For all the headlines extolling new stock market highs, this year has been a frustrating one for investors. For starters, since Jan 31st, most major asset classes are down, including U.S. stocks, foreign stocks, investment-grade corporate bonds, treasuries, and even gold. The chart below shows how cash has outperformed all of these asset classes over the period.
In addition, U.S. stock market rallies this year have been incredibly narrow; 10 stocks in the S&P 500 account for more than 50% of total gains (versus 30% over the last two years). We believe the key for investors in this environment is to remain patient; rather than chase the 10 high-flying U.S. stocks (Amazon, Apple and Microsoft to name a few), remain diversified with an eye on the longer term. Market timing is near impossible, and buying stocks simply because they are rising (without any economic reason behind your decision) will usually leave you earning sub-optimal returns over the long haul.