Today’s technology companies, and their shares, look nothing like the speculative stocks of that bubblicious era, when tech accounted for more than 30% of the Standard & Poor’s 500 index. Today, it is only 22.5%, albeit well above weightings of about 14% for both financials and health care. Financial stocks have been among the main beneficiaries of funds flowing out of tech.

Technology Stocks Have Dominated June Rally
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Investopedia Chart Advisor
Tue 6/11/2019 9:38 PM
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Chart Advisor | Focus on the Price
By John Jagerson, CFA, CMT
Tuesday, June 11, 2019
1. Tech Stocks Continue to Lead the Way Higher
2. S&P 500 Stalls After Stellar Week
3. UTX and RTN Crash and Burn After Acquisition Announcement
Major Moves
In a market that has been negatively impacted by so much geo-political uncertainty, it’s amazing just how consistent the performance of the Technology sector has been.
There’s a strategy in investing that draws on the same principle found in Newton’s first law of motion – an object in motion tends to stay in motion and an object at rest tends to stay at rest unless acted upon by an outside force.
This strategy is called momentum investing. In momentum investing, you look for the sectors and stocks that are doing well, and you put your money into those sectors and stocks with the anticipation that they will continue to do well in the future unless acted upon by negative news.
One way to find which sectors and stocks are doing well is to conduct a relative-strength analysis. This is an exercise where you compare how well a sector or stock has done in the past compared to other sectors or stocks or to a broad-based index, like the S&P 500.
You’ve seen me do this a number of times in the Chart Advisor when I show the relative performance of the S&P stock sectors.
For example, if you look at the first sector comparison chart below, you will see that the Technology sector (lime green line) – as represented by the Technology Select Sector SPDR Fund (XLK) – has been the clear winner on Wall Street since the market pulled back in February 2016.
Knowing this, it should come as no surprise that the top performing sector since the market started rebounding on June 4th has been the Technology sector. You can see this in the second sector comparison chart below where XLK (lime green line) is leading the way higher.
Of course, the Technology sector has experienced just as much volatility as the other sectors on Wall Street as trade war rhetoric has flared up and cooled down and as threats of tariffs have materialized over night and vanished just as quickly, but the out-performance by the sector has remained consistent.
Unless something fundamentally changes in the outlook for the U.S. economy, I wouldn’t be surprised to see this trend continue.
Image
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S&P 500
The S&P 500 has stalled just above the former resistance level that formed the right shoulder of the index’s head-and-shoulders bearish reversal pattern. This level is currently serving as support, but it is barely holding on.
For two straight days, bullish traders on Wall Street have tried to push the S&P 500 higher, only to see the index fall before the closing bell.
It appears we’re seeing another classic example of the old market adage, “Buy the rumor. Sell the news.”
Last week, traders were buying hand over fist in anticipation that the Trump administration wouldn’t impose tariffs on Mexico and the Federal Open Market Committee (FOMC) would start preparing to cut rates.
Now that President Trump has decided not to impose tariffs and multiple members of the FOMC have stated they are considering rate cuts, traders are starting to take some of last week’s profits off the table.
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Risk Indicators - UTX and RTN
Mergers and acquisitions are typically a bullish sign on Wall Street. They signal that corporate management believes the economic outlook and the “synergistic benefits” of the merger or acquisition are strong enough to offset the risks that accompany the endeavor.
Typically in an acquisition, the stock of the acquiree (the company being bought) will jump higher and the stock of the acquiror (the company doing the buying) will drop on the announcement.
The acquiree’s stock usually jumps because the acquiror is often paying a premium for the acquire. The acquiror’s stock usually drops because traders get nervous about the additional risk – and oftentimes debt – the acquiror is taking on.
When it comes to mergers, the performance of the related stocks depends on how the deal is structured. Often one of the companies will be viewed as getting the majority of the benefits from the transaction, and that company’s stock price will rise.
Interestingly, in the case of the United Technologies (UTX) merger with Raytheon (RTN), both stocks are plunging.
This tells me that traders have no confidence that the “synergies” outlined by the two management teams will materialize in a meaningful way.
Seeing this is important not only as it relates to the future performance of these two stocks but also as it relates to investor sentiment. Traders who are confident in the future of the market love “synergies” and tend to pay a premium for them. The fact that they are not paying a premium for these “synergies” tells me we’ve got a long way to go before we solidify bullish trader sentiment on Wall Street.
Bottom Line - Cautious Optimism
Traders continue to practice cautious optimism as they approach the U.S. stock market. They are optimistic about the bullish impact rate cuts and a possible increase in geo-political stability could have on the markets, but they are cautiously focusing that optimism on fundamentally strong companies.
Traders aren’t chasing long shots at the moment. They only want the sure things.
Read more:
Why General Motors Could Be the Robotaxi King
Will New SEC Regulations Change Anything for Retail Investors?
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Hedge Fund Managers' 7 Favorite Stocks of 2019
https://money.usnews.com/investing/stock-market-news/slideshows/hedge-fund-managers-favorite-stocks
Apple
Microsoft
Bac
Wellsfargo
Fb
Cocacola
Amazon
Once every quarter, investors get a glimpse inside the minds of some of the wealthiest and most successful investors in the U.S. The U.S. Securities and Exchange Commission requires any funds with more than $100 million in assets under management to file public quarterly updates on their stock holdings on form 13F.
Hedge funds made some big profits in a red-hot U.S. stock market in the first quarter of 2019. Novus recently compiled the following list of the top seven largest stock investments among fundamental equity managers that filed 13F forms.
1. Apple (ticker: AAPL). Apple is the top overall pick among hedge fund managers. After a hot start to the year, Apple shares dipped in May due to the company’s exposure to the U.S. trade war with China.
However, the stock still shows 22% gains for the year, outpacing the 15.4% rise of the S&P 500 index. D.E. Shaw & Co. and Adage Capital Management are top investors, each owning more than $1 billion in AAPL stock. Hedge funds reported owning a total of $57.9 billion in AAPL stock at the end of the first quarter.
2. Microsoft Corp. (MSFT). The company that overtook Apple as the most valuable public company is also the second top pick among hedge funds. Microsoft has been a market leader in 2019, gaining more than 32% year-to-date and pushing its market cap to more than $1 trillion.
In April, Microsoft reported fiscal third-quarter revenue growth of 14%, including 41% growth in commercial cloud sales and 71% Azure revenue growth. Top Microsoft investors include TCI Fund Management ($2 billion) and Tiger Global Management ($1.5 billion). Hedge funds reported $31.6 billion in total MSFT stock holdings. – Wayne Duggan

