Our decisions to derisk in the fall of 2015 have sharply reduced drawdowns in the face of recent months’ equity market price action. Last month, we addressed the likelihood of a recession in 2016 and discussed the possibility of further derisking Balentine client portfolios. In March, Balentine’s models were bearish for a seventh straight month. Each time Balentine’s models have produced seven straight monthly bearish signals (2000-2001, 2002-2003, and 2008), a significant drawdown has occurred.
Across the investment landscape in Market Risk, the opportunity top of mind for many investors is the potential for a rebound in commodity prices, most notably oil. Commodities, oil, and oil-related equities could rally, as assets tend to have sharp rallies when sentiment and technicals get overly bearish. However, the key word for us is “tradeable.”
Over the last six months, we have taken decisive steps to preserve capital. The volatility and uncertainty we anticipated late last summer is playing out now, and several markets are moving closer to pricing in a recession.
In our 2016 Capital Markets Forecast, we maintain an outlook of continued meager growth for the upcoming investment cycle. What follows are five key reasons that support this outlook.
Throughout the whole of 2015, markets speculated when the Federal Reserve would finally take the plunge and begin raising interest rates. After fits and starts all year, the Fed raised interest rates in December. It also laid out a plan to continue to raise interest rates by 25 bps each quarter until we reached more normal levels. After the rough start to 2016, however, the Fed last Thursday signaled a potential change in policy.
“The only function of economic forecasting is to make astrology look respectable,” John Kenneth Galbraith, an irreverent economist, once said. Yet each January strategists fill the airwaves, prognosticating what the coming year may bring. In this vein, Bob Reiser, Senior Advisor to the Investment Strategy Team, once again publishes his annual forecast.
We expected and prepared for a period of market turbulence at the end of the third quarter of last year and took decisive steps to lower our exposure to global stock markets accordingly. We do not yet see reason to change course further.
After a long period of economic growth and easy lending conditions coming out of the Great Financial Crisis, the environment over the past several years has been kind to entrepreneurs. One potential consequence, however, is that many business owners have built strategic plans using assumptions which may be too optimistic in coming years.
At Monday’s weekly meeting, our Investment Strategy Team answered four questions which we believe should continue to reassure clients despite this jarring volatility.
In a world flooded with up to the minute stock market movements and a 24/7 global news cycle, people must distinguish between entertainment and information.