Since the March 23rd lows, retail investors have jumped into the equity market with little concern about the potential risk. The “Pavlovian” response to the Fed’s massive monetary interventions has pushed “risk-taking” to extremes. Unfortunately, the odds are stacked against investors in a post-COVID economy.

In a recent newsletter, we discussed our process of “taking profits” in positions that had reached more extreme overbought conditions. As is usual in a market where “momentum” is in vogue, we received numerous emails about the “folly” of selling our technology holdings.

It Isn’t Folly.

It is a usual practice of mitigating risk to protect capital for our long-term investment cycle. Interestingly, while there is little doubt that patience is a virtue for investors, exercising prudence is equally important. Despite the basic math, and historical evidence proving its usefulness, investors typically ignore prudence, especially when it is required most. The “siren’s song” of a momentum-driven market fueled by a “speculative greed” is inevitably too compelling for many investors…CLICK for complete article

Now that BlackRock has largely taken over Wall Street, whispers from its corridors are heavily weighted, and the latest two are troubling: It’s downgrading U.S. stocks and prefers the Asian market.

In other words, the king of Wall Street says it’s time to diversify.

After major market movement that has seen U.S. equities bounce back from a dismal March, BlackRock sees a new surge in COVID-19 cases as likely to put a dent in this trend.

On Monday, BlackRock–which oversees nearly $6.5 trillion in global assets–downgraded U.S. stocks from neutral to overweight, and advised clients to start shopping internationally for diversification.

Why? Because the amazing performance of the U.S. equities market this summer has largely been propped up by trillions of dollars in government stimulus and the Federal Reserve’s effort to save the corporate bond market by buying the bonds.

Now, unemployment checks will dry up. More stimulus remains in question, and COVID-19 is no longer flattening–it’s reviving itself with a vengeance as Americans in large numbers decide they simply don’t care or are impervious to the virus.

What investors will be watching carefully is the next policy decision to come out of Congress and the White House about stimulus. If they announce there will be no more unemployment benefits when they end in three weeks, there could easily be an equities sell-off…CLICK for complete article