the markets because most believed the United States was by far the leader in AI development.  The release of Deepseek put this into question, especially coming from an adversary who was banned by the US government from purchasing the necessary computer chips required to develop it.  It was also profound because they claimed they produced it at a fraction of the cost of current AI models. 

We believe the release of Deepseek and the claims surrounding it create more questions than answers, but it will have market impacts going forward.  We do not believe all the claims in terms of the cost to develop it, nor the type or amount of chips used.  We do believe, however, it was done at a much lower cost than American produced AI models, and that it will commoditize the development of AI models at a faster pace than previously thought.  This should drive down the production costs and make AI more affordable for more companies.  In regard to market impacts of faster commoditization, we believe it will positively impact the software developers at the expense of the production developers and broaden the winners in the stock market as opposed to keeping them concentrated in the AI leaders of the past few years.

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}