Yesterday a slew of junk bond funds closed at all time highs on a total return basis. The proxy index for junk bonds closed at 1343.59 vs its May 1 all time high of 1344.07. Prior to that May 1 top, junk bonds had been making all times highs on a seemingly daily basis since mid February. Unless there is some reversal in today’s trading (anything is possible) the junk bond index will also close at all time highs.. How can this be? If you read the commentary below you will read that the macro and micro economic data continues to deteriorate.
https://www.marketwatch.com/story/this-big-wall-street-bear-warns-his-bleak-scenario-for-2019-is-taking-shape-2019-06-10

This has probably been linked before. But it looks helpful enough to link again. I sometimes recommend specific T. Rowe Price funds to others because that’s the fund group I’m most familiar with. However, low cost leader Vanguard should not be overlooked. This link (from Vanguard) allows you to enter a symbol from another fund house and find the Vanguard fund(s) that are most similar.
https://personal.vanguard.com/us/funds/tools/findsimilarfund?FundId=1595&FundIntExt=EXT

- “My issue is related to ... RISK TOLERANCE ... Investing is so emotional for many of us. Its hard to sit by and watch your Account Balance go down the tubes.”
- “I've (incorrectly) gone to cash more often than I want to admit over the years. Though I am shy of my 50s, I am personally still all about preservation of capital.”
- “Combine this president, with his "Tariff policies", alongside a very, very long bull market...... and I am once again (cautious).” I am mostly in CASH. “

