We’ve raised our Dynamic Risk Score to a 6. What does that mean for investors?

We recently raised our Dynamic Risk Score from a 5 to a 6 as a result of the following influences:

  • Improved valuations
  • Expected oil price  stability
  • Continued strength of global economic fundamentals
  • Reduced Eurozone political risks

 

Our decision to increase the Dynamic Risk Score reflects our belief that we are currently in an environment that is more conducive to risk taking than that of early 2017. Further, the increased score means that we expect risk products to outperform Treasurys over the next three to six months. We will continue to monitor the market, but for now we have increased the score for a number of reasons:

  • Improved valuations because of uncertainty and disappointment with U.S. fiscal policy
    The recent failure of the ACA repeal vote highlights the continued toxic environment in Washington D.C., and caused risk assets to cheapen. However, we feel a corporate tax-reform bill is still likely and will more meaningfully support the recent boost to business confidence and activity.
  • Expectation for oil prices to stabilize and move higher by mid-year
    There is a 70% to 75% probability that OPEC will extend its production cuts for an additional six months. The extension of the cuts, alongside the higher-demand summer season, will lead to inventory draws and will provide the foundation for prices to rise.
  • Continued underlying strength in global economic fundamentals
    Strong U.S. wage data and job data, combined with strong Eurozone PMI, show continued core-strength in global economic fundamentals. In fact, most are ignoring a possible lower-than-expected first-quarter GDP print because of historic seasonality concerns.
  • Reduction in Eurozone political risks
    Following the lackluster populist results in the Netherlands and the increasing lead of Macron over Le Pen in France, fears of a significant populist, anti-European Union surge, has dissipated. Brexit negotiations and the Greek debt situation will continue to unfold over the foreseeable future, but do not currently cause a significant level of concern.

 

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