Written by Mark Govoni
Equity outflows continue this week, with market leaders such as biotech, pharma and the technology sector as a whole experiencing increased profit taking. We expect that the global economic picture will remain muddled for the remainder of the year. The U.S. remains the primary engine of growth in an otherwise challenged environment. Our base case however calls for growth in both Europe and Japan, while many Emerging markets continue to struggle. Despite the oil sector induced earnings set back, we still believe that lower energy costs for consumers, will ultimately lead to increased domestic spending. It may be the fourth quarter before this becomes apparent to most investors.
To date the global correction appears to be following what we would characterize as a normal pattern. It has been our expectation that a re-test of the August lows, and perhaps a break below those lows, would be necessary before the all clear could be sounded. Frankly, it has been so long since we have seen a ‘normal’ correction that we have forgotten what they look and feel like. Curiously, treasuries have yet to respond, in a meaningful way, to the fall in equity prices. Granted, the ten year treasury yield has come down significantly since early January. One would expect, however, if recession fears were rampant we would see a repeat of February, when yields fell below 1.70%.
Currently we are watching what we own and are searching for opportunities that are beginning to emerge. While volatility is here to stay, the bull market does not appear dead to us at all.