This week’s Around the World asks a good question -Are You Worried About An Equity Market Correction? and looks to history for some direction. Thanks to AGF Wealth Management who has compiled the research on this (copy available at the end of this blog), we can see that for years with Mid Term elections in the US, market volatility has been high. Since just before the JFK assassination, the average US market decline during a MidTerm year is 18%. The article goes on to say two more things:
* markets have historically rebounded in the year following
* gold provides diversification
Our view is that government and corporate bonds do the same thing as gold, and offer investors the added benefit of monthly yield. Throughout 2017 our more defensive posture may have cost us some of the market upside. Should markets behave as we expect through, these bond positions will allow us to capitalize on market weakness by adding to equity positions.
This is a strategy that has yielded results over the long term and we look forward to mid terms as a buying opportunity -especially if the Democrats appear to be gaining momentum. Taking control of either House would stop the Republican agenda -and market momentum in its tracks.
In the interim, we are looking at overweighting in corporate bonds, balanced funds and equity funds with larger cash positions. We expect these to outperform in what is expected to be a rockier year.