During the beginning of August financial markets experienced what many considered to be the beginning of a modest correction with the S&P falling 2.54% for the first three weeks of the month. Historically, one would expect a decrease in 10 Year Treasury rates as money flows out of equities and into bonds, but 10 year treasury yields rose 3.94%. (As treasury yields rise bond prices fall). A signal that FED tapering is just one step closer to an increase in stated interest rates, and something markets around the globe would have trouble digesting.
As the month ended, uncertainty over military action in Syria gained headline coverage and the equity markets dipped another 1.84%. 10 Year Treasury bond yields acted as one would anticipate and fell 2.45% as increased federal spending would likely keep rates low. Going into the third week in September the uncertainty surrounding both tapering and military action looks to have decreased. Syria is being “handled” by Russia, which limits the scope of a potential military response from the US, and the FED will taper but less than originally anticipated. In response equity markets have gained 2.94%, and 10 Year Treasury yields have risen 1.76%.
Although there seems to be less uncertainty in regard to these market drivers the media’s focus on them has put other noteworthy items such as GDP Figures, the Debt Ceiling, and Bernake’s replacement to the back page. As these items gain more attention the volatility experienced during the last month and a half will only increase.
Without significant support from consistent FED policies GDP figures will take on a larger role, which will be magnified by the debate surrounding the impending US Debt Ceiling. As we have seen over the past several months, markets react more to downward revisions of economic figures than upside surprises.
With such a large amount of change occurring in the near term it is important to have an investment philosophy that is intentional, well diversified, and focused on your long term goals. Attempting to market time during periods of increased volatility decreases your chances of creating more enjoyable moments that span generations.