The markets sure can be unnerving at times. That was certainly the case in the past week when we saw a global market sell-off on August 5th. This was the result of a combination of the unwinding of what’s called the Yen Carry Trade, which is an investment strategy that involves borrowing the currency of a country (i.e. Japan) where interest rates are low and investing it in a place where interest rates are high. What surprised many was when Japan decided to raise its rates. So, when this happens, traders then will need to cover higher borrowing costs by having to sell other risk investments; thus, contributing to the sell off. We also saw the volatility index (VIX) spiking to the highest level since the onset of COVID.
Also adding to this was the effect of last Friday’s jobs report wherein jobs created in July came in much lower than expected, coming in at 114,000 vs 185,000. This resulted in the unemployment rate rising to 4.3% vs 4.1% in June. This is important, as it affects the Federal Reserve’s next rate move, which is largely driven by whether prices are stable and employment is maximized.
Speaking of which, in its last meeting in July, the Federal Reserve also decided to hold rates steady instead of cutting rates. The expectation now is that the Fed will cut rates during its September meeting.
On top of that, there’s the risk of further escalation with Israel and Iran. These geopolitical clouds cast uncertainty and uncertainty is never good for the markets.
While we’re not ignoring these factors – hard to do with today’s constant media coverage – as of the time of this writing, the sky is not falling. Since the sell-off just a few days ago, we’ve seen the markets claw their way back. What a difference a few days can make. We are still operating under a long-term bull market, although recently our Global View Strategies (this does not include those of our other money managers) have followed its step-down protocol due to the volatility. If I may use an insurance analogy, what this means is that our GVCM tactical strategies have stepped down from having a ‘leveraged’ position. Likening it to an insurance policy, if the markets go down from here, then those strategies are one step closer to going fully defensive. If the markets mount an even further comeback from here, then they’re also positioned to ride the markets higher. The bottom line is that we have rule sets in place that guide our investing strategy in an objective and non-emotional manner.
Now that we’ve addressed the cause(s) of the angst many of us may have felt this past week, now let’s talk the obvious: what about the Election Year? I have a feeling this won’t be the only time I’ll be talking about this. The good news is that historically election years have ended up with positive returns. Interestingly, this is regardless of who wins. A big part of that is getting past the uncertainty, as markets prefer certainty. So, between now and when uncertainty is lifted, we’ll likely see a bumpy ride in the markets leading up to the elections. We’ll continue to pay close attention to this and the other factors we talked about earlier. That’s the benefit of having your portfolio tactically managed. So, for now, let’s keep calm and carry on. Please feel welcome to reach out with any questions. We’re always just a call or email away.
You can reach Chad Albano and the team at Global View Capital Advisors by scheduling an appointment here: https://app.acuityscheduling.com/schedule/7c4635ff
