New Strength Behind Risk

Market Trends - 21/07/2015

Amidst the lack of news in the doldrums of these summer months, sideways trending risk assets have staged a climb devoid of normal catalysts. The low trade volumes and period of inactivity is indicative of a disinterest in finance recently and the illiquidity in the global markets. In recent developments, the dollar has retreated from its five-year highs seen yesterday after the speech made by St. Louis Federal Reserve President James Bullard. Its slope downwards today has pushed peer currencies up, in addition to a rise in the energy and precious metals markets. Though traders are rightfully stacking their chips on risk assets right now, caution must be taken. Momentum in these market conditions can turn on a dime, leaving less vigilant traders in the red. A smart move would be to balance risk and reward within portfolios, given the proclivity of abrupt swings in choppy waters like these.

Stocks did not see positive movement in this reversal of high yield assets, with European benchmarks sliding downwards on the tail of week-long booms due to the latest Greek bailout successes. Investors looking to buy into the market may benefit from finding entrance points in times like these, especially if investing for the medium-to-long term. Recent bursts upward in equities and currencies may likely retreat 30-60% as the market rights itself, before potentially resuming their trend skyward. Many investors may try to capitalize on the softer dollar and the interest rate hikes hinted at by the Fed, but they should be wary that entering at the wrong time may well be as bad as entering at the top. Calling bottom in conditions like this is extremely risky. Predetermined entrance levels are safer, and the use of dollar-cost-averaging may be beneficial compounded with a careful analysis of such trades, especially given the state of the current markets.

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