We consider average dashboard readings below 35% as indicating heightened downside risk for equity investors. In this cycle, our equity dashboard fell below 35% near the end of 2021. The dashboard recovered out of the danger zone about a year later, in January 2023. The most important dashboard signal is the trend in the global economic data, which is currently neutral, improving from a historically negative trend in 2022. The only negative dashboard item at present is equity price trend, which has faded as interest rates rise. Value deteriorated earlier in 2023 as equity prices rallied without higher earnings but recovered to neutral when stock prices faltered in September and October. With credit spreads rising, the credit spread trend moved from positive to neutral in October. The inflation trend remains quite positive. The overall dashboard average is near the middle of neutral, trending downwards.
Although the dashboard is not signaling high equity downside risk, we believe some caution about the equity market is warranted. Interest rate hikes by central bankers have probably not yet had their full impact on economic growth, and moreover much higher interest rates have led fixed income investments to become a more attractive alternative to equity investing.