5 Reasons To Lower Your Allocation To Riskier Assets

Jul. 30, 2015 6:56 PM ETAMZN, AAPL, META, GILD, GOOG, DIS, VEU, SPY, IEF, HYG30 Comments
Gary Gordon profile picture
Gary Gordon
30.91K Followers

Summary

  • Fewer and fewer components are holding up the Dow, the S&P 500 and the NASDAQ.
  • If foreign stocks are faltering at a time as when half of U.S. stocks are in their own downtrends, it may reasonable to assume that the major U.S. benchmarks could buckle.
  • There are a number of headwinds that are likely to bring about a substantive correction to the Dow, S&P 500 and NASDAQ in the near-term.

For months, I have been discussing the likely implications of deteriorating market breadth. For instance, fewer and fewer components are holding up the Dow, the S&P 500 and the NASDAQ. Only a small number of industry sectors are keeping the popular benchmarks in the plus column. Similarly, half of the stocks in the S&P 500 currently demonstrate bearish downtrends. And declining stock issues are significantly pressuring advancing stock issues for the first time since July of 2011.

Historically, when a handful of stocks like Amazon (AMZN), Apple (AAPL), Facebook (FB), Gilead (GILD), Google (GOOG) and Walt Disney Co (DIS) account for all of the gains for a major index like the S&P 500 - when 250 of the index constituents show bearish patterns - the narrow breadth tends to drag the benchmark's price downward. To be fair to the bull case, the major indices have held up so far. Nevertheless, U.S. equities in the Dow and the S&P 500 have been churning sideways for the better part of seven months.

What about the prospect for underperforming sectors of the economy contributing to widespread market gains? I wouldn't hold my breath on the possibility of wider breadth in the near term. Materials and resources-related companies continue to be plagued by slumping oil and weak commodity demand around the globe. Most economists believe that while the rout in commodities may conceivably abate, a significant increase in global demand or a sharp decline in global supply is unlikely. In the same manner, the manufacturing segment's pullback may be structural, not cyclical. Miners, industrial conglomerates and utilities probably won't be getting wind at their back anytime soon.

For better or worse, the primary hope for continued appreciation in the U.S. indices rests atop the shoulders of the healthcare juggernaut, dot.com usage and the iPhone-oriented consumer. Indeed, investors have been

This article was written by

Gary Gordon profile picture
30.91K Followers
Gary A. Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. He has 30 years of experience as a personal coach in “money matters,” including risk assessment, small business development and portfolio management. He favors tactical asset allocation strategies over "set-it-and-forget-it" investing.Gary is often asked to consult as an educator. He has taught financial concepts in Mexico, Singapore, Hong Kong, Taiwan and the United States.As a Certified Financial Planner (CFP), Gary has distinguished himself as a reputable and trusted investor advocate. Gary’s participation on local and national radio has spanned more than two decades. He writes commentary at his web log, TheStockBubble.com.

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