Key Focus for Short-Term Financial Markets

Those of you who read my blog know that one of my key themes for investing is to focus on the long-term. Different asset classes will perform differently at various times throughout an economic cycle, some will out-perform while others will under-perform. 

Rebalancing a portfolio on a regular basis will allow you to capture some profitability (by selling the % of the asset that is above its target weight) from the out-performers (before they stop performing) and add to the cheaper under-performers while they are suffering.

Investors tend to want to sell under-performing assets (human behaviour) because they aren't giving them immediate gratification. In the same way, they are reluctant to sell out-performing assets.

The idea of rebalancing is to bring a portfolio back into line with it's original % allocations for proper diversification and balance.

That being said, we also need to have some understanding of 

what financial markets are doing in the short-term and what, if any implications there might be for long-term investing.

Current Themes:

1. Cheap borrowing costs are pushing asset prices to unrealistic levels.
2. This has come about as central banks on a global scale have been providing monetary stimulus (in an extraordinary way) in order to re-invigorate their respective economies.
3. As an exception (perhaps) the US Federal Reserve has been debating when to end their 0% interest rate policy.
4. While the US economy had been growing at a decent clip into the end of 2014, a stronger $US (and winter weather) has seen economic growth data show signs of slowing, especially the widely watched Employment Situation Report from last Friday. Is this just a temporary situation?
5. As the Fed has stated that it is "data dependant" for making any decisions, financial market participants are not convinced of the timing of the Fed's interest rate decision.
6. Be that as it may, September is still the most widely anticipated month for the expected beginning of the "normalization" of US interest rates, although there are more calls for a delay until 2016.
7. The impact of lower oil prices, while currently dampening inflation (stirring worries of deflation) is still not clear for both producing economies and end-using economies, although it is widely thought that a longer-term impact will be beneficial.
8. We are at the beginning of Q1 2015 earnings season and expectations are for significantly lower earnings (most of it oil price related). As earnings are announced, equity markets will respond (short-term) to actual results relative to expected results.
9. This could increase volatility.
10. In the short-term, volatility may present opportunity.

We are always looking for opportunities to put new cash to work and that is why we are mindful of what the short-term will offer.

As I mentioned in my blog yesterday, we believe that communicating our thoughts is paramount to maintaining solid client relationships.

Next Tuesday at 4:15 pm we will hold our first weekly client webinar (for clients and selected guests).

If you might be interested in hearing about the strategies we intend to employ through this period and the intended composition of our models, email bianca@highrockcapital.ca for an invitation.