Six months ago everyone expected a 10% market decline.  The stock market hasn’t had a down year in the past five.  We have been lulled by the market’s low volatility and the complacency around the world’s problems.  So, all of a sudden we wake up and wonder if we should sell stocks.  Geopolitical risks are bubbling up, energy prices are lower, the spread of Ebola is a fear and economic numbers are mixed.  Should you sell stocks?  It depends. We all talk about the importance of asset allocation but do we practice what we preach?  It is all too common to adopt the “glide” approach to allocating assets; we let our stock portfolios glide higher with a strong market, increasing our target allocation to stocks and convincing ourselves that we really can stand more risk.  Stocks glide higher, we feel good and the better we feel the easier it is[more…]

We’re moving into the later stages of a remarkable, five -year stock market rally, fueled by low interest rates and strong corporate profits. The S&P 500 is at an all-time high while the world seems to be on the brink of crisis; with unrest in Ukraine, Russian sanctions, an Ebola outbreak, weaker economies in Europe and the ongoing problems in Syria and Iraq. The stock market’s ho-hum response to what is happening around the world makes sense if there isn’t another attractive investment alternative. It’s now been five years since a major market correction. The US economy is still in recovery mode and corporate earnings are strong. Buying on the dips is still the norm and volatility is very low. Is a correction on the horizon? No, don’t expect a correction of the 2008 magnitude. However, a moderate market decline depends on what happens with interest rates and the relative[more…]

Interest rates generally move lower as the economy weakens and recession is feared or likely. That is not the case now. We are in the fifth year of economic recovery, the job market is improving and the Federal Reserve has telegraphed an end to the massive stimulus program.

The stock market is flashing yellow lights. It is dangerous to assume the market will climb forever and investors are once again bullish, a sign that caution may be thrown to the wind. Earnings have kept pace with stock prices until now but will need to hold up for stocks to move much higher. The market may have room to run, but it makes sense to show some discipline. You might pat yourself on the back today only to find you are kicking yourself tomorrow.