On the morning of August 6th, the Vita Investment Committee convened to analyze the recent market movements triggered by the Bank of Japan’s interest rate increases. Coupled with the latest financial reports indicating slower growth in the US and European markets, these changes have created significant ripples across global capital markets. 

We are diligently monitoring key indicators, including the VIX (Volatility Index), currency fluctuations, company earnings reports, major indices support levels, and other economic metrics, to assess the expected sell-off ripples beyond Japanese markets. Our firm is prepared to execute strategic responses within our portfolios as the situation develops.

Key Observations

• The CBOE Volatility Index (VIX) has reached its highest level since March 2021.

• The US jobs report from Friday fell below expectations (184k expected vs. 114k actual), suggesting a potential slowdown in the US economy. The US employment rate has ticked up to 4.3%, just above full employment, and GDP growth is still on track for Q3. The Atlanta Fed estimates a 2.5% GDP growth rate.
• Due to anticipated slowdowns in the US and European economies, there has been a significant selloff in Japanese equities today, the largest since Black Monday in 1987. This issue is exacerbated by a popular carry trade strategy, where investors borrow in Japanese yen at low interest rates and invest in high-growth assets. However, the interest rate expectations in Japan have made this trade less viable, leading to a substantial unwinding of positions.
• Tensions in the Middle East have escalated over the weekend, heightening investor concerns about broader regional conflicts.

Our Stance on the Market

Our investment committee actively monitors the situation to leverage informed decision-making with intention. As we navigate the current market volatility, it is crucial to maintain perspective and focus on fundamentals. 

 We maintain a strong conviction in shifting our focus towards small-cap and mid-cap domestic equities, anticipating substantial benefits from the anticipated decrease in interest rates over the next 6 to 12 months. Despite the developing selloff in Japanese markets, we remain confident in the presence of valuable investment opportunities in select international markets, particularly in India, where the prospects for long-term growth are notably promising.

 We are excited about the fourth industrial revolution’s transformative opportunities, particularly in emergent digital technologies such as cybersecurity, quantum computing, artificial intelligence, semiconductor development, and more. These fields of study and the resulting technology are developing at an explosive rate within geographical hubs like Texas, Georgia, and Tennessee.

 Additionally, we are optimistic about the advancements in aerospace and related technologies, which include private space exploration, propulsion technologies, and satellite technology. We are especially interested in companies with a proven track record of delivering on contracts in these areas. Lastly, we expect the energy sector to continue to allocate significant resources to advancing alternative fuels, green energy, clean energy storage solutions, and other substantial progress. 

 We believe the current market selloff represents a strategic buying opportunity for some. Of course, any investment decision will be based on your individual situation, and we’d be happy to discuss it. These recent developments may enable us to capitalize on the depreciated valuations for good-quality funds and companies and solidify positions that resonate with our convictions and investment selection.

If you have any questions, please contact me or click here to schedule an appointment with our team.