Over the past several weeks, stock markets around the world have been volatile and are generally trading lower. Here in the U.S., while the S&P 500 remains in positive territory year-to-date, this broad stock market benchmark is off 9% from its highs in March. Much of the current investment market volatility is being driven by events in Europe. Elections in Greece, France and Germany were the catalyst to the recent downturn. Greece can no longer achieve consensus, so they are going to have another public election in June. In France, Nicolas Sarkozy has been thrown out and Francois Hollande has been elected, a Socialist with anti-austerity views. In Germany, Prime Minister Angela Merkel has lost a considerable advantage in Parliament and pressure is rising to ease strains within the EU. All of these political shifts can be attributed to the social turmoil resulting from the slow growth and high unemployment that is a derivative of the ongoing deleveraging and the austerity policies.
How does this “unrest” translate to the financial markets and client portfolios? We have long communicated that the process of deleveraging will be slow and marked by periods of both optimism and concern, influenced by the money-printing efforts of central bankers. Consistent with our views, we continue to favor more defensive portfolio positioning, cautious research efforts and proactive portfolio trading. In the first and second quarter, we have been actively trimming individual stocks where we have experienced exceptional returns and where valuations are stretched. We have also remained very disciplined as we select entry points for buying new securities. We continue to be patient in this volatile climate, knowing that a balanced approach is the right strategy. We also recognize that we have many fiscal problems here at home, the upcoming elections bring a threat of higher taxes and sluggish GDP growth, both of which are contributing to market uncertainty.
In sum, there are several things that we are doing in this investment climate. We are maintaining defensive portfolio positioning. Where opportunities exist, we have been purchasing new, attractively valued investments and trimming overvalued individual stock holdings. Our clients can be assured that we are actively monitoring the markets, and your portfolio, for both opportunity and risk.