Written by Lance Roberts, Clarity Financial
As stated last week, with our portfolios almost entirely allocated towards equity risk in the short-term, we remain incredibly uncomfortable.
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Our positioning in fixed income and gold has hedged the portfolio against the latest decline in the very short-term. Still, with the market getting very oversold short-term, as shown below, we expect a reflexive rally off of current support next week.
Most likely, we will use any counter-trend bounce to reduce equity risk a bit, rebalance exposures, and focus our attention on capital preservation for the next couple of months. With the virus resurfacing, the potential risk of disappointment to the earnings and economic recovery story has risen.
While it is easy for the mainstream media to write articles and post comments about the markets, it is an entirely different matter when you manage money.
Currently, there is a battle raging between the fundamental and “hope” driven narratives.
On the one hand, it’s easy to see the fundamental problems in the market and the economy, which argues for much less risk exposure. However, on the other, you have the Fed and a Government, ready to throw money at, and “jawbone,” the markets at a moment’s notice.
Trying to navigate the two is like trying to thread a needle, in a moving car, on a bumpy road, with your eyes closed. Given we aren’t prescient, we will have to resign ourselves to doing the best job we can for our clients with the information we have available.
That is a fancy way of saying, “we are going to give it our best guess.”
The goal remains the same as always, protect our client’s capital, reduce risk, and try to come out on the other side in one piece.
Sometimes, however, it just gets messy.