This Week’s Signal: 0
For the week of 07/01
When the indicator points from 0 to 14, the model anticipates relatively higher potential equity market returns in the coming week.
Qraft’s AI model forecasts lower risk in the near term in the equities market relative to historic levels, presenting a potentially compelling time to reduce cash and increase your portfolio’s allocation to equities. Over the past 20 years* when risk has been in this range, U.S. large-cap equities had an annualized volatility of 13.06%.
When the indicator points from 15 to 49, the model anticipates relatively stable potential equity market returns in the coming week.
Qraft’s AI model forecasts median risk in the near term in the equities market relative to historic levels. Over the past 20 years* when risk has been in this range, U.S. large-cap equities had an annualized volatility of 23.28%.
When the indicator points from 50 to 100, the model anticipates lower potential equity market returns in the coming week.
Qraft’s artificial intelligence (AI) model forecasts higher risk in the near term in the equities market relative to historic levels, presenting a potentially compelling time to reduce equities and increase your portfolio’s allocation to cash. Over the past 20 years* when risk has been in this range, U.S. large-cap equities had an annualized volatility of 31.45%
* Calculation Period: November 1999 to July 01st, 2024
Out of sample backtested results, illustrative purposes only
Below is an analysis of the variables impacting the AI Risk Indicator this week.
1. U.S. Short Term Treasuries Mid Term Volatility Stability
U.S. Short Term Treasuries Six-Month Volatility decreased by 0.30% week over week. Stability in short-term treasuries are positive signals investors are keeping are not making significant moves, boding well for equities.
2. Commodities
Commodities overall decreased by 0.67% from June 27th to June 28th. A small cool off in oil prices were a small reprieve after they hit two-month highs last week. The main driver of the price increase has been the expected increase in demand for oil, a good indicator of consumer confidence and sentiment.
3. Commodities Mid Term Momentum
Commodities Six-Month Momentum increased by 1.47% week over week. Expectations for an increase in summer travel drove prices higher. This seasonality shows that the US economy is strong, boding well for equities.
*Source: Bloomberg
Weekly Signal
Feature Importance (Factors taken into consideration by the AI engine) for this week (out of 100%)
• U.S. Short Term Treasuries Mid Term Volatility (2.1%)
• Commodities (2.0%)
• Commodities Mid Term Momentum (2.0%)
• U.S. Long Term Treasuries Mid Term Momentum (2.0%)
• ICE BofA CCC & Lower US High Yield Index Effective Yield (1.8%)
Changes in ‘Feature Importance’ compared to the previous week
[+ signs are for increased reference weight, - signs are for decreased reference weight]
• ICE BofA CCC & Lower US High Yield Index Effective Yield (+)
• U.S. Long Term Treasuries Mid Term Momentum (+)
• U.S. Equities Mid Term Volatility (-)
• U.S. Long Term Treasuries One-Year Volatility (-)
AI Risk Indicator Weekly Signal (Prior 3 Years)
AI Risk Indicator Weekly Signal (Since November 1999)
The Qraft AI Risk Indicator was developed by Qraft Technologies to help navigate volatile markets. While there are many indicators and indexes to determine market sentiment and risk, few provide clear, actionable insight aligned with equity/cash allocations.
Our AI Risk Indicator is powered by a machine learning model that absorbs, analyzes, and processes over 70 macro and market data inputs in real-time, with the AI predicting the risk environment in a manner that is instant, automatic, and actionable.
The model focuses on current momentum, volatility, and correlation metrics, and has learned and trained on data back to 1999. Rigorous backtesting has demonstrated the model’s ability to navigate markets when the risks are not easy to anticipate.
Risk in the market is predicted in three stages, with the signal (score) corresponding to a recommended cash allocation level in the portfolio’s U.S. equity allocation:
Risk On: The Indicator forecasts low risk in the coming week, suggesting now is an opportune time to take on risk in the portfolio. Risk On scores range from no cash up to 14% cash allocation, with the balance in equities.
