The brutal truth about successful investment is a simple one – the risks are not going anywhere, it is the cards one plays to dodge them skillfully. The chaotic performance of the equity markets this year reinforces a time-tested philosophy that risks are merely rotational -the old ones may fade only to make place for the new ones.
With threats like the slowdown of the Chinese economy and low oil price ebbing a little, the political crises around the world are likely to take center stage. Rising terrorist activities in Europe, Britain planning an exit from the European Union and the anti-trade stance doing the rounds in the U.S. presidential scenario are likely to emerge as the next major risks.
Meanwhile, the domestic scenario isn't quite reassuring either. The market is rife with apprehensions over the slowdown in recovery (with the IMF slashing growth rate to 2.2% from 2.4%), lackluster consumer spending (which remained relatively flat in February) and the Fed's inability to attain the annual inflation target of 2%.
Meanwhile, speculation surrounding the fate of the bull market is wearing investors out. Labeled as the “least loved and least trusted” bull market ever, the stock market has returned about 190% to investors since 2009. But it has been grappling with severe uncertainties of late, plagued by unfavorable economic indicators like interest rate hikes, trillion dollar worth of global government debt and panic-stricken central bank actions.
Making Sense of the Chaos
The cacophony of recent global factors – Japan's deployment of negative interest rates, Fed's relatively conservative stance on interest rate hikes (like its decision to scale interest rates by 0.25%–0.50%, as well as restricting future rate hikes this year to two instead of four) and European Central Bank's expansion of the bond-buying stimulus program – signals to assured volatility going forward.
In spite of the widespread chaos, developments like modest improvement in materials, energy and financial markets, decent job gains and impressive performance of the housing market restore hope. Also, encouraging retail sales and job projections are renewing faith in the newfound strength of the U.S. economy.
