Stimulus vs. Data

Stimulus vs. Data

Stimulus vs. Data 420 295 AMA Team

Screen_Shot_2013_07_08_at_9.25.39_PMGreetings everyone. It was another volatile week in the markets as the intraday swings were once again large and quick to change direction but all in all the markets ended the week about 1.5% higher than where they started. There were a few “highlights” last week with the ECB (European Central Bank) taking a different approach from their neighbors across the Atlantic, announcing after their meeting that interest rates and stimulus measures would remain in place for now without any expected changes in the near future. This helped ease some of the central bank concerns that have been coming out of the US and China in recent weeks.
On top of that, the US jobs data on Friday printed better than expected figures and gave the US some positive news to focus on, thereby driving their markets up. We all know that better than expected results doesn’t necessarily translate into positive market trends, but with that said, it has been enough on this occasion to shift market trends into positive territory and this traction is leading the pack right now. We also know that the markets can change quickly, so we’ll expect a lot of eyes to be on corporate Q2 earnings reports which will start to be released over the next two weeks.
Screen_Shot_2013_07_08_at_9.30.32_PMWhat we don’t know is when exactly government stimulus will end, nor do we know what the best process is to remove stimulus from the markets without damaging confidence or causing large market drops. What we do know though, by looking back at this year, is that any hint or mention of reducing stimulus has caused market turmoil and broad losses across most sectors and industries.
So where does this leave us you ask? At the risk of repeating ourselves, it goes back to basics and this means investing in fundamentals as best we can (just as investors should always try to do)! Anyone who is heavily reliant on government intervention or policy announcements regarding their investment approach may be found on the wrong side of the fence once all is said and done. However, at the same time, we can’t ignore current market events as they can push fundamentals aside and create short term anomalies, from which we can both benefit, or be affected by. In part, the recent positive data, especially around the US job market, will only provide more reasoning for the FED to end their stimulus as they mentioned they will do, if the economy can sustain itself. Therefore we can expect some volatility to continue up until this event, but in the interim it’s important that we continue to focus on the fundamentals.
Screen_Shot_2013_07_08_at_9.54.47_PMEquities and stocks should continue to rise if positive data continues to be reported, in addition to the continued stimulus supporting the markets. US bonds and the US dollar will likely be the safe haven of choice when any short term uneasiness arises, but both US bonds and the US dollar are not ideal long term investments based on the obstacles they’ll need to face in coming years. Therefore, alternative bonds such as bonds in emerging markets and corporate bonds should fill the fixed interest portion of a balanced portfolio for investors willing to ride out any short term volatility. Commodities on the other hand are at very low prices and although manufacturing indicators don’t point to a rise anytime soon, we know that the markets can change quite quickly and right now commodities can be deemed to be attractive at their current prices.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Darren Cox
Co-Head of Portfolio Management
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com

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