As football season is upon us it is appropriate to borrow a sports metaphor and suggest it is time to play defense. At least that is what several thoughtful commentators suggest.
Risk Revisited. “Memos from the Chairman”—penned by Howard Marks of Oaktree Capital—never fail to deliver thoughtful commentary. His latest memo cautions that investor behavior has “entered the zone of imprudence.” To use a sports analogy, “it’s the job of investors to strike a proper balance between offense and defense…today I feel it’s important to pay more attention to loss prevention than to the pursuit of gain…move forward, but with caution…[today’s market] conditions are creating a degree of risk for which there is no commensurate risk premium.”
Schwab Market Perspective: Diverging Paths…Growing Risks? Several key investor sentiment indexes have again moved into territory depicting extreme optimism. September has historically been the worst performing month for U.S. stocks. Combined with a September Fed meeting, continuing geopolitical uncertainty, and upcoming midterm elections, you have the ingredients for a pullback. However, despite these risks, a pullback would be a buying opportunity due to a longer term bullish perspective on the U.S. stock market supported by an economy gaining strength.
Markets’ Rose-Tinted World. “This has been an unusual year for the global economy, characterized by a series of unanticipated economic, geopolitical, and market shifts. Financial markets have been behaving as if they were in a world of their own. Financial investors have trusted in the steadfast support of central banks, confident they will eventually succeed in transforming policy-induced growth into genuine growth. Buoyant optimism pervading financial markets may prove to be justified. Unfortunately, it is more likely that investors’ outlook is excessively rosy.”
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