At this point we are thankful for the financial gains that have come in this current bull market. Starting in March of 2009 we have had over 3,400 calendar days of gains, the second-longest growth run on record since WW2. In most accounts, we have held firm to the growth story keeping our foot on the gas and “overweighting” stocks in the investment portfolios.
Economic growth and corporate earnings in the U.S. and globally are strong. Earnings are the key to stock prices — if earnings and the outlook for earnings growth are rising then stock prices go higher and the stock market reflects a higher financial future. If earnings slow down, the market says stock prices should be lower and the stock market should reflect slower economic conditions.
Changing Conditions, Changing Strategies
The conditions have changed since the 2016 election and the 2017 corporate tax cuts. The range of economic possibilities has widened — investors are given fears of tighter financial conditions, higher interest rates, inflation, trade wars, and global populism. It’s time to build in some more durability and resilience into the portfolios. This bull market can carry over for longer than we think, and we’re not thinking a recession is around the corner, but we’re thinking it would be wiser to be better positioned to withstand a downturn.
We’re using this summer market rally to sell into the strength by taking some profits off the table in the investments that have centered on technology, software, and consumer-driven stocks. We still like these “momentum” stocks, but there are a lot of cheaper and good-quality defensive companies that will also do well over time. By moving some of the gains to more defensive positions, it may temper short-term returns, but there’s nothing wrong with having a buffer against future volatility. In addition, we will be holding a little extra cash to put to work in volatile conditions.
Put Cash Reserves to Work
It’s been many years since we have had an alternative to stocks for generating income. Short-term interest rates are rising and these rising short-term rates are attractive. We’re putting the reserve cash to work in short-term, high-quality fixed income that will protect principal and increase yield as rates rise.
No one can predict the future; we’re keeping our focus on economic conditions. As conditions change so do we. We’re harvesting profits and restructuring portfolios to limit market volatility that may come from tightening market conditions. The evidence is compelling enough to convince us to take our foot off the gas pedal and be more defensive.
Our goal is to keep your capital growing to provide you with the benefit of income over a long and healthy life. Look at your statements, and if you think there is too much or too little risk in your investments, please call and schedule a time to come in and review.
Thank you for your trust and confidence.