What is Your Personal Downside Risk?

The economic calendar is light with a focus on home sales. Unemployment claims data remains an especially important indicator. Second quarter earnings reports will be more important than the economic data, but I do not expect much fresh information on COVID-19 and earnings outlook. The average investor gets little help from any of these reports and certainly not from the punditry. They are on their own with the key question:

What is my personal downside risk?

My goal is to provide some ideas for that analysis.

Last Week Recap

In my last installment of WTWA, I suggested that investors might want to study methods of hedging. On reflection, I should have discussed today’s topic first. Readers who find today’s post helpful should also review last week’s.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski’s version. Her chart combines much of what interests us in one picture.

Most of the trading did not seem news driven, although reporters provided a reason each day. The image below is one I have been saving to illustrate this phenomenon. The inference of causality based on proximity in time is a tried and true basis for a story! Post hoc ergo propter hoc.

The market gained 1.3% with a trading range of only 3.5%. My weekly indicator snapshot monitors the actual volatility as well as the VIX (see below).

The weekly sector chart shows the source of the gains.

The “recovery” trade is leveling off a bit, but still reinforcing the market verdict on the coronavirus threat. Industrials, financials energy and materials are all part of that group. Defensive sectors like utilities, consumer, and health are perking up a bit.