Which Way are We Headed?
Looking for areas of the market that are showing consistent strength has been difficult over the last few weeks. Money inflows have varied based on headlines highlighting the situation in Libya, economic data and corporate earnings. Almost daily, we are seeing investor’s favoritism rotate between equities, bonds and commodities with no sector showing consistent leadership patterns.
The current environment looks like volatility based on uncertainty. Investors are concerned that the situation in Libya, and as a direct result, an increase in oil, will put a damper on the consumer. The uncertainty lies in how long the situation will last in Libya, whether it will spread to other oil producing nations and if it will lead to a long-term increased price of oil. The fear is if there is a sustained increase in the price of oil, it will take money out of the consumers pocket and possibly send the U.S. into another recession.
The volatility and sector leadership rotation we are seeing has money flowing into equities when we see positive corporate earnings and economic data (specifically unemployment), then into commodities as tensions increase in the middle-east and more recently into bonds as more European debt got downgraded and China’s economy seems to be slowing. I am still positive that if the situation in Libya gets resolved quickly, we will see oil prices drop and result in a temporary slowdown to an improving U.S. economy and not one that drops us into another recession.
I am confident that a well-balanced mix of equities, bonds and commodities will allow investors to buffer short-term volatility until the uncertainties that are out there work themselves out.
As always, I stress that in this ever-changing political and economic environment, sensible diversification is the key to weathering any market uncertainties.
Jason M. Vavra, CPA, PFS
Disclaimer
The information contained herein is not considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Past performance is no guarantee of
future results.
