The U.S. stock market has been remarkably resilient over the last couple of years. Amid a myriad of pressures, stocks have continued their post crisis advance to achieve new all-time highs in recent months. Unfortunately, such resilience comes at a cost, as the underlying fundamental reality is not at all supportive of the stock market gains in recent years. Instead, today’s market is one that is remains driven almost exclusively by capriciousness of policy decisions by the U.S. Federal Reserve. An investment environment so reliant on the whims of human decisions by independently acting policy makers is perilous at best. And following nearly five years of deliberate asset inflation across capital markets, we are now at a juncture where the potential risks to the downside vastly outweigh the future rewards to the upside, particularly if this policy support stands to be slowly withdrawn in the months ahead. Thus, an allocation to cash with an emphasis on capital preservation remains a most prudent strategy in an environment increasingly fraught with the risk of potentially major loss.
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