In honor of the Kansas City Royals currently sitting in 1st place and hoping to make it to the playoffs for the first time since 1985, this market commentary has a baseball theme. As August comes to an end, we have just reached the “7th inning stretch” with the lead.
This analogy can be applied to where we sit in the calendar year, but also to the historical bull market that we are most likely in the 3rd and final stage of (1st – beginning, 2nd – middle, & 3rd – end).
It’s not uncommon to see a baseball team who is winning a game bring in defensive replacements in the late innings to help secure the win. Defensive replacements are the players who don’t necessarily have the offensive skills to be in the starting lineup every night, but have superior defensive talent that justifies their place on the bench. In investment terms, these are the holdings in your portfolio that aren’t necessarily the top performers in the first two stages of a bull market, but help take some risk off the table and actually add a lot of value in the final stage.
The table below shows the last six market tops and ranks the sectors by their median gain/loss in the last 12 months of the bull market; it also shows how often each sector outperformed the S&P 500 Index (batting avg.).
Fortunately, two of the four top performing sectors (Energy & Health Care) prior to stock market peaks are also sectors that hold up well in bear markets (i.e., defensive). So now it’s time to bring in our defensive replacements to close out the game. There’s nothing worse than blowing a lead late in the game, right? I imagine we all feel the same way with our investments.
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.
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