So what now?
After the dismal month of May and a world of drama on Friday following those very poor job numbers, we felt compelled to write at least a short note this weekend. We had one of the best quarters ever to start the year, followed by giving most of it back. Risk on, risk off. More of the same. So what are we to think now?
Well, first of all, I think we need to stay calm. It is easy to feel panic when things go sharply south, and easy to get excited when things look better and markets rally. But it is impossible to tell what is coming next. Developments month to month cause big swings, and we have to get used to that; it is unlikely to end anytime soon. As we have said many times, set the right risk level—basically, your percent of equity—and be prepared for a rough ride.
Let me just remind you that corporate earnings continue to be high, and cash balances are as well. Innovations and new developments abound. But all this uncertainty causes companies to hold back on what could otherwise be productive investments, and people will not spend money in a climate of fear. Unfortunately that can mean a protracted period of anemic growth and high unemployment, but it does not necessarily mean bad equity returns. Buying when people are fearful and prices are relatively low often works out rather well in the long-run. But no one said it was easy.
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