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.
December 2025 Assessment
We consider average dashboard readings below 35% as indicating heightened downside risk for equity investors. In April and May 2025, the downside risk signal was triggered. Since the end of June, improving market sentiment has moved the dashboard back to above the derisking threshold. Value has been in the danger zone for more than a year. Three of the other four attributes that matter to stock market outcomes are in neutral territory. Those three are the trends in: (1) the economic data, (2) inflation, and (3) credit spreads. The strong price performance of stock indices in 2025 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 higher tariffs and uncertainty in US trade policy are important sources of concern but have had a relatively small impact on economic growth or inflation in the data available through December, although signs of weaker employment and firming inflation are emerging.