This Week in the Market

With Scott McCaghren and Tony LaPorta

Equity markets have a unique feel to them at the moment, particularly on a day such as today where new record levels were followed by a sharp sell-off. The obvious newsworthy topic surrounds the FOMC meeting next Wednesday where it is highly anticipated that we will see an interest rate cut between .25 and 0.50. This will most certainly be bullish for the stock market as the competition for investment dollars becomes even more scarce. However, our belief is that this expectation has been already heavily priced into the current market levels over the last several weeks. In addition, central banks across the world are maintaining or even increasing their versions of economic accommodation. This is a positive for domestic equity markets in the short-run, it is our job to also address the long-run:

The best portfolio managers in existence today have the same knowledge of the after-effects surrounding quantitative easing as we do: zero. The reason for this lies in the simple reality that this environment was manufactured for the first time shortly after the financial collapse about a decade ago.  We also must monitor the relationship between a weakening euro versus the potential for a strengthening dollar. This could very easily create troubles for both multi-national companies as well as dollar denominated debt worldwide. This is #1 of two reasons as to why we implemented the hedge against volatility that we did about three months ago. Patience is truly going to prove to be a virtue for the current portfolio structure.

Reason #2 as to why we implemented a hedge has to do with the potential for short-term downside pressure against the major indices. There are several technical analytics that support this possibility over the coming weeks.  There is also a strong seasonal trend that would allow for the thought of potential weakness in late August to early September. The current portfolio structure will accommodate that particular type of environment, which again, patience will prove to be a virtue.

Not only will our current asset allocation allow for some calmness during a potential global storm, but will also allow the opportunity to remove the hedge in order to deploy that allotted capital into a deeply discounted stock market.  We are very pleased with the current positioning and believe that portfolios will respond well to our analysis. 

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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