While the U.S. stock market in 2019 is recording one of its best starts in decades, worries that the market is near a peak are prompting a rising number of big investors to shave their equity holdings. “We’re uncomfortable with the fact that the market has shot up as much as it has,” Alan Robinson, global portfolio adviser at RBC Wealth Management, said in a detailed story in The Wall Street Journal. Robinson, who is cutting his equity positions, added, “At this point, if you think, ‘Do we swing for the fences or pull up stakes?’ I believe you have to do the latter.” Sinking trading volume reflects this growing skepticism among investors.

“Even if you take a positive view, at what stage should someone get cautious and more negative?” was the question posed by Axel Merk, president of Merk Investments, in remarks to the Journal. “Probably, when times are good,” he concluded.

The table below summarizes how big investors are either holding off buying more stock, or are even cutting their positions.

Bearish Signs For Stocks

  • UBS no longer overweight in U.S. stocks vs. government bonds
  • UBS sees lower stock market gains over the next 6 months
  • Bond funds seeing biggest inflows since early 2015
  • Fund managers have below-average allocations to stocks
  • Asset managers expect to cut holdings of developed market stocks and corporate bonds
  • Investors are buying ETFs that protect against volatility

Sources: UBS, EPFR Global, Bank of America Merrill Lynch, Institute of International Finance; as reported by The Wall Street Journal

Significance For Investors

The S&P 500 Index (SPX) was up by 16.0% for the year-to-date through the close on April 22, 2019. Should the index remain unchanged through the end of this month, the first four months of 2019 would record the best performance in this period since 1987, and be the eighth-best since 1930, per analysis from FactSet Research Systems cited by the Journal.

“We’re uncomfortable with the fact that the market has shot up as much as it has.” -- Alan Robinson, RBC Wealth Management

As stock prices have soared, so have equity valuations. According to recent analysis by Goldman Sachs, seven of nine key valuation metrics are near historic highs. Alan Robinson of RBC indicates that rising valuations and slowing worldwide economic growth are reasons why he is trimming his equity allocations, especially among technology and emerging markets stocks.

Axel Merk of Merk Investments worries that inflation will accelerate once again, prompting the Federal Reserve to resume interest rate hikes. Higher interest rates, in turn, should depress stock valuations and strengthen the U.S dollar.

A stronger dollar would reduce U.S. corporate earnings by dampening exports and by causing the overseas earnings of U.S. companies to be translated into fewer dollars. Earnings for the S&P 500 as a whole in the first quarter of 2019 already are projected to fall by 3.9% year-over-year, per data from FactSet cited in the same article.

Looking Ahead

Some prominent bulls disagree. Jeff Saut, chief investment strategist at Raymond James Financial, told CNBC, "I think we’re going to trade out to new all-time highs.” He believes that earnings estimates are too low, and will be revised upwards. Also, he is unfazed by the age of the current bull market, now 10 years old. “The history of secular bull markets is they last 15-plus years. We ought to have at least another five, six [or] seven years left in it, and nobody believes it.”