Fed Delay Opens the Window for Risk Taking

Here's What We're Thinking

October 6, 2015

Investment Strategy:  Fed delay opens the window for risk taking, but within the context of a range bound market

Equities: Expectations that the Fed could push rate hikes into 2016 has provided the cover needed for investors to raise risk appetite in the near-term. As experienced on many occasions in the recent past, we expect the improved sentiment on equities could be fleeting as global growth concerns, less robust corporate profit growth, uncompelling valuation, and an unpredictable Fed remain hurdles to a meaningful advance. M&A activity in the oil patch (see below) and the commencement of restructuring in the global resource sector has prompted a surge of interest in these sectors from investors that have been underweight. While some amount of M&A activity was bound to occur, we think the significant move in the energy sector is placing a higher probability of further M&A than what we expect may occur and is also pricing in an oil price outlook that is more optimistic than what the futures market is currently indicating. If expectations for further M&A activity are premised on a rosier outlook for oil, we suggest investors consider investing directly in the commodity (via an ETF) rather than the equities which are already starting to price in this scenario. We continue to view the financials sector (banks, lifecos, REITs) as compelling for income-oriented investors.

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