There was a flirtation with the 200 day moving average with one close below it before taking it back on Friday. I have figured out what trade to do if the S&P 500 does breach its the 200 DMA for a second day in a row (this is a catalyst for defensive action in client portfolios). I won’t front run that trade but am ready to take an incremental step if need be.
Where the 200 DMA is still sloping upwards I don’t think this is the real deal although I do think a topping process started in the spring as I have blogged about several times. The bottom line though will be to stick to my process.
In the last couple of days, I’ve found a couple of articles related to asset allocation and the problems that 40% to bonds might pose in the context of a 60/40 equities/fixed income allocation.
Barron’s had a write up about how to protect against rising rates. Read the article, it’s useful but might be overly complicated. Very short term Treasuries now have yields in the mid- to high 2’s. I bought some for clients this week. There are various ETFs that offer floating rate exposure and those products are generally have a good year. Over the last year or so I’ve reduced what little interest rate exposure I’ve had for clients to now just a little bit and I think that it is not too late for anyone who has not already done so. I’ve been writing for years about how bad I thought interest rate risk was and while there may not have been much consequence to it, it was still there.
Brett Arends wrote about some of the flaws and drawbacks to the traditional 60/40 portfolio. Again, read the article it is useful but I think portfolio construction needs to involve more than just stocks and bonds provided you’re willing to put in the time to manage your portfolio. He talks about periods of high inflation hurting real returns, which it does, but this can be mitigated, at least partially, with things like gold, TIPS, other commodities (that’s tricky and requires a higher level of time commitment) and possibly REITs (I say possibly as I am not truly sold on this attribute of REITs but I could be wrong).
