Hurricane Season is Upon Us, Should You Hunker Down Your Portfolio?

d47ac4ee8c0e8a61009f_7f78ccaadc0210305060_e7af90e5bde779456804_carousel_image_22a436d8b2ac5f441228_aa21b1f3d0483b9b8376_TAP__300x250_-_Updated.jpg
1cd46ae8a485972ffa8a_1de68aa4d7fd555cf63b_fc78622e3c88d8f890e1_f24c90b2a1a21bb21e4e_7ddfb72ff6e1d83b9600_9d1e1894682b10662c7b_carousel_image_c91dfc7880434179fee8_2afb9de2427fb7361095_John_Final_6.jpg
Point View Wealth Management's Managing Director and Portfolio Manager, John Petrides.
d47ac4ee8c0e8a61009f_7f78ccaadc0210305060_e7af90e5bde779456804_carousel_image_22a436d8b2ac5f441228_aa21b1f3d0483b9b8376_TAP__300x250_-_Updated.jpg

Investors remain skeptical about embracing stocks given the recent rally. Volatility in 2016 has been sharp and dramatic to the upside and downside. Following the devaluation of the Chinese currency in January, the S&P 500 experienced its worst start to a calendar year ever! Worse than 1929, 1930, 1979, 1987, 2000, 2001, 2008, and 2009. However, from February 11 until June 23, the S&P 500 rallied 14%. Then Brexit happened. Over the next two trading days, stocks fell on average more than 5%. After taking a deep breath, from June 28 through the month of August, stocks rallied 9%. This volatility has programmed investors to expect the next shoe to drop, but will it happen?

This is a very difficult question to answer. Stocks will most definitely sell off, the question is when? For the past 36 years, the average drop in the S&P 500 during the course of a year from peak to trough was 14% (this includes the 34% intra year sell off in 1987, 49% in 2008, and 28% in 2009). Yet the S&P 500 finished positive 27 of those 36 years!* Given all of the turmoil over the past several years in the stock market, investors should understand that a market downturn doesn’t signal the end of the world, but rather a long term buying opportunity. Without a crystal ball, timing a sell-off is impossible. Yet there is a sense among the investment community to brace for a big storm.

Typically, if stocks rise, bonds fall, and vice versa. However, 2016 has seen bonds rally along with stocks. Ironically, for as much distrust as there is of stocks, investors are very skeptical of bonds. Rates can’t stay low forever, can they? Long dated bonds are not attractive at the present moment. Although Fed language has been an enigma, the case to raise rates is building again. Historically, US Treasuries have offered risk-free-returns, yet with yields as low as they are, investors could be buying return-free-risk. At current prices, US Treasuries are expensive protection for a stock market sell off.  

Sign Up for E-News

Stock valuations are not table pounding cheap, yet far from bubble territory. However, the environment remains supportive for stocks: inflation is low, global central banks are accommodative, corporate balance sheets are flush with cash, and nearly 65% of the stocks in the S&P 500 have a higher dividend yield than the US 10 year Treasury. Finally, and most importantly, last quarter, nearly 70% of the companies in the S&P 500 have once again outpaced Wall Street analyst expectations, signaling that the estimated “E” in the P/E (price-to-earnings multiple) may be understated.

Now is a good time to add to sectors that are underweight in the portfolio. Financial stocks look compelling. The market is convinced interest rates will be lower for longer. Bank stocks have suffered. Also, look at cyclically sensitive stocks for compelling long term investment ideas.

On the other hand, the utility sector looks expensive. Global investors have piled into bond like proxies. Utilities fit that bill. After posting a negative 5% total return in 2015, Utilities are up nearly 15% in 2016, and in some cases trading at premium to the S&P 500 on a price-to-earnings basis.

What to do? Remain disciplined to rebalancing your portfolio. Review your allocations among stocks, bonds and cash. Dive deeper into each asset class and make sure one sector, or credit quality, is not dominating the portfolio. Continue to allocate equities in your taxable accounts and fixed income in your tax sheltered accounts. 

Your asset allocation strategy should be consistent with your risk tolerance and investment objectives. Short term volatility in the stock market should not alter your long term financial goals. Finally, diversification remains key. Make sure your combined portfolio allocation does not fully lean to one side of the boat. Investors that remain disciplined to spreading out risk and rebalancing to an equity target regularly will build solid investment returns for the long term.

