Every asset class in our model allocation is down today. Not a good sign. It makes me grateful we are holding 35% in cash for our conservative portfolio allocation (on the home page of portfoliowisdom.com).
Increasing volatility is one danger sign for asset classes that have been rising for months or years. Another danger sign is the increase of correlation between different asset classes… when all asset classes move up or down together.
One term, “melt up” is used when all asset classes are rising together. This happens when “everyone” is fleeing cash and trying to add risk assets to their portfolio. This can happen after a market crash, when the smart money starts to buy in… OR, more often, this can happen as the last blow-off at the end of a long bull market when the very last buyers can’t fight their greed and jump in. When this happens, it can be good to raise some cash … take some profits off the table.
Another term, “crash”, is used when all asset classes are falling together. Today is like that. If this continues for the week, it could mean trouble. Thankfully, we raised 35% cash for our managed portfolio clients a month or so ago.
Time will tell, although September is historically bad for US stocks.