Published April 26, 2013
Something doesn't smell right. From a fundamental standpoint, looking at earnings, future earnings and corporate balance sheets, the S&P 500 looks cheap. And it is. However, after 27 years of managing money I have learned that sometimes that just isn't enough to support staying fully invested.
When I take a moment to pause and observe the economic and top-line revenue trends, I believe there is something in the air that just doesn't feel right. There are many negative economic headlines coming out of Europe, China is quickly slowing and Japan just threw a last minute Hail Mary to try to save its economy from going bankrupt. These, along with earnings reports coming in weaker than expected as revenue didn't grow strongly in first quarter for S&P 500 companies, has me very unsettled.
Combine all of this with the U.S. economy getting weaker by almost every economic indicator and things just don't smell right. As we enter a slow summer time, I would reduce my exposure to all equities worldwide. Not completely, but I would reduce holdings by about 20-30%. Don't go to zero because stocks are still fundamentally cheap based on expected earnings -- but I am not sure we won't soon see those earnings predictions reduced.
Call it a sixth sense or just the smell test, but it is beginning to stink around the stock market.