Hi @JoeD, You raise a lot of interesting points. Nothing much I can say, but some vague thoughts might help ...
Re risk tolerance - Everybody’s different based on their own life experiences and personality. You remind me of one time in the ‘80s when I had secured a good paying job and wished to do something nice for my aging parents. Knowing they weren’t very astute in money matters, I opened an account in their name in a reputable money market fund that was yielding something like a crazy 15-20% in those days. Gifted them $1,000 which was the minimum to open an account. I hoped they would let it grow into their retirement years, perhaps add to it, and that it might benefit them years later. While grateful, they were suspicious of this new-fangled type of account in a big city somewhere and almost immediately cashed-out and moved the money to their passbook account at a local bank yielding something like 3%. So for them (both products of the Depression), even a money market fund was way beyond their risk tolerance!
Going to cash can be risky from an investment standpoint. Sure, if you will need the money within a few years, it’s a smart move. But if you are doing it with the intent of reinvesting later on, it’s tough to pull-off. I’d rather invest in something like TRRIX (a lame 40/60 fund) if I was really worried about the markets. If your guess is right and the market tanks you will lose something - maybe 20% of your money. But over the very long-term the fund should allow you to sleep better and keep you at least ahead of inflation. FWIW - My gut tells me equities are overpriced. But I’m not going to bet the ranch on that gut feeling.
Missing is reference to the purpose for which you are investing. I’d assume it’s for retirement in another 10-15 years. With retirement that near, I’d be reluctant to go overboard with aggressive equity funds myself. However, I wouldn’t exclude equities completely. I started moving out of the really aggressive stuff at about age 50 (but retired in my early 50s). Again, there are many great conservative funds that will keep you out of deep trouble during a big sell off and still help you accumulate more for retirement than cash would. Furthermore; most of us dollar cost average into our equity positions during our working years. I’d think that during those years the temptation (or need) to “sell all” and move to cash would be lessened.
re: “Bizarro” politics. I may share your foreboding. But I think we do a disservice to @Junkster who devoted considerable time and thought into creating a pretty valuable thread if we move it into the political arena. So I won’t go there and hope others don’t. What I tell myself every day is that regardless of who is President or what type of government we become, great companies like Amazon, Boeing, Apple, Microsoft aren’t going to go away - at least any time soon. So we may be appalled by some of the politics taking place, but that shouldn’t deter us from investing in great capitalist companies and sharing in the wealth they create.
There’s no right answer to any of this. And nothing I said should be construed as investment advice.
Regards

https://mutualfundobserver.com/discuss/discussion/11407/an-exciting-portfolio-backtesting-website
If your question is how to input data into any backtesting tool, I've worked through an example, using FCNTX. According to M*, its top five positions are: AMZN (7.05%), FB (7.01%), BRK.A (5.28%), MSFT (4.62%), and CRM(3.56%). That totals 27.52%.
To construct a portfolio of these five securities, you would divide their percentages by 27.52%, thusly:
AMZN (25.62%), FB (25.47), BRK.A (19.19%), MSFT (16.79%), and CRM (12.94%). Due to rounding, that comes to 100.01%. Round one of these down. BRK.A was rounded up the most (19.1860% was rounded up to 19.19%), so round this one down to 19.18%.
Depending on the backtesting tool you use, you might need to represent Berkshire Hathaway A as BRK.A or BRK-A.
Some tools (e.g. Portfolio Asset Simulator, http://capitalpas.com/Tools/BacktestPortfolioAssetAllocation) offer you a choice of benchmarks (such as the S&P 500 total return) to compare against. Others require you to pick an actual fund to compare with. For S&P 500 I might use VFIAX, or for longer periods, VFINX.
FB went public in May 2012, so one can't backtest this portfolio of five stocks further back than that. Backtesting from end of 2012 to end of 2018 shows that these five stocks did much better than FCNTX, which in turn beat the S&P 500 by a tad. Try running these tools and you can see this yourself.

If I had traded based on my opinions or personal biases over the years I would be looking at a very bleak retirement now. More often than not the market has run counter to my expectations. But I learned long ago not to trade based on my opinions and expectations but based on the action of the market itself. A good example was this past December. I was as bearish as anyone and expecting the long awaited corporate credit crisis to hit full force in 2019. I was ready to sit out the year drawing 2.50% in one of Fidelity’s money market market funds. But then out of the blue came a couple of huge and rare momentum days. So as bearish aa I was at the time, I had no choice but to get back into the grind. Trading is a hard game because a good trader has to admit they are often wrong. I think the above would also apply to investors unless one is a strict buy and holder.

