Navigating Volatility Through Year-End
We’ve been raising cash in client accounts to navigate increased market volatility as economic conditions shift. Here’s what’s happening and why we’re taking a defensive posture.
Current Economic Environment
We’re transitioning into a Lead 4 scenario through the end of December, characterized by:
- Slowing growth in the economy
- Declining inflation after a period of rising prices
- Stocks and commodities that were performing well are now reversing course
Key Concerns
The K-Shaped Economy Is Intensifying
- Wealth gap widening between high and low earners
- Rising delinquency rates on credit cards
- Increasing auto repossessions
- Housing and rent affordability challenges
Consumer Stress Is Showing
- Consumer sentiment declining sharply
- Political uncertainty and tariff discussions adding pressure
- Recent government shutdown concerns
Global Headwinds
- Most countries experiencing slow growth with persistent inflation (Lead Three)
- Japan raising rates while the U.S. attempts to cut them
- Cross-current monetary policies creating market tension
Why We’re Holding Cash
Volatility Control Funds Are Triggering Sell-Offs
- When volatility spikes, these funds are forced to sell by design
- Yesterday alone: $15 billion in forced selling
- Potential for another $40 billion in selling depending on volatility levels
Previous Winners Are Reversing
- Technology stocks showing weakness
- Quantum computing positions trimmed
- Clean energy and water investments sold as signals weakened
The Path Forward
Q1 2025 Looks Promising
- Lead 1 environment expected in first quarter
- The deeper the current downturn, the stronger the recovery potential
- The challenge is navigating through current volatility
Our Strategy
- Maintaining elevated cash positions for flexibility
- Monitoring “signal strength” before reinvesting
- Ready to deploy capital when opportunities emerge
This volatility will pass. We’re positioned to protect capital now while staying ready to capture opportunities in the quarters ahead.
