The markets have been resilient to much of the economic confusion across the globe, able to shrug off interruptions toward full recovery. We now have enough event related topics to rattle near term pricing. Whether it is China’s real estate market, the Delta Variant economic impact or Federal Reserve policy/inflation…volatility has returned to the equity markets.
We have argued that the S&P 500 is approximately 20-25% above fair value after a roaring recovery from the March 2020 lows. A natural reset of valuations would be welcomed in this environment, allowing for buying growth at a reasonable price. As most of our work to protect downside risk had been done months ago, we now have transitioned to looking for opportunistic reasons to take advantage of downside pressure. We are not quite there, but with more turbulence in the capital markets this fall, we would be encouraged to add more equity exposure to investment portfolios. The attached chart could be one of those catalysts. As rates rise, it places pressure on growth stocks and could be our answer for a corrective phase.
Click for Chart Attachment: Rates Explode Higher
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All investing involves risk including loss of principal. No strategy assures success or protects against loss. 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.
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The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.