The 3rd quarter has come to a close – finally! All of the major U.S. indices officially dropped into correction territory, and we saw market losses that we haven’t seen since 2011. The Dow dropped 7.6% in the 3rd quarter, which is its third consecutive negative quarter for the first time since 2009. In addition, the S&P 500 dropped 7%, and the Nasdaq dropped 7.4%.
One of the biggest drivers is the current market uncertainty relating to the Fed, and when they are going to raise interest rates. Since the Fed chose not to raise rates at their September meeting, nervousness and volatility prevailed. All of the 2% daily moves in the Dow this year have occurred within the past month, while averaging 474 pt moves on those days!
So are we in a Bear Market?? That’s the million dollar question, and the jury is still out. Whenever bearish warning flags appear, there are two main ways to reduce risk in your portfolio – 1) reduce your allocation to the market by gradually taking profits in the most cyclical sectors, and 2) shift your portfolio to a more defensive sector weighting.
Since we have started to see some warning flags appear, we are looking at which sectors have historically been the most vulnerable in a bear market when adjusting our portfolios. At this time, we are currently overweight in the most defensive sectors (Consumer Staples and Health Care), and significantly underweight in those that have been most vulnerable (Materials, Consumer Discretionary, and Financials). Given our already defensive portfolios, further changes will be gradual and depend on any new evidence that appears in the coming months.
If you aren’t sure whether your portfolio is positioned properly for the current market environment based on the amount of risk that you’re comfortable with, we always provide a FREE 2nd Opinion Portfolio Review and would be more than happy to discuss your financial planning goals with you – please click here to schedule your meeting, or give us a call at 913.402.6099.
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.