Good Day! Once again we had a spectacular weekend in terms of the weather and now that it’s started to cool down it makes it more comfortable to be outside. We had another good day at the park hanging on to back to back wins which puts us in third place with more than half the softball season over. It was a good way to end an exciting week and good news in the markets as well so I’ll get right to it..
Following what my counterpart Bill Longstreet wrote last week that we expected the US FED to come out with their stimulus package – this did indeed happen with the US FED announcing details on their stimulus package to inject $40 billion into the market each month until employment US indices to their highest levels in 5 yearsnumbers pick up.
Although this action was expected it certainly helped continue the upward trend sending US indices to their highest levels in 5 years and we’re seeing the rest of the world jumping on the bandwagon of the back to back stimulus packages from the US and Europe. Asia has yet to catch up although they are seeing vast improvement with many indices at 4 month highs, while the emerging markets have yet to experience the growth of developed indices over the past few months they are certainly picking up traction.
Last week Bill talked about gold and oil as these two physical assets have historically benefited from previous stimulus and this time seems no different. Gold continues its climb and sits around $1775. We would expect this rise to continue for the next few months as more and more cash is being pushed into the markets and as a result this will push up the value of physical assets. In general, gold, oil, and commodities should see a reversal from their poor performances earlier this year and in turn investors holding these assets will likely see them rise.
USD vs EuroThe Euro has also experienced some strength being the direct offset to the USD and this stimulus will certainly weigh on the strength of the dollar for the foreseeable future. However, we expect we’ll still experience some back and forth movements with these currencies (as always) as both Europe and the US still have underlying problems that QE or stimulus can’t resolve. Hopefully however it will help and at least buy some time to get these resolutions going.
Now that the US and EU have announced their monetary policies we’ll want to focus on the emerging markets and commodities to see if the stimulus will have a ripple effect with enough power to drive better global growth. The next few weeks will be a good indicator as to whether Europe and the US will increase Global Growthpurchases and in essence drive China’s economy which has suffered for most of the year without foreign demand to bolster its economy. If that happens then we can expect Brazil, Australia, Africa and other resource based economies to follow suit and improve as a result.
Despite the ‘good’ QE news, we’re not out of the woods yet and we’ll need to see unemployment and housing numbers improve as anticipated. With the dual stimulus from Europe and the USA driving almost every asset class upwards it will be an early indication of growth trends. Maintaining a balanced investment approach will continue to be very important to stabilize the ups and downs along the way and help with the repositioning that will likely be needed down the road. For now though….it’s a risk on week with investors looking to capitalize on the stimulus announcements and the initial boost in market confidence.
Have a wonderful week!
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com
