Brad Sorensen, CFA-Head of Market Research
Bulls make money, bears make money…and pigs get slaughtered! If you’ve been around the stock market for any amount of time, you’ve probably heard that phrase—and it may be time to bring that saying to forefront of your thinking. The S&P 500 has gained over 90% since the lows set back in March 2020 with the onset of the Covid-related shutdowns.
A remarkable performance!
But the past doesn’t matter—only the future and judging by recent action the near-term future could get a bit bumpy. 2nd quarter earnings season is nearing an end and we’ve seen great results from multiple companies—but often they’ve failed to be rewarded by the market to the extent you might expect. This doesn’t necessarily mean the we’re in for a sharp downturn but it does raise caution flag or two. Additionally, we’ve seen some technical indicators showing the institutions are moving more money out of the market than into it—another indicator of potential near-term weakness.
Certainly, the economic data and corporate picture look solid, with the US economy recently moving past the point of making up all the ground it lost during the Covid shutdowns. But am I telling you something you didn’t know? Remember—the future is what matters—and it’s getting more difficult to imagine things for the market getting a whole lot better. One of my mentors, Liz Ann Sonders, had a saying that absolute levels don’t matter—it’s only better or worse that matters. Stocks don’t care if things are great, only if things are going to get better or worse in the future—and, while things may stay good for a while, it’s tough to imagine them getting much better.
So what should you do?
This doesn’t mean the you should sell everything and hide! It means that it may be time to take some profits on some of your major gainers so you have some dry powder to use if we do get a pullback. Having patience is sometimes tough—especially when for the last year it seems that stocks can only go up—but we all know that’s not true. Things aren’t likely to fall off a cliff, but some prudence and patience may be the thing required here.