The All Terrain Portfolio™ continues to closely monitor our ever-changing financial atmosphere. Although commodities have recently taken a nose dive, all other asset classes continue their side stepping.
Domestic Equity
U.S. equities appear to be a bit twitchy as of late and July saw two major sell-offs. Although market movements are never completely correlated to one specific stimuli, the early July and mid July sell-offs were generally credited to disruptions in Greece and China, respectively. The markets rallied back after each of these dips, but trading remains, as it has for the last six months, in a very tight window. Most experts anticipate an interest rate hike in September, but we will have to wait until then to see how investors react when the hike actually occurs.
Foreign Equity
Global stocks moved similarly to U.S. stocks throughout July. Greece no longer dominates the headlines since they have reached an agreement to stay in the Euro zone, but the country is far from any kind of legitimate long-term solution. However, China’s falling stock market has gained global attention. Although the bleeding has been temporarily stopped through unprecedented government intervention (IPO’s and 40% of stock trading have been halted) it will be interesting to see how investors respond once the trade halts have been lifted. Will Chinese investors have any confidence left in both the financial markets and their government? The global implication could be huge despite the fact that China is technically an emerging market, since China’s economic reach is so broad.
Real Estate
Domestic real estate rallied in July, but still has not crossed over into positive territory according to our model. Curiously, this rally has taken place as the Federal Reserve has provided slightly more clarity, albeit from an unintentional leak of information, on a September rate hike. It is unlikely that a rising interest rate environment will lead to a healthier real estate scenario, so this will be worth monitoring going forward.
Commodities
After months of sporadic growth, the commodities world is in full fledged panic mode. What was once viewed as a chance to buy low is now viewed as a sector with no bottom in sight. The strong dollar and weakening demand for building supplies from China has shifted investor sentiment into the “do not touch” range. Specifically, precious metals and oil, which have already taken a beating in 2015, continue to plummet.
Fixed Income
More stagnant performance in the bond market as investors reluctantly move to the safety, historically speaking, of bonds during stock market dips. However, the bond market has become an area of concern as low interest rates have pushed more and more investors into riskier, high-yield bonds for those in search of yield. Should an interest rate hike occur and cause default in these risky investments, the ripple effect could be massive. This is of particular concern as the U.S. stock market continues to hover around all-time highs. Where will there be a safe place for investor to go if stocks slip?
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