The market continues to be caught in a tug-of-war between several opposing forces. Quantitative Easing provided by the Federal Reserve to the tune of $85 million per month is a positive influence on the market. The slow economic recovery that followed the Great Recession is trying to pull the market down. Several weeks ago, the potential military action in Syria was also a negative drag on the market. Most recently, the gridlock in Washington D.C. has added to the volatility of the market. When the battle of the budget and debt ceiling is over, it will be interesting to see which of the other forces will dominate. Will the Fed begin reducing their bond buyback program? Where is the economy heading? Will Syria reappear in the headlines? What currently unknown event will affect the market?
Due to the continued volatility and the potential for more volatility and maybe even a major correction in the coming months, Apollo Wealth Management will be very cautious with our clients’ investments. All of our portfolios are fully invested to take advantage of the current uptrend in the market, but we are invested in mostly low volatility hi-yield (junk) bond funds. Junk bond funds historically have followed the overall stock market with much less volatility. When the market corrects, we will have more time to move into cash than if we were in stock funds. If the market continues to trend up, we may decide to use a more aggressive long-short hedge strategy in our aggressive portfolios.
The bottom line is that until the market sees another substantial correction (15-20% or more), we will invest conservatively in all of our portfolios. After the next correction, we will consider investing more aggressively.