By D. Scott Peterson
The market averages are at or close to all-time highs. Does that mean we are at a top in the market, that putting money to work here is too risky? Well, nobody knows for sure. We do know from experience that tops are a process and take time. Currently, there is nothing from a technical perspective that signals a top in the market. There are no major obvious divergences. And, small and mid-caps are leading the market higher. This is not a receipt for a market top. As long as pull-backs continue to be bought, we’re likely to move higher.
Here’s a strategy that may help your performance in this situation. Broaden out your investment footprint by researching to a broader array of sectors. There may be areas that perform well below the hood of the major averages. Areas of health care are good examples. It should be obvious by now that biotech is a screamer, but how about health care providers1 and medical devices2? Then there’s areas of technology3 that are working; specifically semi-conductors4. Is there anything out there that doesn’t have a computer chip in it? Broadening your holdings in sectors that are out-performing the market averages may be the key to better performance.
The SP500 declined 3.1% in January, gained 5.5% in February and is down .3% in March. This up and down action will continue as the markets near a turning point in Fed interest rate policy. The dollar is at a 12 year high, making our exports more expensive and crimping multi-national earnings5. With that in mind; you may want to take a look at mid and small cap companies. These are less exposed to a strong dollar and have been out-performing for that reason. These may be subject to a higher degree of risk please do your own due diligence.
The Nasdaq is poised to take out it’s 2000 March high. The media, of course, is all over this. Shockingly, it’s been 15 years. I thought it would take 10. It’s a lesson well-learned. Markets are risky, and can take a long time to recover. Are we there again? Probably not as this time we have real companies with real earnings. Think Apple, biotech, Google, Amazon and Facebook. Expect the financial media to talk about this one endlessly.
Most investors focus on yield as the only option for income. How much do CD’s, Munis or Corporate bonds pay and how long do I have to tie the money up is a typical question I often get. But there’s way more to generating return than focusing on just yield. If you focus just on yield you’re missing out on another key component of return: capital gains. You may not want to limit yourself to just interest bearing vehicles and take a hard look at dividend paying stocks. There are numerous high quality companies whose dividend yield is above average but is not guaranteed. And many companies raise their dividends each year but this isn't always the case. Don't just limit yourself to just interest bearing securities because of this reason. Consider your overall investment goals. Try focusing on total return, interest plus capital appreciation. Do you want to generate a lot more income? Do you want to retire earlier with more income? I've assisted clients for years to address these questions and I can help you address these questions.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations of any particular security, strategy or investment product for any individuals. Information contained herein has been obtained from sources believed to be reliable but not guaranteed. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The S&P is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. You cannot invest directly in an index. Past performance is no indication or guarantee of future performance. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Sources: Briefing.com, esignal charts1234 WSJ.com5, Street.com, Stockmarketmentor.com