Recent Market Activity
Updated: Jan 17, 2020
Stocks continued to fluctuate yesterday as the trade war intensified between the United States and China. After President Trump announced last week higher tariffs on Chinese imports, China retaliated yesterday with a move to raise tariffs on American goods.
While the trade war has been going on for roughly a year now, this is perhaps, the most significant escalation in several months. Investors anxiously await to see when the next talks are scheduled, but with incentives for both sides, it is widely expected that an agreement will eventually be made. Investors should expect this to remain a trigger for market fluctuations for the remainder of the year. This last week has been a reminder that volatility has returned to “normal” and that while the economy is still overall healthy, there are rising risks to keep watching.
With the extraordinary rebound of the markets during the first few months of the year, I have started the process in many client portfolios of taking some profits in equities and other assets to better balance portfolios. My priority is always to look at market and business cycle fundamentals and not simply react to the latest news cycle. I manage your portfolios in the best interests of your long-term goals, cash needs, risk tolerance, and optimal asset allocation. Re-balancing portfolios and taking profits can result in capital gains taxes, and I will always try to control your tax bill, including re-balancing retirement plans first when possible. That being said, I firmly believe that “the tax tail should never wag the investment dog.”
I anticipate that many portfolios will hold slightly higher-than-normal levels of “cash” and while this is often frowned upon by clients, it is indeed a very important asset class necessary for reducing risk and providing liquidity for your shorter-term needs. With current money markets now yielding approximately 2%, there should be less resistance to holding this asset in your portfolio. The bond market (fixed income) looks very limited right now and even in shorter-maturity bonds, there are risks that are being overlooked by investors. I am asking all of my clients to be patient with me if we elect to hold higher levels of cash in portfolios.
I want to reiterate my commentary to clients that the economy is still growing in the United States and that there are many positive signs such as continued strong corporate earnings and low interest rates. Re-balancing is simply an important part of managing your portfolios and does not reflect any change in opinion from my most recent quarterly market update.
Please contact us with any questions or concerns. As always, we appreciate your business and trust.