Following yesterday’s market note updating you on the events coming out of China, along with increasing risk factors here in the US, I wanted to give you a quick update on what we are seeing and have been doing within our managed account strategies.
In a market environment like this where volatility and market risk is rising our number one focus is on risk management. As you recall, we utilize multiple layers of risk management to help mitigate the risk of significant market losses.
We know that on average normal market volatility produces a 5% pullback 3-4 times per year, a 10% correction one time per year and a 20% correction every 3-4 years. While there is no way to know for certain if this current market instability will lead to a larger sell-off, what we do know is that we have observed additional signs of weakness in global and US equity markets.
As a result, we have been following our risk management protocol, actively monitoring our protective stops, and reducing our exposure to the most volatile assets. We continue to monitor the situation carefully, and once the uptrend returns we will look to put money back to work.
Only hindsight will tell us for sure if this is the end of the current bull market, or simply a corrective phase before the market resumes its climb higher. Either way, we believe it is best to err on the side of caution with an aging bull market and increasing risk factors.
As we always say, when the facts change so shall we.
Best Regards,
Kern
