2025 | January Risk Odometer
Happy New Year! While the year has changed, our Risk Odometer remains pegged at +3 with a “Positive” Outlook for the 12th consecutive month. This consistency is common in steady climbing bull markets, an environment which we have experienced for the past few years.
Growth in the US economy appeared to be picking up its pace at the end of 2024 and into 2025. Although our Economic Indicators’ signal remains the only negative indicator, it has been improving. The latest reading of the Conference Board’s Leading Economic Indicators, where we derive our signal, saw its first monthly increase in over two years. It will take more positive monthly readings to turn our indicator positive, but it does bode well for future economic growth. All other indicators within our Risk Odometer remain positive.
One area of concern for us is extremely optimistic sentiment. When sentiment becomes extremely optimistic it can lead to downside price action when negative surprises surface. We do not believe optimistic sentiment creates a surprise event, it just makes market action more pronounced when it does occur. We believe negative surprises are inevitable and predicting when they occur is nearly impossible. Therefore, rather than try to predict, we prefer to prepare for them. We would view future downside volatility as opportunistic so long as our Risk Odometer remains positive, and the US economy remains sound.
Future Trump tariffs still remain a concern. We know Trump is a norm buster and much of what he says can be discounted as negotiation tactics. Nevertheless, he seems to thrive on unpredictability and plans to use them as negotiation tactics, so we remain on heightened alert for their impacts.
Despite our concerns of elevated sentiment and future tariffs, we believe the change in presidency will be supportive of equity markets. Trumps’s pro-growth policies and his agenda to lower taxes, cut wasteful spending and deregulate industries should be a tail wind for the equity market for the next four years. We envision our Risk Odometer remaining positive for the near future.
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.
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