Some investors may want to be more observant and less active for the next few months.
The Federal Reserve will raise rates once more this year. Questions regarding where the U.S. is in the economic cycle are emerging. Stocks have fallen hard since the beginning of October, which could potentially indicate the end of what has been the longest bull run in American history. So, what have investors done in October after selling their stocks, and what might they do going forward?
Observe. "Let's wait and see what happens here over the next two months before we make any definitives for next year," said JJ Kinahan, Chief Market Strategist for TD Ameritrade said. He added, "People are trying to figure out where we go, and a lot of the fund managers have had good year -- they don't necessarily want to risk it in the last two months of the year." Simply put, he means that investors have sold much of their stocks and may not ratchet back up their equity allocations until there is more clarity on the Federal Reserve's rate hikes in 2019, the trajectory of the economy, and therefore, the trajectory of the stock market.
Some investors may put their money into cash and savings for a short period of time, and while bonds may include some interest rate risk given the rising rate environment, "we've seen some people start to nibble at bonds quite a bit more over the last few weeks," Kinahan said. Much of the Fed hiking has been priced into bonds, although of course then rate hiking in 2019 is slightly less certain.
As for conservative sectors investors may be wise to look into in the stock market, military and defense stocks may provide some safety. Many defense stocks offer solid dividends. Kinahan noted.
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