A picture can sometimes tell a story better than a writer. The chart below is of the S&P 500 from the beginning of the year until the end of the second quarter. January 1 start date is on the far left; June 30 is the last data point on the right. The solid horizontal line illustrates that the markets as measured by the S&P 500 are more or less where they started the year. What is worth noting is the amount of volatility. So far this year the price action in this market has been up and down and stasis seems to be right where we are now. The bar graph on the bottom of the chart is volume. Volume has been relatively stable except for the four days where there was a -2% change. Downside volatility (the market dropping) has been more frequent and stronger than upside volatility. Because of this type of price volatility and behavior, as well as other factors such as Greece, we are cautious here at this juncture. For the majority of our investors, the better part of valor means higher cash levels. This precaution is a capital preservation decision, not an investment decision since as we all know the interest rate on cash is close to zero.
Yes, there is a lot of noise reverberating in this market right now. Greece is disrupting global markets, China’s stock market is extremely volatile, and the US saga of “when will interest rates rise?” continues. To the surprise of many, gold has hardly moved at all. In past episodes of Greek Euro currency troubles, gold rallied as sort of a safe haven. Not so this news cycle. The reason, I think, is the specter of deflation (not inflation) is outstripping the current Euro currency problems. If inflation was viewed by the markets as a major issue AND there was currency uncertainty, we could rightly expect gold to rally. It seems that currency disruption is not enough to pull gold out of its recent malaise.
We can expect a few more bouts of volatility leading up to and through the Greek referendum on July 5th. There are simply too many variables and too many non-rational people to make an educated guess on how this will all conclude. We will get a respite from the markets over the long 4th of July holiday.