By Jonnelle Marte
Major stock indexes hit a six-month high today, but many financial advisers are warning clients to not make too much of reaching the mini-milestone.
Boosted by a strong jobs report and better-than-expected bank earnings, the Dow Jones Industrial Average rose 45 points today, to 12623, following a 96 point rise on Wednesday. The Dow is up 3.3% this month, and has gained 18% since markets hit their lowest level last year on Oct. 3. The S&P 500 is up 4.5% for the year, while the Nasdaq Composite has risen 7%.
While investing pros say reaching the new high is a sign the economy in the U.S. may be improving, they also say more volatility is likely. “The rug could be pulled out from underneath investors quickly,” says Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management. For example, a disappointing report from the Federal Reserve next week, or another round of bad news from debt-laden Europe, could send stocks spiraling again, he says. Today’s inflation report, which said prices on gasoline and groceries continue to rise, could also have a negative impact on consumer spending — and the markets.
But while some advisers were tweaking portfolios regularly during last year’s extreme turbulence, including shifting more clients to cash during August’s downturn, many now say they’re advising clients not to overreact to the recent movements. Devin Pope, a wealth adviser with Albion Financial Group in Salt Lake City, says he’s keeping his clients’ stock allocations steady. That said, he has been cutting back on certain sectors that had a nice run last year, such as utilities, and moving the proceeds to cheaper pharmaceutical stocks that have a promising pipeline of drugs.
Other advisers are even upping their equity allocations, despite the challenges. Jacobsen recommends investors increase their stock holdings by roughly 5%, and to add a mixture of shares from defensive sectors like consumer staples and health care, which should outperform if the economy improves. He also still likes technology stocks, which would also benefit as companies upgrade their computers, equipment and software. “We’re being guardedly aggressive,” he says.