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The Strongest Headwinds

08/23/2010

The equity market recovery in July has encountered multiple headwinds in August. I believe it began with Wednesday, August 11th's import data from China (Fig 1.1). Over the past few days, positive M&A news has been unable to lift the major equity indices from the lower end of this year's trading range. The market is concerned with the very strong near-term headwinds through which we are about to navigate. In fact, the headwinds in front of us over the next three weeks might be as strong as any other in 2010.


Safe haven assets such as Treasuries, the U.S. dollar, and the Japanese yen are desired once again. Clearly, the Baseball Season of Frustration plays on.


However, I encourage investors to avoid the temptation to adopt a complete "risk off" strategy. The next few weeks might be the exact scenario I detailed in an earlier commentary this year - investors must avoid the "risk off" temptation.


Hold firm to the core portfolio, underweight if necessary, but stay "in the game." Focus on remaining in front of the 2010 tailwinds - corporate bonds, exposure to developing world demand, and U.S. balance sheet strength. I remain confident in the ability of the capital markets to navigate past the headwinds.



As the summer winds down, I will provide detailed commentary on each of the near term headwinds through which the capital markets must navigate.


(Fig 1.1)

 


Source: Bloomberg

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