August 21, 2015
When China announced a devaluation of the Yuan, it was indicative of a sickness that has been festering in the global equity markets.
Growth has been anemic for several years, but equities have generally rallied. The primary contributor has been the generally low level of interest rates around the globe. Today, the Federal Funds rate sits at 0%, with the prospect of a 25 basis point increase before year end. This, coupled with uncertainty in China, is in our view the catalyst of the current market volatility.
Cutler has been advocating that a 10% market correction could be “just around the corner” for several years. This is a normal occurrence for equity markets, but one that hasn’t happened since 2011- over four years ago. Last October, stocks had just over a 9% correction. The culprit at the time? The end of quantitative easing. The end of QE III is a similar factor (monetary tightening) as the onset of 0.25% interest rates. The market will adjust, as it is currently, and ultimately the economy will move forward under these very accommodative policies. The Fed continues to be a stimulus; even with modestly higher rates, we are in a historically low rate environment.
What should investors do? As we advocated last year, ensure that you are in a diversified portfolio. At any given time, certain asset classes may underperform and look unattractive. However, when investments shift leadership, this change can take place very quickly. Timing the market is not a sustainable approach to investing, but understanding your portfolio risk will help you remain invested during times of turmoil. Give Cutler a call if you would like to talk about your portfolio risk at any time.
These blogs are provided for informational purposes only and represent Cutler Investment Group’s (“Cutler”) views as of the date of posting. Such views are subject to change at any point without notice. The information in the blogs should not be considered investment advice or a recommendation to buy or sell any types of securities. Some of the information provided has been obtained from third party sources believed to be reliable but such information is not guaranteed. Cutler has not taken into account the investment objectives, financial situation or particular needs of any individual investor. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor's financial situation or risk tolerance. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary. No reliance should be placed on, and no guarantee should be assumed from, any such statements or forecasts when making any investment decision.