2025 | October Risk Odometer

For the fourth consecutive month, the Risk Odometer remained at +3 with our outlook at his highest level of “Positive”. 

Markets remain on a slow, steady grind higher supported by strong corporate earnings and the Federal Reserve, which cut interest rates in September.  They are projecting two more cuts this year.  The indicators we follow have remained remarkably stable for the past quarter, which is common in the recent low-volatility environment. 

The AI industrial revolution we are experiencing continues to be at the center of optimism in the markets.  Revenues, outside of the computer chip manufacturers, have not justified the spending, but markets are forward looking, and near-term spending does not appear to be slowing.  Stock market valuations are approaching levels only witnessed in previous market bubbles, but until the spending slows, it is difficult to see stock market corrections being viewed as anything other than an opportunity.

Only time will tell if future revenues justify the level of stock market optimism.  For now, conditions are predominately positive, so we are advising clients to ride the wave of optimism with an eye on changing conditions.  Bull markets are known for climbing walls of worry and this time is no exception.  Markets do not go up for eternity.  The good times will eventually fade, but that could be a long way and time from here.  It is impossible to know when that time will come.  Studying history tells us to ride the wave while it remains hot, avoid projecting tops and be prepared to adjust when credible reversals appear.

Concentration risk and the weakening labor market remain our primary concerns.  The earnings of the largest companies continue to deliver strong results, so we are not concerned about concentration risk yet.  We would need to witness several quarters of weak growth or downgraded outlooks for this to become a more serious near-term concern. 

The weakness in the labor market, which the Fed cited as their reason for lowering rates, appears to be a slow-down in new hires (AI eroding the need for hiring new, young workers) as opposed to layoffs.  We would be more concerned if we saw large increases in job losses because that would likely create less spending and more economic weakness.

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.

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_{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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