Although it does not appear that a major market top is imminent, there are signs pointing to an aging bull market. Therefore, investors should regularly adjust their retirement or investment accounts in order to protect them from the gradual deterioration in market conditions that occur as the bull market approaches its final stages. In previous commentary I have characterized the condition of the current primary uptrend as “getting a little gray around the temples.”
One sign that presents itself as a bull market ages is that of increasing selectivity. Meaning, that as the major indexes such as the S&P 500 march forward to new all-time highs, fewer and fewer stocks are actually participating. This can be seen in the percentage of stocks at or within 2% of their 52 week high declining while the S&P 500 moves steadily higher.
Beginning in March, a major shift took place whereby biotech stocks, momentum stocks, and more importantly, small cap stocks have exhibited substantial weakness and have been lagging the S&P by a wide margin. These sectors and groups, up until March, had previously been market leaders: in some cases for several years. Therefore, it is imperative that as the bull market continues to age, investors regularly review their investment accounts and cull any positions dropping out of the primary uptrend. This review should start with small cap stocks and small cap mutual funds. Any underperformers should be discarded and the proceeds reinvested in those groups and sectors still participating in the bull market.
If you are concerned that underperformers may be present in your 401k or investment account feel free to call us at (914) 761-3237 for a complimentary review.