August 2010 Market Outlook
The market volatility we have all experienced in the last two weeks, and especially the last few days has all investors understandably on-edge. “Words of Wisdom” that attempt to explain recent global sell-offs, rallies, and outline the near future (given the present circumstances), run the risk of getting too far out in front of ever-evolving current events to effectively inform strategy.
We do, however, think there are some imperative perspectives CCR Wealth Management feels all investors should bear in mind today:
- News over the weekend of the US credit downgrade by Standard & Poor’s was seen by most investment professionals as a foregone conclusion weeks prior—and therefore unlikely the primary driver of Monday’s (and Wednesday morning’s) downside volatility.
Subsequent downgrades on balance sheets backed by US Government and government-related bonds are inevitable—and have already begun (Fannie Mae and Freddie Mac were only the beginning). Again—this is known, and already reflected in prices. We expect such downgrades could affect insurers and municipalities among other entities.
- US Debt remains the safest investment in the world in the view of virtually all investors. This is evidenced by the tremendous influx of money into Treasury Bills, Notes and Bonds since the S&P announcement last Friday (thus driving yields to all-time lows).
- European fiscal concerns, and related “headline risk”, in our view, is the primary cause of concern, and to the extent it is possible to divine, the primary source of global investor nervousness.
- The market lows on Monday, August 8, represent a 15.62% decline from the year’s highs in May. This puts the S&P 500 firmly in correction territory currently. Corrections are normal market occurrences, and each correction comes with its own disquieting reasons. Last summer’s correction was approximately 14%.
While this may sound cliché, we still believe that staying the course in a diversified portfolio is the most prudent strategy especially in volatile, perhaps even violent markets. Please do not hesitate to contact us with any questions or thoughts. If we are not available, we will return your message promptly.