The Fiscal Standoff and Smart Beta Strategies

Posted on October 10, 2013 | Investor Update

Mr. Market has so far kept a stiff upper lip in the face of the current fiscal policy debacle. The S&P 500 has only fallen modestly over the past few weeks, and prior to today’s bounce. The benchmark 10-year Treasury note’s yield remains notably below its early September highs. The relative calm displayed in the U.S. markets is occurring even as the federal debt ceiling may be hit seven days from now.

It is always difficult to draw a precise conclusion of what Mr. Market is telling us, and there have been some signs of shaky knees. The VIX, a measure of volatility, recently jumped to levels not seen since last June. Domestic equity mutual funds collectively incurred an estimated $4.1 billion in outflows last week, according to the Investment Company Institute. The last time estimated outflows were anywhere near this range was at the start of last May.

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