As if everyone wasn’t uptight enough, bubble expert Jeremy Grantham warns that we’re in the last throes of a superbubble. that is about to explode. (To be fair, he’s been calling for about a decade.)
Still, if the big one is out there, it helps to be prepared. Our call of the day It comes from Real Investment Advice portfolio manager Michael Lebowitz who believes we may still be early in that bear market. It offers a simple bear market wealth strategy as buying and holding will not work in a sticky inflation environment.
He explains in a blog post how RIA repositioned client portfolios to prepare for a bear market earlier this year.
“Sensing that the Federal Reserve was about to withdraw liquidity from the markets, we began reducing our risk starting on the first trading day of 2022. We not only sold stocks to reduce our gross equity exposure, but went from higher beta growth stocks to lower beta stocks,” Lebowitz said.
He cut the percentage allocated to stocks and the types of stocks held, which he says has helped RIA portfolios outperform their benchmarks and all primary stock indices to date in 2022. He provides a chart that shows the benefits of this strategy during the Great Financial Crisis.
As he explains, $10,000 was invested in two scenarios in 2004. Buy-and-hold Scenario A was fully reversed throughout, while B is the same except during the 2008 bear market, when it hit 50% in the S&P 500. ., the rest in cash earning 0%. Dividends were reinvested for both.
Scenario B came out stronger because equity exposure was cut in half over two years, the adviser said. This strategy helped his portfolio strengthen 41% in that period, while similar action in 2020 and 2022 would have meant even better returns, he said.
In follow-up comments to MarketWatch, Lebowitz said RIA reduced exposure in terms of allocation and shifted to lower beta (less volatile) stocks in early 2022. “We will probably hold a smaller than normal stock allocation until it looks like the Fed is really going to pivot,” he said.
“We are moving away from technology towards public services and health care, for example. We also kept our inflation hedge/exposure with energy and some materials companies,” he said. Some of his holdings include NextEra Energy NEE,
Duke Energy DUK,
Abbott ABT Laboratories,
CVS Health CVS,
Exxon Mobil XOM
and Devon Energy DVN.
“The lower beta and the lower exposure have been a big winner so far,” he said, noting that his portfolio was outperforming its benchmark by 5% when the market peaked two weeks ago. He also highlights value over growth, noting a 9% drop in the iShares S&P 500 Value ETF IVE
vs. a 22% decline in the iShares S&P 500 Growth ETF IVW
so far this year.
Lebowitz believes markets are facing liquidity headwinds as the Fed lower your balance and focuses more on sticky inflation than the economy.
“This Fed has a very different job than the Fed we’re used to,” said Lebowitz, who worries investors haven’t gotten that. “What worries me is that this time it’s different.”
Chipmakers are trailing YM00 stock futures
southwith bonds BX:TMUBMUSD02Y
liquidation, CL oil
and gold GC00
down and the dollar dxy
higher. Bitcoin BTCUSD
it’s just under $20,000.
is under Unstable demand for China’s EV makers as Li Auto LI
and XPeng XPEV.
Meanwhile, a COVID-19 lockdown is hitting 21 million residents of China’s automotive and technology hub, Chengdu.
Novo Nordisk DK:NOVO
You are buying Forma Therapeutics FMTX
in an all-cash deal valued at $1.1 billion.
Chipmaker Nvidia NVDA
is depressed by the news that the US is pushing him to curb its data center business in China. Broadcom AVGO
Will report after closing.
Weekly jobless claims fell to the lowest level since late June. Second quarter labor productivity was revised to a negative 4.1% from an initial estimate of a 4.6% drop. Still to come is the Institute for Supply Management’s manufacturing and construction spending index at 10 am. Atlanta Fed President Raphael Bostic will comment later.
Ravil Maganov, president of the Russian oil giant Lukoil, a critic of the Ukraine war, He reportedly died after falling from a hospital window..
West Coast heat wave prompts California officials to declare a grid emergency and put out fires a major highway in the south.
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We go back to a chart of the S&P 500 earlier this week from BTIG Chief Market Strategist Jonathan Krinksy, who had his eye on 3,900 line in the sand.
“Futures dipped to 3924 overnight (at ~9pm ET). our meaning is us
they are close to a short-term bounce, but failing to hold 3,900 given oversold conditions would indicate June lows were in jeopardy,” he said on Wednesday night.
Blogger Bonus Graphic the ear of the marketwhich notes that the S&P 500 has been hovering below its 200-day moving average for a while, and the last time that has happened.
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