Time to back down?
With the Fed sending mixed signals about its relatively long lived bond purchasing actions, aka quantitative easing, and nascent pressures on the broad consumer retail market, is it time now for the U.S. equity markets to take a rest. It may be.
We had a brief 5% pull back in mid- June but July was steadily upbeat - nothing outsized, just solid.
August and September could be a time when investors take a few gains, reexamine priorities, and just wait, wait, for more clarity from the Fed. There could always be some backtracking by the broader averages which would offer a better entry point for some investors.
There are those who say just buy in at any time and hold, don't try to price the market since it is generally impossible to do. Entry points however can affect a holding forever. Just ask me. In early 2008 it seemed obvious that the U.S. markets were heading for a period of uncertainty, but the catalyst was $2 billion of distinctly sub-prime mortgages. In the overall scheme of things that's not a big number but it would cast a pall over the market for some time, so brilliant me(and others) decided to unwind some U.S. index funds and move into non-U.S. funds. Little did I know, or most of the market know, that $60 billion of credit default swaps were written against those $2 billion of mortgage securities that had been marketed and thus traded all over the world. Old story now, but what lingers in portfolios here are broad based international index funds that are either still below their mid-2008 price or modestly higher. Then came March 2009 when there were so many bargains in the U.S. available with a risk/reward that was preposterous. Entry points are important.
If the market offers them up in the next few months, that could be an opportunity. There are many positive developments and potential positive developments surrounding the U.S. economy. Here there will be a wait, but if there is a retrenchment one beneficiary with dollars here will be RSP, an equal weighted, as opposed to market cap weighted, S&P 500 index fund. It takes the weight off of the slow growth behemoths at the top and allows for smaller growth companies to make a real contribution to the returns. The track record of this fund is excellent, the expense ratio is 40 basis points, and it is rated five stars by Morningstar. We'll see if the opportunity comes to find a good entry point. If not, so much the better.
We had a brief 5% pull back in mid- June but July was steadily upbeat - nothing outsized, just solid.
August and September could be a time when investors take a few gains, reexamine priorities, and just wait, wait, for more clarity from the Fed. There could always be some backtracking by the broader averages which would offer a better entry point for some investors.
There are those who say just buy in at any time and hold, don't try to price the market since it is generally impossible to do. Entry points however can affect a holding forever. Just ask me. In early 2008 it seemed obvious that the U.S. markets were heading for a period of uncertainty, but the catalyst was $2 billion of distinctly sub-prime mortgages. In the overall scheme of things that's not a big number but it would cast a pall over the market for some time, so brilliant me(and others) decided to unwind some U.S. index funds and move into non-U.S. funds. Little did I know, or most of the market know, that $60 billion of credit default swaps were written against those $2 billion of mortgage securities that had been marketed and thus traded all over the world. Old story now, but what lingers in portfolios here are broad based international index funds that are either still below their mid-2008 price or modestly higher. Then came March 2009 when there were so many bargains in the U.S. available with a risk/reward that was preposterous. Entry points are important.
If the market offers them up in the next few months, that could be an opportunity. There are many positive developments and potential positive developments surrounding the U.S. economy. Here there will be a wait, but if there is a retrenchment one beneficiary with dollars here will be RSP, an equal weighted, as opposed to market cap weighted, S&P 500 index fund. It takes the weight off of the slow growth behemoths at the top and allows for smaller growth companies to make a real contribution to the returns. The track record of this fund is excellent, the expense ratio is 40 basis points, and it is rated five stars by Morningstar. We'll see if the opportunity comes to find a good entry point. If not, so much the better.
posted by John Borden at 4:32 PM
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