The major Wall Street indices are still trading at or near record levels on Monday. After a close to 20% rally this year, many would think of now as an opportunity to take profit. James Investment Research’s Barry James, however, says, “new highs do not mean you need to sell”.
“If you had done that, you would have sold at the end of last year and missed the 20% rally in 2021,” he said on CNBC’s “The Exchange”.
Why James still recommends caution
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At the same time, however, James also recommends caution as he sees several factors that could weigh on the market.
“There’s too much enthusiasm. Bank of America says its private clients have 65% of their assets in stocks. It’s a record. About 33% of the financial assets of households are in stocks, also a record. That makes me a little bit nervous,” he added.
On top of tapering, other points of caution, as per James, include companies adding shares at a pace that’s higher than noted in the dot-com bubble and the retreating margin debt.
“When people are borrowing money to buy stocks, the market goes up. But when it hits a peak and starts heading down, and we’re down about 4.0% from that peak, at least 75% of the times, it indicates that the market will be down in the next six months or so,” he noted.
Caution doesn’t necessarily mean “sell”
James still reiterated that these are points of caution and don’t necessarily mean that investors should rush out of the market because ‘new highs tend to beget new highs’.
“So, look for the exit, don’t run through the exit,” he concluded.
Last week, Wells Fargo’s Christopher Harvey said the benchmark S&P 500 index could climb by another 8.0% before the end of the year.
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