Market Outlook
April 2005 - Financial markets have continued to test investors' nerves and convictions this year, and will keep on doing so for the foreseeable future. This reinforces the need to have a clearly defined and well articulated investment plan: without it, emotions may take over, which is a recipe for disappointment. The ability to tactically shift assets successfully is not realistic for the majority of investors, whereas establishing an investment policy, sticking to it and rebalancing to ensure that the portfolio is well diversified is achievable for all investors.
U.S. economy continues to grow
The U.S. economy continues to run close to a 4% GDP growth rate, tops among G7 countries. This is good news, but certain industries are now operating closer to capacity. With rising commodity prices (oil being the most visible) working their way into the system, inflationary pressures are picking up.
Investors are reminded that the recent deterioration in the U.S. bond market has been largely driven by higher oil prices and fears that the Asian Central banks will reshuffle their U.S. dollar reserves, thus putting additional pressure on the greenback. We don't dispute that the U.S. currency has to depreciate further over the longer-term, but over the immediate future, we believe its fall has run its course.
Favor equities over fixed income
Consider maintaining an underweighted position in fixed income investments in favor of equities, and consider continuing to reduce your exposure to interest rate sensitive sectors, and overweighting cyclicals and natural resources. However, while the "supply/demand" imbalance in oil is a long term issue, over the shorter term, the energy sector has probably run ahead of itself and some pull-back could be expected. A disciplined rebalancing process would automatically take advantage of these short term anomalies, ensuring that investors' portfolios remain within established guidelines.
The information contained in this article is prepared from sources believed to be reliable, but Dundee Securities Corporation makes no representations or warranties with respect to the accuracy, correctness or completeness of such information. Dundee Securities Corporation accepts no liability whatsoever for any loss arising from any use or reliance on this article or the information contained herein. Any reproduction in whole or in part of this article without permission is prohibited.
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