Markets are back to all-time highs again, for the third time this year and just over the past 3 months. Who knows whether third time’s a charm but I’m not chasing the momentum just yet.
Although data points are all pointing to a Fed rate cut, that’s probably priced in at this moment. The only upside I see is probably if the Fed goes for bigger rate cut than expected but I think that’s unlikely seeing how afraid they are of inflation coming back.
There’s also the spectre of recession that seems to be buzzing in the market again, based on slowing economic data coming out of the US. So far in the past, every time yield curve inverts there’s been a recession but so far not yet.
The other uncertainty coming up is the US elections in November 2024. A Trump victory would probably be positive for the stock markets short term vs Harris presidency. But who knows for sure, markets are irrational.
Back to what I’m doing. I’m turning cautious, not rushing to deploy cash although I’m slightly above my target cash allocation.
I set my target cash allocation based on how far markets are from their all-time highs. See table below. Right now S&P 500 is close to ATH but Nasdaq is still -5% from ATH, so based on my table is 13% cash.
Typically, I add a modifier based on risk-free rate (currently I use SSB), so around 3%. So my target cash allocation is 16% but actual is now 18%. I have 2% cash to play with in coming months so I’ll layer in despite ATH, but no more.
I’m below target allocations on my core equity ETFs , so I’ll probably add there. Recently, I’ve also moved a bit from S-REITs which have performed well, to equities.
What are you doing with your portfolio now?