Cautious: The Indicator forecasts median risk in the coming week, suggesting heightened vigilance. Cautious scores range from 15% to 49% cash allocation, with the balance in equities.
Risk Off: The Indicator forecasts high risk in the coming week, suggesting now is an opportune time to take off risk in the portfolio. Risk Off scores range from 50% to 100% cash allocation, with the balance in equities.
The model uses artificial intelligence to interpret risk signals based on the directional movement of the stock market (momentum), stock market risk (volatility), and relationships between the stock market and major asset groups (correlation).
Additional information on the methodology behind Qraft’s AI Risk Indicator can be found here.
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Over 70 different types of U.S. financial market data are inputs to the model powering the AI Risk Indicator. Qraft's AI model calculates the weekly score after learning the directional motion of the stock market (momentum), the risk of the stock market (volatility), and the relationship between the stock market and major asset groups (correlation). Momentum is assessed based on 1-month, 3-month, and 6-month returns of the U.S. large stock index. Volatility is assessed based on 1-month, 3-month, and 6-month volatility of the U.S. large stock index. Correlation is calculated through 1-month, 3-month, and 6-month correlation between large U.S. stocks and long-term U.S. government bonds. Leading indicators, for example the Purchasing Managers’ Index (PMI) and Retail Sales index, are also taken into account.
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The indicator refers to the proportion of assets in a U.S. equity allocation recommended to be held in cash. A signal of 0 corresponds to an asset mix of 0% cash and 100% equities. A signal of 100 corresponds to an asset mix of 100% cash and 0% equities.
The indicator is divided into three sections:
1) Risk On: When the indicator points from 0 to 14, Qraft’s AI model forecasts low risk in the U.S. equity market for the coming week. In a U.S. equity allocation, this presents a potentially opportune time to invest mostly in equities with a minimal cash position.
2) Cautious: When the indicator points from 15 to 49, Qraft’s AI model forecasts moderate risk in the U.S. equity market for the coming week. In a U.S. equity allocation, this presents a potentially opportune time to hold a moderate cash position In your equity allocation to exercise vigilance in uncertain markets.
3) Risk Off: When the indicator points from 50 to 100, Qraft’s AI model forecasts higher risk in the U.S. equity market for the coming week. In a U.S. equity allocation, this presents a potentially opportune time to hold a larger cash position to protect on the downside amid expected volatile markets.
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The Dot-com bubble crisis of 2001 began in the second half of 2000 and was one of the biggest downfalls in history. Even when it hit a low point in October 2002, the indicator consistently sent a strong warning signal that pointed to high figures since early 2001. During the 2008 global financial crisis, there were warnings from the indicator in early October of 2008, just before the market collapsed. For the COVID-19 crisis, a huge soar in the indicator was followed by a plunge in stock prices in March. As stock prices were beginning to recover from their all-time low, the indicator sent signals to re-enter the stock market.
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AI Risk Indicator is powered by a machine learning model that absorbs, analyzes, and processes macro and market data inputs in real-time, with the AI predicting the risk environment for the coming week. The model was designed to discover risk signals and patterns in the market by training and learning from the vast amount of financial data in the past. Unlike traditional quant models with pre-determined market strategies, AI models can discover meaningful strategies in the data itself through machine learning. AI performs predictive analysis based on past data, similar to the intuitive human decision-making process that happens unconsciously. However, unlike humans, emotional bias is removed, so the signals detected from the market can be examined from a new perspective.
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The Fear & Greed Index is a psychological index representing Wall Street confidence produced by CNN Money on a daily basis. The index is calculated by combining seven indicators with the same weight: market momentum, stock price strength, stock price breadth, put-call option ratio, junk bond demand, market volatility, and safe-haven demand. The biggest difference is that the AI Risk Indicator is calculated by going through a new learning process every week by inserting more than 70 kinds of U.S. financial markets and global macro indicators. Moreover, the Fear and Greed Index shows the psychological status of the “current” market, whereas the AI Risk Indicator is released weekly and includes at least a week’s market outlook.
If you have any questions about our company or products, please contact us via qraft@qraftec.com
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