Following the market herd
It’s hard to predict the future. Fortunately, it’s much easier to identify where the market herd is putting their money, and this action could evidently be a self-fulfilling prophecy for real, sustainable gains. Here are some key sectors which may help your asset allocation decision-making process and create a clearer picture of the years to come.
First, it’s notable for investors who are socially responsible as they staved away from some of the biggest losses as their allocation doesn’t include fossil fuels and is often overweight in technology companies. Oil losses led the market shock in February and still remains one of the biggest underperformers while tech was the fastest to recover. Oil has since recovered 13% from the all-time low and is down 43% for the year. Political intervention may support an additional rally as these assets were certainly oversold.
Most investors are waiting for recoveries in smaller/mid-size U.S. companies and they may be waiting a while longer. Unlike larger companies, small-caps can have weaker balance sheets and may not be able to withstand this crisis on savings alone. Additional Fed/Treasury intervention is expected. Germany recently announced a $9.8B bailout for Lufthansa and this may be the start of a new trend in moral-hazard.
Stocks that have already re-entered the bull-trend include U.S. large-cap growth stocks, consumer staples, health care, and technology. Patience is still needed for the traditional conservative dividend payers, as they include the beat-up stocks of energy and financials.
There’s little point in calling a top in technology and a bottom in energy, as this is almost impossible to get right. As a long-term investor, waiting for a recovery on your current loss positions is prudent, and then rebalance to a new allocation that matches your risk tolerance and time for when you’ll be spending this money.
Strong U.S. stocks include, growth, tech, staples, and healthcare
The weaker indexes are oil, small caps, and U.S. real estate
At Eureka Wealth Management, I’ll help you make portfolio decisions based on the new reality as you see it and offer guidance as the market herd can be an influential force. I also do financial planning, retirement income strategies, insurance and tax strategies. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.