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.