By Terry Treiber, Chief investment Strategist

The big news of the past quarter is the price of oil falling below $100 per barrel. Some speculate it may drop below $65, but we’re not ready to go there yet.

It has been another tough month for investing. You can see how the indexes have fared in June and year-to-date in the table below. 

IndexJuneYTD12 months
Dow Jones Industrial Average-6%-15%-11%
Standard & Poors 500-7%-20%-12%
QQQ-6.5%-28%-20%
Emerging Markets-7.16%-19%-26%

It has been a challenging time in the mortgage market as well. A 30-year loan has gone from approximately 3% to upwards of 5.5% and applications are down 5.4%. 

In the debt markets, 30-year Treasuries are paying 3.07% and the 10-year 2.85%. The yield curve has inverted signaling the likelihood of a recession, with the 5-year and 3-year both trading above the 10-year, at 2.89% and 2.91% respectively. We have had two quarters of negative GDP growth, down 1.6% in the first quarter and now down 2.1% in the second, the government has not officially declared a recession. 

The committee invested significant time in discussing whether the markets have discounted future earnings, signaling an end to the downturn, or whether there is more pain to come. Estimates I have seen range from 3900 to 4800 on the high side to as low as 3500 or even 3300. 

Strategists have generally gone negative and are calling for slower growth and a recession but are sticking with their earnings numbers. The question is where will the earnings come out? In summary, stocks could rebound by 10% to 15% or could sink an additional 10% to 15%.

The Investment Policy Committee is generally cautious about putting new money to work. Our overall equity allocation stands at 45%, down from 60% in prior quarters. We are allocating the difference into debt, cash, and other investments that have a secure value associated with them. 

The biggest area of focus is in cash to give you flexibility and make reinvestments as things have continued to get choppier. The areas we feel most negatively about are international and emerging markets for both equity and debt. There is a deleveraging going on around the world that’s having an effect on markets and economies. We don’t see a lot of value there. 

Overall, this is a good time to rebalance and reposition. The current volatility and the likelihood that it may continue into the coming months also has us looking into investments that can provide a little stability like structured notes. The Investment policy Committee has found several that are attractive and TAG Advisors has worked with First Trust to provide some specific offerings with characteristics we like. Send me a note or talk to your OSJ if you are interested in finding out more about them.