Although stocks rebounded nicely Tuesday and the major indices appeared to regain their footing, we need to keep in mind that the August/September time frame tends to be tough sledding in the stock market. And with approximately 40% of the stocks in the S&P 500 down at least 10% from their highs, one can argue that we remain in correction/pullback mode.
The good news is that the S&P 500 opens on this fine Wednesday morning a mere 1.14% from the all-time high set early in the month. The point here is that while yesterday was fun, we need to accept that this corrective phase may not have ended just yet.
Sure, I can argue that the recent dance to the downside was just the type of pause that can refresh the bullish mood as some of the complacency was washed away. However, with Trump threatening to shut down the government unless he gets his wall built and the debt ceiling fast approaching, well, this may not be the best time to abandon a cautious stance.
Speaking of which, before I was consumed with the move, we were exploring a few different ways to manage risk in one’s portfolios. We first talked about what I will call the “BlackRock Method,” which entails utilizing a lower volatility approach in your equity exposure both here at home and overseas.
BlackRock’s research shows that utilizing “low vol” indices (the iShares Min Vol USA ETF – USMV – would be the poster child for this) is a great way to ride the market during bull cycles and to “lose less” during those nasty bear phases.
While I applaud BLK loudly for their public stance telling investors that managing risk is mission critical in the long run, I personally am concerned that the “low vol” space may have become overly popular during this specific bull market.
If you will recall, this has been one of the most hated bull markets in history due to the seemingly endless stream of crises (most of which stemmed from the PIIGS and the European banking system) that arose from 2009 forward. As such, a great many investors decided that if they were going to be invested in stocks, they would do so in a more conservative fashion. Enter the “low vol” and “high dividend” trade.
