I agree that you shouldn’t ordinarily time the market. However… there’s market timing then there’s avoiding obvious upcoming issues.
I’m not a stock broker. Don’t take my advice. But I sold half of my growth stocks several months ago, and am very glad I did. I’m now at about 40% cash in my portfolio. My thinking:
In economics, the ‘Taylor Rule’ says that to beat inflation, interest rates need to be raised to about 2% above inflation, less if GDP is shrinking. We are nowhere near that yet. And each time we raise rates, the market throws up. The Bank of Canada is going to raise rates tomorrow, and the Fed is expected to do the same next time.
What the Taylor rule really says is that inflation will remain until we hit some combination of significantly higher interest rates and a recession. Or slightly higher rates and a deeper recession. Either way… not good.
We are probably already in a mild recession, but it’s likely to get worse. The war in Ukraine and the energy crisis in Europe have not played out yet. Energy costs could double in North America this winter, eating discretionary income and killing demand for everything else. The EU is headed for a deep recession, a decline in manufacturing and the rest of the world for a somewhat less deep but still serious recession Even China is looking shaky.
Real estate is about to rear its ugly head. It’s going to collapse, and a lot of institutional investors, including central banks and the huge funds have foolishly decided to buy up lots of real estate at crazy high prices. We could br heading for another serious fiscal problem, demands for bailouts again, and pension funds are at risk as well.
In addition, governments, corporations and individuals are carrying record levels of debt and interest rate hikes are going to be extremely expensive.
I could go on. Looking around the world it’s hard to see any good news on the horizon. We’ve flown our economies into a coffin corner with record amounts of spending, debt and money printing. We’ve barely started in our attempt to fly out of it to a soft landing.
All that said, markets are crazy. Good news now makes them tank on worries of rate hikes, and bad news makes them go up because they think the government will ease off on rate hikes. No one is looking at fundamentals of companies any more. So I could be completely wrong.
But my strategy is that if markets keep going up for a while I’m going to sell more on the ‘dead cat bounce’ theory. I’ll be re-investing probably some time in 2023 when and if it looks like inflation may finally be tamed and there’s hope for rates to come back down, and hopefully the war will be behind us and Europe starting to come to its senses over energy. I’ll probably buy some bonds when rates look to be close to peak, and select stocks after that.
I’m also thinking anout risks like a nuke going off in Europe, or China invading Taiwan. Both are unlikely but more possible than they’ve ever been, and either one would likely tank global markets.