Good morning,
Today’s editorial is not sexy. It’s not good for marketing purposes and it probably won’t win you (or me) any new business.
But if you’ve followed me for a while, you know I think it’s important.
Right now is a good time to know your neutral.
What is neutral? It’s your baseline asset allocation.
It’s the allocation you should be in if your were to give up active investing and go totally passive. For clients of financial advisors, it is what MoneyGuide Pro spits out as the right mix of stocks and bonds based on age, risk tolerance, goals, etc.
This is critical to my investment philosophy because I believe active management and technical analysis should all be done relative to a baseline asset allocation.
A strategy that goes from 100% stocks on the way up and flips to 100% cash right before the market tops sounds great and will win a ton of business.
But the number of people who can run that strategy successfully?
Almost none.
The number of people that even need that?
Even fewer.
And the number of people that could stick with that strategy during the inevitable periods of severe underperformance?
Actually none.
I’m going to highlight some reasons for caution today. But add them all up and they do not trump:
Stocks at all-time highs
High yield spreads at multi-decade lows
So if you need to get closer to neutral, do so. It’s neutral for a reason.
But whatever that baseline asset allocation is, we don’t have enough bearish evidence to be underweight stocks.
This week’s report will review:
The S&P 500’s record snapback to all-time highs
Breadth
The dollar and rates ahead of the FOMC
A potential rotation into defensive sectors
The January Barometer
Technicals for the Mag 7 ahead of earnings
and more!
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