by Shayne Momber
U.S. and global stocks continue their highly volatile movements through September. The All Terrain Portfolio™ indicators suggest cash is a good place to be as uncertainty continues to reverberate throughout multiple asset classes.
Domestic Equity
After recovering some value following the stark late-August selloff, U.S. markets are falling again to close out September. Although slow global growth still seems to be a concern for investors, the Federal Reserve’s non-action may have tipped the scales. Two weeks ago, Fed chair Janet Yellen announced that the long-anticipated interest rate hike wouldn’t happen in September. Although we’ve grown accustomed to the Fed kicking the investment-hike can down the road, many market participants saw this as a missed opportunity by the Fed.
In addition to foregoing interest rate hikes, the Fed vocalized a change in their rationale for the decision. Previously, they clung to the need for more data supporting domestic growth, but in this meeting they cited concerns over global growth and market risk — items some believe are beyond the reach of the non-elected Federal Reserve Board. The market reaction was perhaps more concerning than the announcement itself: domestic equities have been in a freefall since the announcement. For the last nine months these non-hike announcements have been received as positive news by Wall Street, but this time around it seems investors, both institutional and retail, are losing faith in Yellen’s leadership. Whatever the case may be, Bears are convinced we are headed lower, and Bulls continue to revise their positive 2015 projections downward for domestic equities. Like last month, the S&P 500 has bumped up against a key support level. If breached, we may very well be in long-term downward trend.
Foreign Equity
Market participants are still looking at China as the reason for global market turmoil, and for good reason. China’s markets have been consistently falling since May and China’s President Xi is on record stating that China will use whatever means necessary to prevent further economic slides, regardless of how unprecedented they may be. In addition to this reckless policy approach, Chinese economic data is often unreliable at best, making China’s economy difficult to assess. Perhaps another global concern stems from the number of central banks around the world that followed the United States’ lead of easy monetary policy. The U.S. results have been mixed after seven years of quantitative easing and zero interest rates and should the U.S. fall into a bear market, it may leave places like the Eurozone trapped in failing fiscal policy.
Real Estate
Although real estate had a nice bounce off of its lows to close out last month, our indicators still signal to avoid this sector until more consistent growth is present. Additionally, looking back six months it appears that we may be in the beginning of a long-term downward trend. Add on the uncertainty of a Fed rate hike, and real estate is currently undesirable.
Commodities
Another month goes by and commodities continue to go lower. Although many point to the oil route that’s continued for more than a year now in conjunction with a recently expensive dollar as the main driver of lower commodity prices, commodities, as a whole, have been headed in a downward direction for the better part of five years now. It wouldn’t be unreasonable to think this sector, which tends to be cyclical in nature, is due for a change in direction. For now, we’ll need more positive evidence before our indicators provide a buy signal.
Fixed Income
Bonds continue to be difficult to get a read on in this zero interest rate environment. Certainly, investors haven’t much of an appetite for bonds with a potential interest rate hike on the horizon. In the event of an interest rate hike, those caught with older, lower yielding bonds would quickly see the value of the old bonds decrease when compared to newer, higher yielding ones. This is precisely why our indicators get close, but don’t affirm a long-term positive trend in this sector.
Chart as of market close 9/29/15 Past performance is not indicative of future results. Other asset classes or investment vehicles may be used in client portfolios and client portfolios may not hold all positions of the model at the same time as the model. This chart and its representations are only for use in correlation to the proprietary timing model by Arkenstone Financial, Registered Investment Advisor. Actual client and All Terrain Portfolio(TM) positions may differ from this representation.
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