where to go if you

8/13/2019 Where to go if you

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Where to go if you sell in May and goaway By Polya Lesova , MarketWatch

NEW YORK (MarketWatch) After a blowout first quarter, investorsmay be feeling a sense of deja vu both 2010 and 2011 saw an earlyrally in the stock market that was followed by a dramatic downturnbeginning in the spring.

As the markets historically worst six months of the year draw closer, manyon Wall Street see another stock slide looming.

I do believe that weve set ourselves up for another seasonal downturn,said Jeffrey Hirsch, editor-in-chief of Stock Traders Almanac. May throughOctober is typically the worst six-month stretch for stocks.

Without the over-arching influence of the financial crisis, seasonal patternsare back in play, according Hirsch. Were getting defensive and cautious,he said. There are really no sectors that begin a bullish move right here.

The rally so far has certainly been impressive.

The S&P 500 index (SNC:SPX) gained 12% from January through March, posting its best first quarter since 1998. The Dow Jones Industrial Average(DJI:DJIA) rose 8% in the first quarter; among its components, Bank ofAmerica Corp. (NYSE:BAC) surged 72%, J.P. Morgan Chase & Co.(NYSE:JPM) gained 38% and Microsoft Corp. (NASDAQ:MSFT) rose24%.
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Click to PlayGlobal markets fearing end of stimulus

Spain found itself in the market's crosshairs as mounting concerns over the economy sparked asharp slide in the country's bonds, erasing the effect of the ECB's cash injection.

Sameer Samana, international investment strategist at Wells Fargo Advisors,

wrote in a recent report that investors should take profits since the easymoney has probably been made and the bulk of the rally is over.

We believe the market is overbought and this years advance is very similarto last years, Samana said.

Equities had also started 2011 on a strong note, but a series of shockstriggered a selloff in May that lasted for months. They included the end ofthe Federal Reserves second round of quantitative easing, high oil prices,the euro-zone debt crisis and the U.S. credit rating downgrade. Spooked,

investors sold stocks, with the S&P 500 losing nearly 20% from a high inMay to a low in October.

This year, many of the issues that preoccupied investors in 2011 are still in play. The end of the Feds Operation Twist program in Ju ne is approaching.Oil prices are rising and could spike further if the West undertakes a militarystrike against Iran. Liquidity operations by the European Central Bank andthe agreement on a second bailout for Greece have eased tensions, butSpains seve re recession and rising bond yields are a reminder that the eurocrisis is far from decisively resolved.

Moreover, the pace of economic expansion in China, one of the worldsmost important growth engines, is slowing down. Other risks are potentialdisappointment in U.S. economic data and corporate earnings. And all thiscomes as the U.S. presidential election looms in November.
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So, with many strategists expecting some type of market pullback, whatshould investors do to prepare?

Beware cyclicals, financials

Id say be wary of the consumer cyclicals and focus on defensive sectors[such as healthcare and staples], and companies with strong balance sheets,earnings visibility and dividend growth, said David Rosenberg, chiefeconomist and strategist at in vestment firm Gluskin Sheff. You want to bevery selective within the financials, he said. Housing stocks have already

priced in a housing recovery.

In the financial sector, Rosenbergs firm has holdings in some Canadian banks Royal Bank of Canada (TOR:CA:RY) , Bank of Nova Scotia

(TOR:CA:BNS) and Toronto-Dominion Bank (TOR:CA:TD) and inFirst National Financial Corp. (TOR:CA:FN) , a Canadian mortgageoriginator, while in the U.S. it owns shares in J.P. Morgan (NYSE:JPM)and Capital One Financial Corp. (NYSE:COF) .

Financials are among the best performing sectors on the S&P 500 this year,along with information technology and consumer discretionary. TheTechnology Select Sector SPDR Fund (NAR:XLK) which offers broadexposure to the tech sector has gained around 18% this year, while theFinancial Select Sector SPDR (NAR:XLF) is up nearly 20% in the same

period.

Among defensive sectors, the Health Care Select Sector SPDR Fund(NAR:XLV) and Consumer Staples Select Sector SPDR Fund (NAR:XLP)are up 8% and almost 5% year-to-date, respectively.

Back to treasurys?

Hirsch of Stock Traders Almanac noted that potential strategies includegaining exposure to U.S. government bonds typically seen as a safehaven, as well as short-selling stocks via exchange-traded funds.

What we do on the defensive side is pick up some bond positions and someshorts, Hirsch said. He pointed to long -term Treasury ETFs, such as iSharesBarclays 7-10 Year Treasury Bond Fund (NAR:IEF) and iShares Barclays20+ Year Treasury Bond Fund (NAR:TLT) .


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As for the AdvisorShares Active Bear ETF (NAR:HDGE) , which seeks tomake money by short- selling stocks, Hirsch said: Were not in that yet, butwere looking for a point to get in. Im not convinced that weve seen the to pof this rally here. It definitely looks like the market is beginning to crack, butwe may get one more push.

Some strategists such as LPL Financials Jeffrey Kleintop think that even ifthere is a decline in the stock market, it may be less steep than in the

previous two years due to some mitigating factors.

First, central banks are now cutting rather than hiking rates, which shouldhelp to temper global recession fears evident during the past two yearsspring slides, Kleintop wrote in a research report. Second, housing isshowing signs of improvement. Also, oil prices are up, but food prices are

down, which may partially explain the rise in consumer sentiment.

And Keith Wade, chief economist at asset management firm Schroders, pointed out that in contrast to 2011, macroeconomic expectations are lowerthis year, with economists looking for 2.6% global growth (compared to aconsensus forecast of 3.6% growth around this time last year).

Hugh Johnson, chairman of Hugh Johnson Advisors, believes meaningfulrisks face investors and various catalysts could set off a stock slide.

My hope is that the stock market will correct 6%, not 20%, and that 2013will be a good year, but I do think that the bullishness of investors will betested much the way it wa s severely tested last year, he said.

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