Downside risk dashboard
The Atlas Capital equity downside risk dashboard
This dashboard measures the risk that global equities may underperform short-term fixed income investments in the coming months. When the expected return on stocks falls below that of cash, history suggests a greater chance of equity losses.
We track five key indicators, each shown as a historical percentile relative to data going back to 1967. High percentiles generally indicate favorable conditions for equity investors, while low percentiles suggest caution. While each signal is informative on its own, their combination provides stronger predictive insight.
Downside risk is considered elevated when the dashboard average falls below the 35th percentile—a level that has often preceded periods when cash outperformed stocks.
The Five Indicators
Economic Trend
We aggregate important data across the world’s largest economies using a GDP-weighted approach. A high percentile reflects a positive global economic trend—often a signal of strength for equities. Major bear markets have typically been preceded by deteriorating economic data.
Inflation trend
This indicator tracks inflation across 14 countries. Sustained increases in inflation (a low percentile) have historically led to weaker performance for equities.
Credit spread trend
Credit spreads measure the difference between yields on corporate vs. government bonds. Rising spreads signal growing concern about credit risk—typically a negative sign for equity markets.
Value
This composite tracks equity valuations using various “price-to” metrics (earnings, sales, cash flow, etc.). While poor Value alone isn’t a strong exit signal, many large market declines have followed periods of high valuation coupled with slowing growth.
Price trend
This measures equity price momentum over the past year. Higher percentiles indicate rising prices and more positive investor sentiment.
February 2026 Assessment
We consider average dashboard readings below 35% as indicating heightened downside risk for equity investors. At the height of US tariff uncertainty in April 2025 the risk signal was triggered. However, the signal soon recovered above the derisking threshold as actual tariffs were lower than initial proposals and the world economy showed resilience. Value has been in the danger zone for more than a year. The economic trend has been neutral and is on the verge of moving to the green zone. Two of the other three attributes that matter to stock market outcomes are in neutral territory. Those are the trends in inflation and credit spreads. The strong price performance of stock indices in 2025 and early 2026 has led the trend in stock prices to a highly positive reading.
The most common starting conditions for the equity bear markets of the past were: (1) stocks are expensive, and then (2) economic growth turned down. The first condition is present — stocks are historically expensive. The second condition is not yet present. Economic conditions have been improving in recent months, though the Iran war will likely be a headwind against that positive trend.