Doubts about the strength of the US economic recovery were relieved somewhat by the report that 204,000 new hires occurred in the month of October, but this continues to be a slow process in which the encouraging signs are tempered with more negatives. In October the surprising news lifted the Dow Jones Industrial Index to an all-time high and restarted debate as to whether the Fed would begin the process of tapering the subsidy to bond markets. The hint that interest rates might adjust upward gave a lift to the dollar, as overseas currencies were repatriated to the USD. European indexes rose somewhat, as well. Emerging markets trended lower due to concerns that Chinese inflation might lead to a more restrictive interest rate policy. This would restrict Chinese production just when the economy there was beginning to recover.
At a time when Janet Yellen is being vetted for Bernanke’s post, the question of a reduction in the $85 billion monthly bond repurchase has provided the Senate with a lot of questions to ask. She is thought to be of similar mind to Bernanke and her nomination appears likely to be approved. Bernanke has recently defended the stimulus policy of his central bank, saying that the economy remains weak. The bond markets are remaining light-footed, sensing higher volatility in the near term.
Oil prices stabilized last week following the standoff between the IAEA and Iran over nuclear plant inspection. False starts are a characteristic of this process and concerns that Iran’s offer of “managed access” to nuclear sites within three months is seen as a delaying tactic.
With markets at historic highs, it is important that investors manage expectations carefully and reallocate appreciated positions to underperforming parts of the portfolio. Pay the dreaded tax, if required! In the blizzard of news about strong market performance, it is often hard to think about risk in your portfolio. You must allocate portfolios in advance of market volatility, not in response to it. To do this you must minimize emotional decision making as much as possible. It is important to build portfolios for the future, not the present.
We are committed to being stewards of your capital and fiduciaries of your plans. Please let us know if you have any questions or concerns.
Stay diversified…think globally!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Global and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.