Why take risk off the table ?
Written by: Steven Bouchey
Why take risk off the table ?
We rebalanced our clients’ portfolios a few weeks ago in order to take risk off the table and some asked why with the markets rising like they have. After such a huge run-up in stocks over the past few years, we felt it was time to trim our equity positions and bring them back to their target percentage. If your target for a Growth & Income portfolio was 60% stocks and 40% bonds/alternative assets / cash, the strong rally may have brought your equity exposure to 70% or more. While the markets were hitting all-time highs almost daily, we felt it was prudent to pare back our stock exposure and bring our clients back to their target %.
Investors felt some volatility this week with all that is going on around the world:
• Ongoing problems in the Middle East, Russia and Ukraine
• US GDP report showed that our economy grew at a 4% annualized rate for the second quarter
• Federal Reserve statements on Wednesday
• Portugal’s largest bank, Banco Espirito Santo, posted a staggering $4.8 billion (yes that’s billion with a B) loss
• 10-year US Treasury yields spiking to over 2.6% on Thursday when the strong Employment Cost Index (ECI) came out higher than expected (up 0.7%), the highest jump since 2008.
• Argentina defaulting on its debt Thursday which wasn’t good for emerging markets.
• July’s Jobs Report added 209,000 jobs …see more below.
July’s gain of 209,000 nonfarm payrolls was slower than expected but shows that the economy is chugging along. The good news is that it’s not strong enough for the Fed to raise interest rates any time too soon which is the opposite of Thursday’s Employment Cost Index rising which had the same effect on Treasury yields – mixed messages for sure.
• Unemployment rate rose to 6.2% from 6.1% because the participation rate (workers in or looking to be in the workforce) rose slightly from 62.8% to 62.9%.
• June’s revision rose from 288,000 to 298,000 new jobs
Stocks were mixed earlier in the week before tumbling 2% on Thursday putting the S&P 500 Index in the red for the month of July but still up +4.5% for the year. As of Friday afternoon, the markets were down less than 1%.
We feel that our decision to take risk off the table was prudent on behalf of our clients and it may be a good time for investors to speak with their advisors about doing the same. Overall, we like stocks more than any other asset class and are optimistic that stocks will reward investors over the next few years.
Enjoy the month of August, before we know it, fall will be upon us.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bouchey Financial Group, Ltd. [“Bouchey Financial”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, no portion of this discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bouchey Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Neither Bouchey Financial’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Bouchey Financial is engaged, or continues to be engaged, to provide investment advisory services. Bouchey Financial is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bouchey Financial’s current written disclosure Brochure and Form CRS discussing our advisory services and fees is available for review upon request or at www.bouchey.com. Please Note: Bouchey Financial does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bouchey Financial’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bouchey Financial client, please contact Bouchey Financial, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.