Stocks Near Record Highs Send False Signal
The worsening economic outlook means it’s no time to rotate out of safe assets into riskier ones.
Stocks are up, but not for the right reasons.
Photographer: Bloomberg
From U.S. Treasury securities to gold and the shares of utility and healthcare companies, it’s been a great time for financial assets that provide a hedge against an economic slowdown. And as the latest U.S. economic reports show, it’s too soon to abandon so-called defensive assets even though the stock market has rebounded and is back near a record high.
The most important takeaway from last week’s data, especially the drop in retail sales and industrial production, is that Main Street has joined Wall Street in anticipating the slowdown in economic growth to continue, and possibly lead to a recession. This confluence warrants a more rapid shift in allocation from higher risk assets, such as equities like those in the technology sector whose valuations are dependent on rapid growth, to more defensive holdings.