U.S. Markets closed

European Bank Panic Recharges the Summer Sell-Off


Just when investors thought it was safe to go back into equities, a crisis in France sent US equities plunging. The alleged catalyst of the European meltdown du jour is a rumored downgrade of France's AAA credit rating and a trading freeze on Italian banks.

France is the second largest economy in Europe and along with Germany, one of the support pillars of the future of the Eurozone and the Euro currency. The stability of those pillars are now very much in question. Any certainty offered by the Fed yesterday was quickly torn asunder by the European shakedown.

With a diminishing number of places to hide, Breakout turned to Market Strategist Kevin Caron of Stifel Nicolaus to see if he had any ideas. Caron's advice is as simple as it is difficult: "The only thing to do is take a deep breath and step back from the day-to-day." I pushed Kevin to walk through the nuts and bolts of putting together a soothing portfolio.

Caron notes that not just gold but also Treasuries have been performing remarkably well, pushing yields on the 10-year to the lowest levels since roughly World War II. This provides investors with something of a cap on return on the underlying bond before yields go flat out negative. The Fed's goal in keeping rates so low is to force investors out on the risk curve. Both Caron and I believe such thinking was part of the logic behind yesterday's stock rally. Today's trading illustrates precisely why the word "risk" is included in the concept of "risk curve".

Despite heightened equity risk, Caron still thinks your portfolio needs equities, but hedged with less traditional means via non-dollar denominated assets and, you guessed it, gold. Not all stocks are created equal, and Caron sees a method of minimizing exposure to the global economy by favoring "consistency over growth."

On the equity side he likes names such as Church & Dwight (CHD) and Pepsico (PEP); names with yield, cash flow, and dividend. Personal care and comfort food; if the idea of investing in stocks terrifies you, at least using the products will give you some solace.

Let us know your thoughts. Are you buying, selling, or holding on today's European-fueled panic?