Jason Goepfert, president of Sundial Capital Research and producer of SentimenTrader had interesting articles the last two days regarding risk appetite. I asked for and received approval to post those sections of his report.
Black Rock Risk Assessment
From the sentiment report on 5-14
According to a risk gauge created by [Black Rock] the world’s largest asset manager, investors have hit a new high in terms of their comfort level with the earnings power and valuation of the S&P 500.
The risk gauge takes into account three factors:
1. Enterprise value: Market cap plus debt minus cash
2. EBITDA: Earnings before interest, taxes, depreciation and amortization
3. VIX: Estimated future volatility using S&P 500 options
The formula basically determines how confident investors are in the current valuation of stocks, given their estimated earnings potential.
We’ve been keeping an eye on it since then, and it hasn’t really gone anywhere of note. It dipped quite a bit when stocks stumbled in late January, but not to levels near prior lows.