Appleton Group further reduced invested positions yesterday across nearly all risk-managed and hybrid strategies. In our broad asset allocation strategies we have reduced stock market exposure over the past three weeks by approximately 80%, and bond market exposure by nearly 65%.

A quick word about the bond market: efforts by central banks such as the U.S. Federal Reserve and the European Central Bank to stimulate the economy have been largely ineffective but may yield results in the coming months. The broader bond market has actually seen rising interest rates in the past week, a sign that the Fed’s efforts to boost the economy may be slow but ultimately effective at creating inflation. That’s their job, but it may actually mean higher interest rates in the market while the Fed is trying desperately to lower rates for borrowers.

Certain portions of the bond market are holding up exactly as expected during this market turbulence, including short-term bonds and treasuries; however, corporate bonds, convertibles, preferred stocks and international bonds are all experiencing significant downside risks. We’ve reduced exposure to these segments across all strategies as appropriate. The volatility is most concerning, as the bond market is pricing in a wave of potential bond defaults due to the almost certain coming recession.

With the outsized amounts of money-market assets in our risk-managed and hybrid strategies right now, the risk-managed portions of these strategies only hold minor positions in U.S. Large Cap Blend and U.S. Large Cap Growth. We anticipate that these positions may also be reduced or eliminated as conditions warrant.