Why I’m Getting More Cautious Now
Than at Any Time in YEARS

It’s been one heck of a bull market, hasn’t it?

The Dow Jones Industrial Average almost tripled to 18,350 this spring from less than 6,500 in March 2009. The S&P 500 soared to more than 2,130 from its “666” low back then. Even the Nasdaq Composite Index finally eclipsed its tech bubble, all-time high this year.

I’ve focused largely on “long” investments as a result, and only occasionally dabbled in inverse ETFs. But now there’s an important shift underway. I’m seeing several signs of increasing turmoil — and that’s why I’m more cautious now with new “buys” and my investment strategy than at any time in years.

A significant shift? Yes. But one that I believe is warranted. Just look at how concerns over currencies, wages, interest rate hikes, foreign weakness and more are weighing heavily on the markets in 2015 — and how those threats appear to be getting worse, not better.

Just in the last few weeks, we’ve seen commodities get crunched, Chinese stocks crumble, and cracks appear here at home. Resources suffered their most widespread losses since September 2008 last month. That was right around the depths of the Great Recession.

Almost two-thirds of all U.S. stocks were recently showing double digit losses on the year. Plus, “buy” grades from our Weiss Ratings are declining in a much wider swath of industries now. That’s a sign of behind-the-headlines deterioration.

I’m seeing a significant shift pointing toward more volatility and chaos in the markets.

On top of that, the “Bloody Wednesday” concerns I’ve been talking about for several months are intensifying. More Federal Reserve officials are pointing toward an imminent interest rate hike now than at any time in several years.

That points toward more volatility and bond market chaos, after years of the Fed and interest rates being on autopilot. We’re already seeing turmoil in supposedly safer parts of the bond market like municipals, as well as difficulties in high-yield (junk) debt.

None of this means the stock market has to crash overnight. Nor does it mean there aren’t opportunities to profit out there. But I am taking profits on more winners, cutting more losers loose, and raising more cash in my services.

I’m also shifting even higher up in ratings quality for new buys. And I’m leaning more toward stable, Steady Eddie type stocks and sectors that don’t need robust economic growth or rock-bottom interest rates to prosper.

Those kinds of protective, prudent, and proactive steps seem wise to me, so I recommend you get to work doing similar things in your own portfolio. And I urge you to keep your eyes out for more updates here in Money and Markets and my other services. The time for even more action could be at hand soon.

Until next time,

Mike Larson