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Financial Stress Upticks Marginally

CAMS Weekly View from the Corner – Week ending 2/16/2018

February 20, 2018

With the quick drawdown in the equity market to start the month of February, followed by the ensuing upswing in recent days, we thought it timely to revisit a measure shared in previous Weekly View’s.

The St. Louis Federal Reserve Bank publishes a Financial Stress Index that gives us a sense of how much stress is registering in our economic system through various market measures.

This Index is comprised of eighteen different market based measures in order to get a sense of how collective market participants are interpreting our current economic landscape via various market based relationships.


The above chart depicts the Stress Index dating back to the Great Recession.  This Index is constructed in that zero is viewed as representing normal financial market conditions.  A value below zero represents below average financial stress conditions or higher than if above the zero line.

While we have seen an increase off the historic lows the current level remains well below the zero line equating to below average stress.  Lower lows are not a requirement but on-going subdued stress levels will offer a landscape of supportive economic strength.

With the Fed having walked away from their Great Recession money expansion policies it will be important to see stress levels remaining low which will inherently be reflecting a stable economic backdrop.  As shared often in these Weekly Views; we need said economic backdrop to support elevated market valuations.

With the above offered we still expect a more volatile stock market than what has been experienced in the last year or so.  Said another way, we expect normal stock market action whereby volatility shows itself albeit not at historic volatility levels experienced in the first half of this month.  Invest according to your comfort level as additional bumpy rides will surely surface.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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