Luft Financial Market Update August 2015

Luft Financial’ Market Update – August 2015

Global equity markets have been under significant selling pressure over the past week. The volatility catalyst seems to be tied to the recent moves China made to let their currency depreciate. The fear is that already weak emerging markets will suffer significantly more weakness as China exports its deflationary problems to the rest of the world.

While it is difficult to assess the magnitude of any period of panic selling in equity markets given that the performance variance of these events is so wide through time, we have conviction that the duration for this bout of weakness is likely to be measured in days or weeks…not in quarters or years. The near 15% sell-off in 2010 and close to 18% sell-off in 2011 were incredibly uncomfortable, but they did not mark the beginning of the end of the bull market. Keep in mind that the S&P 500 has experienced, on average, an intra-year drop of 14.2% over the past 35-40 years and we have had many positive longer-term outcomes.

The deepest, longest and thus most destructive equity market sell-offs have typically been associated with economic contraction. From our lens, we believe the odds of a global recession remain rather low. European, Japanese and American leading economic data continue to point to either healthy or accelerating activity over the next 9-12 months. This should ultimately translate into a better tone to earnings and help to place a higher floor under share prices in long term. It is times just like these when it becomes incredibly important not to give into short- term emotion, but to follow your pre-defined and long-term investment program.

We filter market noises by remaining focused on our long-term investment thesis. We buy and sell based on fundamental values, not price given. Our models are designed with quantitative measures such as standard deviation, or volatility, which guide our investment decision-making process. With appropriate diversifications and timely asset allocations, we trust the models will continue to capture most upsides in the bull markets while limiting sizeable drawdown in the market sell-off environments.

If you have any questions regarding your portfolio, please don’t hesitate to contact us at our office.

Regards,

Robert

Robert Luft, CFP®, CIM, Portfolio Manager, Luft Financial

HollisWealth, a Division of Scotia Capital Inc.