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As Dow Hits High, Pros Pick Their Spots

Buoyed by a strong jobs report, stocks jumped on Friday, pushing the Nasdaq Composite to an 11-year high and driving the Dow Jones Industrial Average to its highest level in nearly four years.  Despite the rally, advisers say they’re urging clients to selectively increase their exposure to equities.

The falling unemployment rate is giving investors more reason to be bullish on U.S. stocks, analysts say.  The jobs report “shows that the relative strength of the U.S. economy is real,” says Andrew Barber, CEO of Waverly Advisors, a tactical research firm in Corning, N.Y. “From a tactical standpoint, equities have more upside from here.”  The expectation is that as more people go back to work and regain purchasing power, spending on consumer products and services could rise, benefitting companies in those sectors. Stronger jobs data could also provide more upside to the energy and industrials sector, says Barber, which could also benefit from relative strong demand for oil in Brazil, China and India.

Rising employment is also why some advisers say they’re slowing upping clients’ exposure to equities. Over the past two to three months, Aaron Schindler, managing director at Wealth Advisory Group in New York, says he’s been raising clients’ allocation to stocks from 33% to 40% on average while going as high as 50% for clients who are age 50 and younger.

To be sure, most advisers say they’re cautioning investors against taking drastic measures. After all, last July the Dow was inching toward 13,000, before plunging 16% over the next two months. For such reasons, Jeff Sica, president and chief investment officer at financial advisory firm Sica Wealth Management in Morristown, N.J., says he’s keeping 20% to 30% of clients’ portfolios in cash and short-term Treasurys.

Some economists are even questioning the recent spike in the markets. The last time the Dow was in 13,000 territory was in 2007 when the national unemployment rate averaged 4.6%. According to at least one housing index, the S&P/Case-Shiller Home Price Indices, home prices had annual gains of about 4% then vs. 4% losses now. And a European debt crisis wasn’t spreading. “The numbers today can only be rationalized if we thought we were returning to prerecession levels — the market may be just a little too optimistic about that,” says Kent Smetters, professor in the business and public policy department at the University of Pennsylvania’s Wharton School.

For these reasons, advisers say investors shouldn’t try to time the markets. Stuart Ritter, a certified financial planner at T. Rowe Price, says he’s been getting requests from investors who previously exited the market at its lows and now want to reenter.

Ritter recommends that investors in their 60s think about two levels of saving and investing: keeping the money they’ll need during the first half of their retirement (the first 15 years) in bonds and short-term investments while investing the money they’ll need during the second set of 15 years in equities, which he says would provide more time for a portfolio to recover if there’s another market downturn.

Looking forward, advisers say they think the Dow hitting 13,000 might help boost younger investor participation in the stock market, particularly those in their 20s and early 30s. After witnessing the 2008 downturn and the toll it took on their parents, these would-be investors have been hesitant to jump in, says Ritter. But if the market continues on its path to a recovery, inflows from young investors could soon pick up.

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    • the final verdict on it will be extremely dependant in the next months. Austria seems to be the logical area for bitcoin to be used for currency

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    • Henry,

      I’m glad I’m not the only one thinking this way. Here we are at 14% from the all time high in the DOW, and educated financial experts are encouraging people to get back into stocks. I think the better time to get back into stocks was March 2009, or at the latest, September 2011, but then all these experts were telling people to get out. This is another buy high, sell low article.

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    • Should it not be the opposite? I mean after the rally they are thinking about increasing their clients’ exposure to the stocks. Kinda late to the party me thinks. You should increase your exposure to stocks when stocks go down, NOT when they go up. But this is how the financial markets work. When you buy shoes, you buy the cheaper one. But with stocks, nobody wants them when they are cheap and everybody has to have them when they are at the top! This is the human psychology that moves the stocks.

      http://www.kondratieffwavecycle.com/economy/what-moves-the-stock-market/

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