The S&P 500 closed above 1,900 for the first time ever last month, and continues to reach new highs. We are currently in the 4th longest bull market over the past 85 years, as it’s been over 5 years (March 9, 2009) since the last bear market ended. Currently, our research is still showing that the leading economic evidence remains on strong footing, meaning there is little chance that we drop into a recession over the next 6-9 months based on the solid macroeconomic and technical evidence. However, the odds are that we are now in the latter 1/3rd of the current bull market, due to the length of the bull market compared to historical bull markets (average between 2-5 years), and the advanced level of speculation in the market (current IPO environment and high level of margin debt).
So how are we positioned heading into the summer? Because the odds are that we’re in the last 1/3rd of the bull market, we’ve begun to rebalance our client portfolios and shifted the focus to a more defensive sector allocation. The rebalancing has consisted of taking profits from the consumer discretionary and financial sectors (which are sectors that historically average negative returns in the summer months), and over-weighting sectors such as health care, consumer staples, technology and energy (which on average outperform during the summer).
We expect the market to be higher at the end of the year than it is now; the 2nd half of a mid-term election year has almost always had higher returns in the market than the first half. Any changes to this strategy would depend on how the technical and fundamental pictures unfold over the coming months. Two warning flags that we’re currently monitoring are the housing market and the current 2-month decline in margin debt.
As always, please don’t hesitate to contact us at 913.402.6099 if you would like to discuss your current investment strategy and to receive a free analysis of your portfolio.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.