Content provided by J.J. Schenkelberg, CFA, CLS Senior Portfolio Manager
My family and I recently returned from vacation in Yellowstone National Park. An amazing place if you’ve never been. We hiked many beautiful trails – one (pictured below) took us across the plains and around a bend where we entered a deep valley carved by snow-capped mountains. Steam and water billowed from hot springs in the ground in great, misty showers, and I found myself thinking someone other than Mother Nature must have created this beauty.
But there were dangers lurking amid the tranquility. Not far from that beautiful picture, we encountered the following sign … about two miles from the nearest car.
My husband Jerry insisted we were OK without our bear bells or spray because we had our noisy daughter Tori. He may have been right. We escaped without harm, although Tori did mention one area of a trail smelled like the zoo. I admit I walked a little faster there. Although there were risks, it was well worth walking further into the park to take in beautiful sights that few people see.
The truth is there are always bears lurking around, but you never know when they might appear. Lately, the bears have been out with a vengeance in the financial world as a number of fears took hold of the market:
- Risks of the first Fed rate hike in September
- Slowing growth in China and the prospect of contagion spreading to other areas of the world
- China’s devaluation of the yuan, further pressuring the U.S. economic recovery
- Oil at price lows last seen in 2009 during the depths of the financial recession
Investors are wondering: Is weakness here to stay, and how low can equity prices go? The next few weeks are likely to be highly volatile as opinions fly on whether the Fed will or will not raise the Fed funds rate at its September 17 meeting. Bears are front and center in the debate. The decision to rise is feared harmful to economic growth and the decision to keep rates steady a sign of significant global weakness.
Following the release of minutes from its July meeting, Fed funds futures indicated the probability of a September rate hike dropped to 38%, down from 97.3% last November. Fed funds futures are not perfect, and many professionals still believe a September hike is likely. We’ll be watching releases on inflation and the U.S. labor market as major indicators of the Fed’s next moves.
But no matter what happens, there will always be bears in the woods. Making sure your portfolio is positioned appropriately, however, will help you make it off the trail unscathed and reward you with amazing sights along the way.