The Dow Jones Industrial Average -while not the most comprehensive index, certainly the most prominent – is in negative territory for the year. (The more comprehensive S&P 500 index is hanging onto year-to-date gains by its fingertips – up 0.42%.) Volatility in the international and domestic markets has pushed significantly higher over the past few weeks. U.S. Fixed income looks like no place to hide given the anticipated September interest rate hikes. International fixed income has to contend with a strong dollar threatening meager gains. Many alternative strategies are zero-sum games, with more losers than winners after heavy fees are taken into account. After six years of recovery, will the inevitable cyclical nature of the global economy and financial markets change direction finally take us down?
As always, there are no guarantees. There is no way to control or predict the behavior of market participants or economic players. Anecdotally, however, I wouldn’t recommend panicking. The current negatives in the news cycle (Eurozone uncertainty, China’s slowdown) are fundamental problems, with fundamental responses from the market. In other words, the downturn in the markets has been largely proportional to the anticipated weakness in future demand. Oddly, I find the market pullback comforting. It’s like a constantly evolving theory of global strength that can stand up to the rigors of tests and scrutiny rather than a house of cards, built on irrational faith. I’m happy that bearish market pundits exist to deflate the bubbles of irrational exuberance which threaten stability more than a sideways market trying to find pockets of organic growth.