This Week in the Market
With Scott McCaghren and Tony LaPorta
***Due to technical issues on the audio portion, the second half of the discussion between Scott and Tony will only have Tony’s responses with short amounts of dead airtime in-between
The written portion of this week’s commentary will be brief, due to the fact that it was originally written before the most recent tweet from the White House citing a 10% tariff on an additional $300 billion of Chinese goods. The equity markets responded in a significant way during domestic trading hours. What will be even more interesting is the potential for Chinese retaliation over the next several hours during the after markets.
The main thing to point out during this development surrounds the decision of implementing a hedge against volatility several months prior. We have watched the value of the hedge swing in both directions but has certainly proven to be a value acquisition for the current market price action. There is no long-term set objective as to when we will unload this hedge; rather, a constant monitoring process in order to capitalize on its ability to stave off continual spikes in volatility.
The remainder of the portfolios were hand-selected to accommodate this type of environment as well. They provide modest stability during downside swings while also providing most upside potential. We believe that the current allocations will shine bright as the current global environment continues to unfold. The Federal Reserve seemed to indicate that there are significant concerns regarding global economies. They previously stated that they were no longer basing interest rate decisions on the health of the U.S. economy. Rather, their new guidance will be based on the breadth of the global economies as a whole. Yesterday, this translated into a rate cut of .25%, the first since 12/16/08. Most will remember the investment atmosphere during that time. Another point of interest came during the meeting following the Fed decision. Fed Chairman Jerome Powell appeared to be concerned and quite honestly scared about what they had just implemented. It appears that Central Bankers across the globe are trying to prevent a potential disaster; what that disaster is, has yet to be made clear in detail to the general public.
While the above seem like scary talking points, the reality is that we are very well situated for the uncertainty that we will very likely see over the next 12-18 months. We feel confident that the current allocations will perform very well if the trade war continues to escalate or if the Federal Reserve continues to cave into pressures to de-value the dollar as part of the ongoing currency war (this did not work out so well for them yesterday as the dollar enjoyed record multi-year prices). In addition to that falter, the yield curve continued to steepen despite their goal of a path toward normalizing the spread.
As always, we continue to monitor all equity, treasury, commodity and currency conditions in order to efficiently deploy capital as well as protect invested assets.
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