Since 1895, the Dow, using daily data, has spent just 4.32% of its time at “new highs.” The rest of the time, investors were simply making up previous losses...
Where does that leave us now in terms of our portfolio models?
I noted last week that we added some of the cash we had raised on rallies over the last couple of months back onto the equity side of our portfolios. However, we still maintain an overweight position on cash currently as a hedge against potential market risk. (In this case pathway #2c)
If the market is able to move above last week’s highs, we will add further exposure to equity risk side of the portfolio. But, we will do so with very tight stop-loss levels and with added hedges as necessary. A failure of support will keep our cash levels elevated and we will wait to see where the market finds its next support before taking further actions.
Our concern over the broader market remains, and I have expanded that list further this week:
The Fed is raising interest rates and reducing their balance sheet.
The yield curve continues to flatten and risks inverting.
Despite strong earnings this past quarter, valuations remain very elevated.
The lack of liquidity in both the bond and equity markets are of great concern.
Market leverage remains at historically high levels. (Which isn’t a problem until it is.)
Credit growth continues to slow suggesting weaker consumption and leads recessions
The ECB has started tapering its QE program.
Global growth is showing signs of stalling.
Domestic growth has weakened.
While EPS growth has been strong, year-over-year comparisons will become challenging.
Rising energy prices are a tax on consumption
Rising interest rates are beginning to challenge the valuation story.
We remain invested, but are also highly aware we are closer to the end of the “bullish-half” of the market cycle than not.
Why? Valuations, silly.
“Only 9% of the time in history have U.S. stocks been so expensive.” – David Rosenberg, Gluskin-Sheff
Rosenberg recently showed a table of gross domestic product (GDP) growth figures during the last nine bull rallies. The table reveals a dire trend where each subsequent bull rally in the last 70 years generated less GDP growth. The important message is that investors have consistently been paying more, for less growth.
http://www.zerohedge.com/news/2018-05-20/another-nail-buy-and-hold-coffin
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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