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Tags: Cash | stock | allocations | Weiting

Experts: Consider Reducing Your Stock Allocations Now

By    |   Tuesday, 28 April 2015 06:20 AM

With major stock indexes hitting record highs, many experts say now would be a good time to take some profits.

Because the Federal Reserve might raise interest rates this year and economic growth is slowing, the backdrop isn't so hot for stocks, says Steven Weiting, chief investment strategist at Citi Private Bank.

Many economists expect the central bank to move in September. And the Atlanta Federal Reserve's forecasting model puts first-quarter GDP growth at only 0.1 percent.

"U.S. stocks are still favored as an asset class, and our recommendation is aimed at de-risking, given the monetary and economic backdrop," Weiting writes in a commentary obtained by MarketWatch.

"We have reduced our overweight position in U.S. large-capitalization equities from 3 percent to 2 percent. This reduces the overweight to one that is somewhat below the U.S. share of global market capitalization."

Weiting cites the "consequences of the boom and bust in U.S. energy investment as a factor that is contributing to weakening of U.S. equity outperformance."

Meanwhile, S&P Capital IQ suggests that investors drop their U.S. stock exposure to 45 percent of their portfolio from 50 percent and boost their cash weighting to 15 percent from 10 percent.

"Reasons for our reduced optimism toward U.S. equities include a traditionally soft seasonal stretch for stocks, the rich forward 12-month valuation, time since the last correction and the expectation that interest rates and inflation will creep higher in the coming year," the firm's analysts write in a commentary obtained by MarketWatch.

The forward price-earnings ratio for the S&P 500 stood at 18.05 Friday, according to Birinyi Associates. The index hasn't experienced a 10 percent correction since October 2011.

The S&P analysts maintain their 12-month target of 2,250 for the S&P 500 index.

Looking at another index, as the Nasdaq Composite basks in its first record high since 2000, it pays to look back at the dot.com bubble, which burst that year.

The lesson: "investors weren't wrong," writes Wall Street Journal columnist Jason Zweig. "They just paid too much to be right."

So, before you lose your lunchbox over the current Nasdaq rally, "make sure you aren't repeating the mistakes of the past," he says.

The problem 15 years ago, of course, was that "investors were so infatuated with how technology would transform the world that they were willing to pay any price to buy stocks connected with the Internet and telecommunications," Zweig explains.

That focus now is on social media and other stocks connected to the "sharing economy."

But, this sharing economy "is no different than the new economy of early 2000," Zweig notes. "It will almost certainly turn out to be a huge boon for businesses and consumers. But it will wipe out investors who think no price is too high to participate."

Meanwhile, strategists at Bank of America Merrill Lynch, led by Michael Hartnett, sound a note of caution for the entire market.

In a commentary obtained by MarketWatch, they cite a "big decoupling in recent weeks between U.S. equity flows and prices." In other words, investors are taking money out of the market, even as it rises.

Stock funds have seen $79 billion of withdrawals from U.S. stock funds in the year to date, with outflows in nine out of the past 10 weeks, according to BofA.

"Correction risks will grow in [the] absence of fresh inflows in coming weeks," the analysts say.

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With major stock indexes hitting record highs, many experts say now would be a good time to take some profits.
Cash, stock, allocations, Weiting
Tuesday, 28 April 2015 06:20 AM
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