Labor Day has passed and fall begins. I have been inundated with calls about unusual concerns on what the remainder of 2013 will hold for the markets. Now that Syria has been added to the list with debit ceilings, Bernanke replacement and the “tapering commencement” I am not surprised. We have had a good year if you were invested. With yields still historically low those holding cash have valid concerns. You will be getting your August statements soon and reflected in your performance is a 4.5% correction. As I have repeatedly stated, every year since 1945 we have experienced a 5% to 10% pull back. This one is text book, since it happened in the traditional August swoon.
How should we reason with the above events? These are short term effects not long term conditions. The market has already priced in tapering, does it really matter who the new Fed boss will be, and Syria may turn out to be a positive instead of a negative. The stage is still set for a meaningful rally and the Bull took August just to catch his breath. Bull or Bear is the subject of many of the TV debates, but remember bull markets don’t end until Monetary Liquidity ends. Going from 85 billion of bond purchases by the Fed to 65 billion is still stimulus; no matter how you view it.
Every measurement of market valuation still shows to be “cheap” from a historical perspective. The problem is behavior of the investor which now has gone from the fear of the market being overbought to oversold and afraid to commit.
Therefore, I personally, am still staying with my allocations 75% equities 25% fixed income, and using any downside to add to positions. Of course, your risk appetite will vary based on you goals as it should, but remember I do this for a living and my threshold for fear is very high. Like Kramer says (one of the facts I agree with), “there is a bull market somewhere.”