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Current Views

September 30, 2013: Current Market Risks

Thoughts from our Domestic Equity Team

We believe that the risk environment has recently changed materially due to three events. First, the risk that the U.S. launches a military strike against Syria in the near term appears to have dissipated. Second, President Obama will not nominate Lawrence Summers to be the next Federal Reserve Chair, which leaves Janet Yellen as the most likely candidate, a shift that we view as reassuring for investors due to Ms. Yellen’s record of support for accommodative policy. Finally, at the September 18 meeting, the Fed surprised markets by leaving its asset purchase program unchanged, rather than reducing it as many had expected.

Following these events, we see the key near-term risk in the U.S. equity markets being the debt ceiling debate, which will come to a head in October. If negotiations exhaust all available time and the U.S. comes perilously close to the brink of default, we would expect the equity markets to go down while investors look to the safety of U.S. Treasuries, as occurred under similar circumstances in August 2011, though likely less severe than before since this brinksmanship is no longer new to investors. We would also expect some flight away from emerging market equities, but less so because we see the fiscal crisis as putting pressure on the Fed to continue its accommodative policies, including quantitative easing, for an even longer period of time.  Finally, we also see the possibility of a market “melt-up” or year-end rally following the resolution of the debt ceiling debate, and are looking to position portfolios accordingly.

Submitted by: Jason Benowitz, CFA

This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

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