About a month ago, the S&P500 broke through the previous all-time highs and kept going up. Today, we see we are hovering just above that breakthrough level after pulling back some.
If we break back below the previous highs from January, 2018, there will be greater risk of a change in market psychology. I think the next couple of weeks will be key.
Bonds have already cracked, with TIP’s values dropping below their lows seen at the end of 2016 and beginning of 2017. With bond values dropping (and yields increasing), risk averse investors will soon pull money from stocks to lock in reasonable “guaranteed” returns.
Our methodology looks at the volatility of different asset classes as an indicator of risk in those assets. Bonds, Small Cap US stocks, and International Stocks are all very volatile (risky) relative to their behavior over the last year or so.
As we have already done, it is probably time for investors to raise cash by pulling money from International stocks, small cap stocks and bond funds. Individual bonds of high quality, held to maturity will be more and more attractive as interest rates rise.