Whoosh!

One of our on-going Themes for 2015 and one that we talk about regularly on our weekly webinar is that Bond Markets lead other financial markets. On Tuesday we pointed out the historical correlation between the US High Yield Bond Market and the S&P 500 as an example of one of the many reasons why we continued to be very cautious and defensive with client portfolios:

It appears that the S&P 500 finally got the message yesterday and sellers emerged.

Volatility spiked to levels we saw during the Greek Crisis in June and it does not look like this is the end of renewed volatility as we head into September (historically the most volatile month of the trading year):

We do expect some initial buying support to enter the market at or near 1980-2000 in the S&P 500, however there are mounting uncertainties in the global economy and this still over-valued equity market index may face further downward pressure if longer-term selling (profit-taking) materializes. 

We think that there will be buying opportunities, but patience is required. We want to see clear signs of better value and new money entering the market before we would be comfortable to commit client capital.

Further, we are concerned about some of the deflationary forces (from commodity prices) that have been emerging and the Bond Market's are telling us that further caution is warranted for the time being.

We have also been rather vocal about the new low return environment that we are now in and this increase in volatility will contribute further to that.

Remember, that this is part of the ongoing cycle and over the longer-term, this will fade and we will return to growth.

Diversified portfolios that have been regularly and properly re-balanced will come out of this in a year or so to continue thier growth trajectory. 

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