* JP Morgan Guide to the Markets, 6/30/16, pg 12

Note: John J. Petrides, MBA, is a Managing Director and Portfolio Manager at Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Ave., Summit. 

CNBC has named Point View to its list of the Top 100 Fee-Only Wealth Managers in America!

Point View Wealth Management, Inc. works with families providing customized portfolio management services and comprehensive financial planning, to develop and achieve their financial goals. We are independent and fee only.  How can we help you? Contact John Petrides (jpetrides@ptview.com), David Dietze (ddietze@ptview.com), or Claire Toth (ctoth@ptview.com), or call (908) 598-1717 to learn more.

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

TAP Into Another Town's News:

You May Also Be Interested In

Sign Up for E-News

Summit

Upcoming Events

Carousel_image_92eaadab4fea5d764092_edc2dcd4802a1c409d7c_screen_shot_2018-04-03_at_1.15.57_pm

Sun, May 20, 8:00 AM

Summit Summer Farmers Market, Summit

Summit Farmers Market

Community Calendar Food & Drink Green Health & Wellness

Carousel_image_8a7c365763b477fb7884_90ed89bc3f325321287c_screen_shot_2018-04-27_at_12.56.00_am

Sun, May 20, 2:00 PM

Summit High School, Summit

Summit Symphony Orchestra Concert

Arts & Entertainment

Carousel_image_b7bf86ab9b5cba4793d9_347facfa8ac6817752ac_19055513_10158829487705483_8854478692329281822_o

Mon, May 21, 7:45 AM

17 Kent Place Boulevard, Summit

Monday Morning Yoga

Health & Wellness

Summit Police Blotter

May 17, 2018

4/24 - At 0728 hours a report was taken for a theft of two (2) sandwiches from a business on Morris Avenue. The manager reported that at approximately 0330 hours a male entered the business and removed two sandwiches from a refrigerated case. After doing so, he exited the store without paying for them. The male suspect was described as Hispanic, approximately 6’0”wearing a blue/gray ...

College for Teens Program at Union County College

May 20, 2018

CRANFORD – This summer the Office of Continuing Education at Union County College is offering the 2018 College for Teens program sponsored by the Union County Board of Chosen Freeholders.

The program is offered for two sessions. Each session will be held for two weeks and will meet from Monday through Thursday. During the session students have the chance to explore and research careers ...

Young Life Trivia Night at Calvary Church

Ever wonder what Young Life is all about? This is a chance to enjoy a fun night of trivia and hear about the heart of Young Life in Summit.

Teams 
A team consist of 6 to 8 players. Partial teams or individuals are acceptable. Trivia Night is for all players age 10 to age 100+

Food & Drinks
Pizza, salad, snacks and soft drinks will be served

Prizes
Given to the 1st, 2nd ...

Stocks Can Rise in a Rising Interest Rate Environment

Investors remain concerned about the potential impact of higher interest rates on stocks. In their most recently released minutes, the Federal Reserve Open Markets Committee indicated the US economy is on solid footing and the economic conditions warrant continued gradual increasing of interest rates. This set off a sale in the stock and bond markets as investors began pricing in a fourth ...

AtlantiCast

AtlantiCast: Episode 15

On this week’s AtlantiCast, learn some important tips for controlling and avoiding diabetes from an Atlantic Health System expert, see how Atlantic Health is advancing cutting-edge research, hear what’s being done to keep health care environmentally friendly and much more!

 

Managing the Ups and Downs of First-Time Homebuying

They accepted our offer, now what?

At times both equally exhilarating and terrifying, the purchase of a home can be a total roller coaster ride -- especially when it is your first time going through the process. Between suddenly being expected to understand the intricacies of contracts and the inner workings of a home, you are also expected to start writing checks for amounts you may ...

SURVIVING A STROKE: Quick Medical Response Gives Mom Her Life Back

Carotid artery dissection. It’s one of the most common causes of stroke in younger adults.

And while you might not associate the word “stroke” with younger patients, the condition – if not treated immediately – could lead to paralysis and even death.

Lindsey Singh can attest to the importance of immediacy. The 31-year-old mother of two from Flanders experienced ...

Avenging Movie Credits

Warning! Nothing you read here will spoil Avengers: Infinity Wars because I didn’t understand it.

As a vibrant, relevant, totally hip and “with it” dad I am proud to say that I have now seen every movie in the Marvel Cinematic Universe.  All nineteen of them.

I am less proud to admit that, of those Marvel movies that I can remember, I didn’t understand any of ...