Investors have sauntered out on the tightrope of the risk curve as the Fed commits to supply liquidity to the markets. While employment numbers bested all expectations, they will likely stay stubbornly high through this new chapter of economic history.
As we enter a bullish regime, a market melt-up may retest June highs. Fundamental headwinds will likely slow the expected recovery to earnings. With ample liquidity from the Fed, we expect the environment to remain favorable for risk assets, particularly stocks.
The objective for advisors remains the same: protect client capital, rescue from risk, and try to emerge unscathed.
Market participants have embraced the quick rise so eagerly that even those unaware of the melt-up are attempting to profit, exposing themselves to tremendous downside in the process. Trading volume and volatility are important indicators, and as market concentration rises, finding informational inefficiencies gains importance.
We’re not here to predict the future, but to frame the rally. FOMO on lower bond yields seems to be setting the mood of the market. Only time will tell if the optimism of this rally hides inherent risks.
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What We’re Reading
- What Most Active vs Passive Debates Miss – A CFA article which discussed key questions that advisors should ask themselves when considering going active vs passive including having the proper tools.
- Like Many Black-Owned Firms, Brown Capital Doesn’t Get the Respect It Deserves – An excellent Barron’s article depicting the success of Brown Capital and how they overcame the odds for achieving consistent growth.
- A $10 Trillion Rally Hinges on Earnings that Nobody Has a Clue About – Bloomberg article that highlights the rally of the recent market and how it’s based on attributes other than fundamentals and earnings.
- Giant Dimensional Takes Aim at $4.4 trillion ETF Market – Dimensional Funds announce launch of new ETF products based on client demand to complement their mutual funds.
- IPO Dreams Die but Personal Capital Gets $1 Billion Price – RIABiz article that discusses the strategic acquisition of Personal Capital by Empower Retirement to support its success in the corporate 401k arena.
- Target Date Funds Are Performing Well – Choosing One Can Be Harder Than You Think – A Barron’s article that discusses recent outperformance of target date funds and some of the challenges of separating the superior funds from the pack.
- The Inflation-Deflation Debates and Its Implications for Asset Allocation – a blog post of All About Alpha that lays out inflation and deflation possibilities ahead impacting the asset allocation decision with the supply and demand shocks effects of COVID-19.
- The New 60-40 Portfolio – Excellent blog post from Michael Batnick at Ritholz Wealth Management on how to recalibrate the 60/40 portfolio for the lower return opportunity environment ahead of us.
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John DiBenedetto and the Portformer Team