The volatility in the financial markets is continuing. The most recent catalysts are – accelerating concerns about global growth fueled by oil’s continued decline, credit concerns with European banks, and the Japan Central bank instituting negative interest rates. Add in some additional geo-political news like North Korea launching a “satellite” and the Zika virus spreading, and you get a panic in the markets.
Here is an interesting thought from Gavial Organization – “when markets go up for no adequate reason that behavior is usually described as irrational herd instinct but when markets collapse for no good reason everyone assumes that investors must know what they are doing and have discovered some hidden horror even though no one can describe what that is”
I continue to feel that the fundamental economic picture, especially in the US is not dire. Having said that, the market deals in its own reality which right now is extremely pessimistic. As of 12:00 EST 2/11/16, the S&P 500 (my preferred measure of the equity markets) has breached my support target of 1,850 – 1,867 but has maintained major support in the 1812 – 1820 range. As such I am now making adjustments to portfolios to lower the amount of equities. Please note: the current situation still does not call for selling all equities but rather reducing exposure. The reason being that markets can turn on a dime, from up to down as we are currently experiencing, and from down to up. The chart below (courtesy of BlackRock) shows the best strategy for the long haul is to stay invested.
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