The slide in the Dow over the past few weeks, which, at this point, adds up to around a 4-5% decline from its peak, should not come as a great surprise to anyone. Sure, the cause of the decline is being attributed to concerns about the strength of consumer spending, fears of rising interest rates, and the usual complement of macro-economic bogeymen. The bottom line, however, is that the stock market has enjoyed an almost uninterrupted rise since the beginning of the year and has gotten to the point where company share prices (let’s not forget that the stock market is actually comprised of real companies) seem a bit high – not necessarily 1999 or 2007 “bubble high”, mind you, but still far from cheap.
Lately, a number of clients have been asking whether I think the stock market is poised for a fall. My answer is, “Of course!”, but not necessarily because I am fearful of an imminent macroeconomic apocalypse. Instead, this opinion is based on the more mundane observation that share prices do not simply rise without interruption and the fact that most blue chip stocks (including many of my rising dividend faves) are trading near the high end of their historical valuation ranges. Rarely is there a year in which stock market prices do not pull back by 20% or so at some point, and I doubt that 2013 will be any different.
My abridged investment planning guidance is as follows –
- Continue to avoid bonds like the plague.
- If you have cash to invest, don’t be in any great rush. Look for opportunities to wade in slowly over the next several months or so.