The market continues to display a great deal of volatility while showing a bias to the downside. Emerging markets also continue to head in a negative direction and China’s manufacturing sector is the worst it’s been since the 2009 Great Recession. Stocks across the globe are receding. Riskier bonds here in the U.S. have been declining virtually nonstop while the outlook for corporate earnings is deteriorating. We are facing the third consecutive year-over-year decline in quarterly sales; this hasn’t happened since 2009.
Presently, companies with significant foreign exposure are experiencing very challenging conditions. FactSet, a multinational financial data and software company estimates S&P500 companies with more than half their business overseas will report a 14%-plus drop in profit in the third quarter. And many large corporations from industrial equipment to shipping to corporate software and telecommunications have already issued caution of lower earnings and sales.
The good news for you? Whether you call it a bear market or not, you’re Portfolio is prepared for it! That’s because the All-Climate Portfolio is market neutral, meaning it can go long or inverse the market… the Portfolio does not depend on a rising market to be profitable over time. This last quarter is a good example: The S&P500 declined approximately 7.58% while the All-climate Portfolio gained roughly 6.5%.
While we expect a significant amount of volatility to continue, we will be focused on allowing the All-Climate Portfolio to do its job of being defensive by utilizing both cash and inverse positions to protect capital and capture gains in a declining market. As many of you know, July 1st marked the first day the Portfolio began utilizing a much improved technical indicator to maneuver in choppy market conditions, which seem to continue to prevail. Overall, the Portfolio is prepared for the expected difficult market behavior ahead.
As always, please contact us with any questions.
Thank you,
Greg
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