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Outlook For Stocks And Bonds

|Includes: QQQ, QQQX, SPXL, SPXS, SPXU, SPDR S&P 500 Trust ETF (SPY)

The government's Flow of Funds report confirmed what we already knew. In the first quarter, the percentage of their net worth that people have in equities rose 1% . This was manifested in the stock market's 1% advance. This allocation of 29% is near record highs, which is a large red flag of caution. People have never had so much of their money in stocks. This means we should be selectively selling. As QE gradually decreases, the government's support of the market will end.

Meanwhile, the bond allocation of 6% also remained constant at a very low level, below the average of 7% and close to the low of 5.8%. Obviously, with these low interest rates, people aren't willing to lend their money. As a contrarian, I recommend selectively investing in bonds. However, US government bonds are less interesting than good corporate and foreign bonds (TGINX, rated "buy"). I believe interest rates will stay this low or fall even farther in the coming years.

Disclosure: The author is short SPXL.