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Equity Losses Still Likely
Stocks put in a valiant effort to rally on the back of better-than-expected PPI and consumer sentiment. But the news from JP Morgan was too much to overcome, and the day ended with losses.
I think I see the start of a trend.
As discussed in my last blog entry, the recent weakness in the markets is completely justified, based on continued economic uncertainty. Without another round of QE in the fall, traders will get increasingly nervous about the resiliency of the economy. And don’t forget the debt limit, which will be hit again in the fourth quarter.
Additionally, I sense growing unease in the fixed income sector. With the 10-year bonds at 1.84%, Treasury yields may not have much further to fall. In that case, it is fair to question the ability of a fixed income allocation to generate diversification within a traditional stock-bond framework. I anticipate that we may be making significant changes to our asset allocation in response to these new challenges.
Europe has now gained the spotlight as a major reason for investor angst – and that’s where I’m heading. I plan to blog several times during my trip next week to report on how the situation in the E.U. is effecting investor confidence in that region. Stay tuned.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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