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When the Levee Breaks, Panic Is Not a Strategy

edited May 6 in Other Investing

***It's been a mixed-to-weaker bag in terms of macro drivers and we expect significant bouts of volatility to persist. Based on the initial report, the economy contracted in the first quarter, but consumer spending remained relatively healthy. Although inflation may have peaked, it's unlikely to decelerate quickly, putting increasing pressure on the consumer looking ahead. Investor sentiment, as measured by surveys, has turned pessimistic, which could provide some support for stocks; however, behavioral measures of sentiment do not yet show a "washout," or full-scale capitulation.

Last year was a story of pro-cyclical (or demand-pull) inflation, while this year it's turned into a story of counter-cyclical (or cost-push) inflation. The pressure associated with the latter should be somewhat proportional to the power of the former, which suggests even if some measures of inflation have peaked, the negative economic consequences are likely not yet in the rearview mirror.

This is not a time for investors to take on risk outside the parameters of their strategic asset allocations. It is a time for investors to employ traditional disciplines around diversification (across and within asset classes), to focus on quality in terms of stocks' fundamentals, and to stay in gear via periodic rebalancing. In the case of rebalancing, it's one of the investment world's greatest disciplines, as it forces investors to adhere to a derivative of the adage, "buy low, sell high," which is: add low and trim high***

Imho MAYBE good to be patience, hold the course and wait for storm to pass...
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