By Jonnelle Marte
As stocks posted their biggest weekly gain in at least two years, some financial advisers were offering a more cautious piece of advice to clients: Sell some winners now.
The Dow Jones Industrial Average finished up 7% for the week, bouncing back from a 5% loss the previous week — the worst Thanksgiving week performance in its history. Last week’s jump was the best weekly gain since 2009, as markets rallied after the Federal Reserve and five other central banks reduced the interest rate banks pay to borrow money in a move aimed at bolstering the global financial system. American investors also cheered a drop in the unemployment rate, to 8.6% from 9%.
But advisers say this week’s gains are likely to be followed by yet more volatility, with many remaining skeptical that stocks will pick up this month in what’s typically known as the “Santa Claus” effect. (Stocks have risen in December nearly four out of five times since 1945, according to S&P Capital IQ, and have risen almost 2% in December after dropping in November—as they did last month.)
Instead, these pros are advising investors to take some chips off the table. “If you had some nice gains in stocks I would certainly look at taking profits,” says Mickey Cargile, managing partner of Cargile Investment Management in Midland, Texas. With the Dow likely to trade in a range between 10,000 and 13,000 over the next year, Cargile say he plans to use a more timing-oriented approach, or what’s known as “tactical management,” by buying shares of stocks on dips and selling on rallies.
Still, advisers warn against scaling back too much on stocks. Paul Baumbach, a wealth adviser in Newark, Del., says investors should only pull money out of stocks if they’ll need more cash in the next few months. Retirement savings, he says, should be left untouched.
Other advisers are staying put, betting this week’s rally will extend well into December. In Salt Lake City, Devin Pope, a wealth adviser with Albion Financial Group, said he’s limiting market risk by holding more dividend-paying stocks, which provide a steady cash flow even if shares dive. “We’re cautiously optimistic,” says Pope, who eased back into stocks in September and October, reducing his clients’ cash exposure to 17% from 25%.