This week US and Global markets grappled with what to weigh more heavily – the benefit of a broader extension of an easy monetary policy from US and European central banks, or concerns around the state of global economic growth (the very same reason central banks have signaled an extension to easy money policies).
Markets domestically and abroad reacted negatively to less favorable economic reports Friday, and for the first time in over a decade we saw an inverted yield curve, where the US 10 year Treasury yield dipped below the 3 month US Treasury bill yield.
Yet the outlook is not completely bleak. As an example, unemployment in the US hovers around 4%, a relative low which the US has seen only for 5 periods since 1950. (US Bureau of Labor Statistics).
S&P 500: 2800.7 (-0.8%)
FTSE All-World ex-US(VEU): (-1.4%)
US 10 Year Treasury Yield: 2.44% (-5.95%)
Gold: $1,313 (0.9%)
EUR/USD: 1.130 (-0.3%)
- Monday – A third vote on British Prime Minister Teresa May’s Brexit plan was prevented by the speaker of the House of Commons, creating further uncertainty.
- Tuesday – The Wall Street Journal reports that Bitcoin “is in the longest slump of its 10-year history.” Bitcoin was priced just above $4,000 as of the 19th, down from around $20,000 in late 2017.
- Wednesday – Fed announces that they will very likely keep interest rates as is for now, in addition to slowing the decline of its $4 trillion balance sheet.
- Wednesday – Walt Disney Company completes its $70+ Billion acquisition of 21st Century Fox.
- Thursday – Well known apparel company Levi Strauss returned to the public market via IPO, after being taken private in the 1980s.
- Friday – The Yield Curve Inverted, with US 10-year Treasury yield falling below 3-month Treasury bills.
From a tough fourth quarter in 2018 to a strong rebound in 2019, investors are likely once again a bit spooked after today’s volatility. I’d argue, however, that today’s volatility is a critical component of the success of a diversified, methodically rebalanced investment strategy.
Look at holdings such as utilities, gold and bonds (remember yields go down when prices go up) which played largely positively for investors today, while much of the rest of markets fared relatively poorly.
Should this trend continue, those with the ‘boring’ asset classes mentioned above, will be well positioned to sell into strength in these areas, and buy into weakness in other areas. Whether Monday brings further negative volatility to the table or a rebound from today’s uncertainty, one way to lessen the impact to your “sleep-at-night” factor is to remain disciplined and diversified.
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