Market Watch: It is Time to Sell into Rallies, Bear Market or Not!

Article by Howard Gold in Wall Street Journal Market Watch

Investors returned from the long Thanksgiving weekend still hungry, not for turkey but for more shopping — and stocks.

And yet, Monday’s big news was a call by Morgan Stanley’s chief U.S. equity strategist Mike Wilson that U.S. stocks are in a bear market.

Rival Goldman Sachs has been warning that the risk of a bear market is the highest it’s been since at least the mid-1970s.

And many Wall Street strategists, including Savita Subramanian of Bank of America Merrill Lynch, expect 2019 to be a meh year, much like 2018. CNBC’s stock jock, Jim Cramer, threw his two cents into the pot, describing recent stock market action as “classic bear-marker behavior.”

In about three months, we’ll be celebrating the 10th anniversary of this bull market, which from closing low to closing high propelled the S&P 336% higher. It’s not only the age of this bull that matters; previous market leaders like the FAANGs and home builders have been pummeled.

General Motors’ big restructuring and layoffs, announced Monday, show weakness in the most important market for consumer durables. Most forecasters expect slower U.S. gross domestic product growth next year (and in the rest of the world) as the sugar high of the 2017 tax cuts for the rich and big corporations fades, and we’re all stuck with the bill in the form of annual trillion-dollar deficits as far as the eye can see.

And, of course, there’s the Federal Reserve, whose chairman, Jerome Powell, has vowed to stick to his policy of “gradual” rate increases this year and next, while also continuing to shrink the Fed’s balance sheet, which ballooned to $4.5 trillion after three rounds of massive bond buying following the Great Recession.

Traders expect one more quarter-point rise in the federal funds rate at the Federal Open Market Committee meeting in December and two more early next year, which would put the fed funds close to 3%. Any clear pause in rate hikes would be bullish for stocks, but overall, the double-barreled Fed tightening is one of the main reasons investors have become skittish.

I can’t predict the future. But risk is rising and whether or not you think this is a full-fledged bear, profit taking or strategic selling is just prudent risk reduction now.

That’s why I’d recommend that those of you who are within 10 years of retirement sell on rallies and reduce your stock position to no more than 50% of your total holdings. Those who are more than 10 years away should reduce your equity exposure to no more than 60%. We can never be sure when the bear will growl, but we can see by her tracks that she’s getting closer, and investors need to be prepared.

To read this article in its entirety in Wall Street Journal Market Watch, click here.