By Joshua Schroeder
The strength of the current stock market rally has been impressive. The S&P is up nearly 10% for the year and nearly 30% since October of 2011. With the second quarter on the horizon I continue to ask myself how best to position my portfolio for Q2 and Q3 which have offered significant stock market pullbacks and presented challenges to investors over the past couple of years. As the markets have moved higher I have been selling my riskier growth positions while leaving my high quality core portfolio essentially untouched. As a result I am approximately 60% invested with the rest sitting in cash. I briefly shorted the S&P around the 1380 toggle but was quickly stopped out after a small loss.
Where do I go from here? On the one hand, solid economic data, growing corporate earnings and continued easy money from the Fed are all reasons why I continue to like this market and make me think I should stay about 60% invested and even potentially add an undervalued dividend payer or two to my core portfolio.
On the flip side I wonder whether it would be prudent to continue to remove portfolio risk in the face of continued financial stress in Europe, the looming debt problem in the US and the very real geo political threats emanating from the Middle East. Add to that the lack of clarity around economic policy resulting from the political transitions happening across the globe and it is difficult to see anything but storm clouds ahead for the stock market.
So with the fundamentals indicating a very uncertain near term future and the risk reward tradeoff less appealing after the recent run up, I have decided to continue to trim equity risk at the margin. If the market grinds higher I will reduce portfolio equity exposure to 50% keeping only more defensive larger cap dividend growth stocks that will pay me to wait.
If we get a pullback I will consider putting some cash back to work around S&P 500 1300 and more around 1275. Additionally, I will be paying close attention to the financials and the US residential real estate market as I believe upside surprises in those sectors would represent a turning point for the bulls and could drive this market much higher.
—————————————————————-
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.
No positions in any of the securities mentioned at the time of publication.
Twitter: @seeitmarket Facebook: See It Market
