However, bad economic and/or bad political news may only be able to take the good vibrations on “ultra-accommodating rate policy” so far. Technical resistance for benchmarks like the S&P 500 are strong at the 2000 psychological level and the 200-day moving average (2069). Third quarter earnings season is likely to be a headwind as well, due to the high likelihood that revenue and earnings will decline; higher prices are not typically associated with falling sales and falling profitability. Last, but not least, the Fed may not provide the financial markets with the news that is currently anticipating. Chairwoman Yellen and her colleagues may simply decide that it is time to hike, if for no other reason that they will need ammunition to lower borrowing costs in 2016 or 2017.
For the majority of my moderate growth and income client base, I have maintained a lower risk portfolio than is typical. Throughout June, July and August, I explained the dozens of fundamental, corporate, macro-economic, technical, historical and practical reasons for raising cash/cash equivalents to 20%-25%. Similarly, we lowered our target 65%-70% equity (e.g., large, small, foreign, growth, value, etc.) down to 50% higher quality larger cap stocks, while the 25% in bonds have been devoted to investment grade.
A sampling of out stock holdings? Prominent ETFs include, but are not limited to: iShares S&P 500 (IVV), iShares Russell Mid-Cap Growth (IWP), Vanguard High Dividend Yield (VYM) and SPDR Select Sector Health Care (XLV). In some instances, we’ve been bargain hunting in the value bin. On companies that have been knocked for 30% bearish losses already – on public corporations that have current P/S ratios below 0.7 and below average 5-year P/S ratios – we’ve accumulated modest amounts. Kohl’s (KSS) near 50 met our “value” criteria, especially with its substantial real estate ownership, attractive price-to-book and 3.5% dividend yield.
Gary Gordon is president of Pacific Park Financial, Inc.