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Portfolio Update

Time for a Hedge

By Elliott H. Gue, on Jun. 28, 2017

Up a little over 10 percent this year and 3.9 percent since the beginning of March, the S&P 500 looks to be in a healthy and solid uptrend. However, digging deeper, we see warning signs that merit a hedge to protect against downside risk this summer.

We’re not calling for a bear market in 2017 or even in the first half of 2018.

The economic data, including many of the indicators we’ve highlighted in Capitalist Times Premium over the past few months, still point to stronger economic growth in the second half of 2017. In addition, there aren’t any of the major warning signs we look for to forecast recession in the near term.

Moreover, historically it’s extremely painful to bail out of the stock market in the final stages of a bull market. In the final 12 months of a bull market, the S&P 500 returns an average of about 25 percent. Moreover, the average has never returned less than 10 percent in the final year of a bull run, with the maximum return being 40 percent.

That said, the stock market sees an average of two to three 5 to 10 percent pullbacks each year. And in less than 10 percent of years since the 1930s has the market failed to see a correction of this magnitude.

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