Investment Directions: MOMENTS OF ZEN
March 2016

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A Japanese zen garden is often a place of calm and meditation. Dry granite waterfall, rock islands, moss forest and gravel river are abstract expressions of nature and beauty, encouraging contemplation of the imperfection and impermanence in all things. Coming into form during a period in history when Japan was mired in warfare and political instability, the zen garden offered a quiet reprieve, a shelter from the nocuous elements.

Finding Solace in the United States

Financial markets have been looking for their zen garden after a frenzied start to the year. Rapid selloffs tapered off in the second half of February as the plummet in commodity prices eased. But fears about global growth and a slowing China continue to hover over investors’ minds. Amid mostly mixed economic signals, the United States is seeing some encouraging numbers from labor demand, consumer spending and inflation, which the Federal Reserve (Fed) could take as positive signals for policy normalization. At its latest meeting, the Fed left interest rates unchanged and appeared in less of a rush to raise them this year due to broad global uncertainty.

No Zen Masters

On the other hand, we believe Europe, Japan and probably China will continue on their easing paths. The European Central Bank (ECB) not only took its main policy rates lower, but also expanded bond purchases and extended cheap financing to banks. The comprehensive package beat expectations, but was initially met with a mixed reaction following Draghi's comments suggesting that future hikes were unlikely to be forthcoming. In a world in which central bank policy is losing some of its impact and global growth is in limbo, we think market volatility will pick up again. The relative market calm could be transient, like the changing patterns raked in gravel in a zen garden.

In the Blueprint

We maintain our preference for equities and find most safe haven assets expensive. Good opportunities are mostly in international markets, though inflation-protected assets and value stocks are worth a look in our opinion. Stay cautious with momentum and defensive sectors.

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This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

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