Stock Market Chaos

Our move to a high cash allocation early last month represents the most defensive position our portfolios have been in years.  Rather than waiting for the announcement that we have entered a bear market, we took steps to reduce equities and raise cash.  We have always stressed that preserving your hard earned money is one of our highest priorities.

We entered 2018 with high hopes that the synchronized global growth would continue and the bull market would maintain its march higher.  After a strong January we witnessed a quick 10% correction in February.  While the stock market decline was painful, the global economy appeared to be healthy but the first signs of stress became evident.  While the US economy was robust a slowdown in the developed international and emerging markets were evident.  The dual impact of rising interest rates and trade wars were slowing global growth most notably in China.   In addition, the stability of the European Union would be put into question with political referendums in Italy and concerns regarding the impact of Brexit.

We recognized these crosswinds but expected global growth to win-out, and thus positioned our strategies accordingly.  However the investment landscape can change quickly, and therefore our strategy allocations needed to be altered.  Following the United States mid-term elections in early November, our portfolios began reducing equity exposure in both the tactical and strategic strategies.  We have continued to raise significant cash levels on concerns that even if an all-out trade war with China is resolved, the momentum of the market has turned negative.  When the trend in the market changes, we would expect the market to make lower lows and lower highs.  Many of the stocks like Apple, Facebook, Google and Microsoft that have buoyed the market for the past 24 months have entered bear market territory (decline of 20%).

In addition to our tactical indicators signaling that cash should be favored over equities, we are concerned that the following events will have a negative impact on the markets:

We continue to monitor the market direction and either look for a re-entry point as stocks look for a bottom or transition to short duration bonds that provide higher yields than cash while we wait for opportunities to redeploy your capital.  Please contact us for a more detailed conversation about your portfolio and our outlook.  We look forward to speaking with you at your convenience.

 

 

Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.