FYI: Steven S. in Sylvania, Ohio, just hit one of his lifetime savings goals, and now he’s freaking out.
You’d think it would be a big celebration, reaching a big round savings number ahead of the rule-of-thumb schedules for being able to retire comfortably.
Instead, Steven’s freak-out is that he’s worried about breaking the benchmark — which in his case was amassing $500,000 in retirement savings — in the wrong direction the next time the market heads south.
“I’m excited to have reached $500,000, and before I reached age 50,” Steven said in an email, “but I’m terrified that if we have a bear market I’ll be way behind again. So I’m thinking of protecting what I’ve got by taking most of it out of the market.”
Regards,
Ted
https://www.seattletimes.com/business/investors-next-challenge-is-holding-on/

I think the decision about the amount of cash or low volatility investments to hold is not much about a "right" answer but is highly individual. The average length of a bear market can be misleading. During the Depression and the beginning of this century there were 2 bad bear markets very close together. If an individual was disciplined and replenished their cash when the market reached its all-time highs again they were a lot better off than if they allowed their equity to run in hopes of recovering a bit for lost time. In the 1970s inflation was a killer and it took around 13 years before the purchasing power of an S&P 500 portfolio was back to equal. In most cases I'm aware of the "average" recovery time for bear markets doesn't include dividends, which helps, or inflation, which hurts.
I use a slightly more dynamic approach to my cash/low volatility investments:
- When I retired I made an estimate of the CAGR I'd need to achieve to cover basic living costs (non-discretionary) and "desired" living costs if I lived to various ages, including "forever", including a static 3% inflation rate. I settled on a goal that I thought was conservative, largely due to the inherent uncertainty.
- As long as the S&P 500 is above its 200 day SMA I hold a minimum of 2 years of non-discretionary living costs in cash or effective equivalents.
- If the S&P falls below its 200 day moving average (at the end of a month) my minimum cash & equivalents increases to the larger of 25% or 5 years of "desired" living cost PLUS "potential" costs like the out of pocket maximum on my health insurance plan or a new car if I'm getting close to needing that- things which my estimates of living costs didn't fully include but could have a fairly significant impact if they occurred.
- Additionally, to the extent that I'm ahead of the CAGR I decided I'd like to target, the excess is invested more conservatively. That doesn't mean cash or equivalents, but lower correlations to the stock market.
- Finally, I keep track of my expenses at a very high level just to make sure my original estimates and/or inflation assumptions aren't way out of line and I would make adjustments if needed but I was pretty conservative so hopefully that won't happen.

>> [@msf] Buffett's [mix] implicitly suggests 2.5 years of "near cash". I'd be inclined to go a bit higher and/or use bonds as a second tier resource between cash and equity investments.
Yeah, this to me is key to withstanding (= usually ignoring) all of these manufactured advice articles:
How many years of safe cashflow are you comfortable with projecting you need, meaning earning very little, and how many years of unlikely-to-dip bondy things after that? Not percentages of your total, only years' worth. 1, 2, 3, 4, what?
I just did major (for me) retirement rebalancing, trying this time to apportion more prudently b/w Roth and taxable, and wound up with 21% bondy-cash. More than 5y, gah.
A year and change is in MINT and non-earning dead cash (BoA savings). Better, 2y or more is in PCI, which can dip, but best of all it matches equity funds over certain stretches. The remainder is in PONAX and FRIFX.
I can live with this, or so I say now, and will move amounts into MINT every few months to keep it at perhaps a year's worth.

January 11 Flag (2015)
Basically correct. To the extent that your taxable income remains within the 15% tax bracket, your cap gains/qualified divs gets taxed at 0%.
In 2014, if a couple had $94,100 in AGI (all cap gains/qualified divs), then line 38 (AGI on p. 2) would be $94,100. Subtracting a standard deduction of $12,400 gets us down to $81,700. Subtracting two exemptions ($3,950 each), gets us to a taxable income of $73,800.
Taxable income under $73,800 is taxed at 15% (or less). So if that's your total income, the cap gains/qualified div portion of it is taxed at 0%.
I guess the rate went up just a little ,50% increase ?
Derf

Let's look at how we make use of three years of cash.
I'll go along with @MikeM here. One isn't going to start drawing from cash the instant the stock market drops from a peak. That might be daily noise or the beginning of a bear market, you don't know.
So what's the strategy for starting to draw on cash? Say we start once the market is in correction territory. That's down 10%. So money that we kept in the market instead of cash has dropped 10% from the peak. But the value has likely been flat if we look back a year from the beginning of the correction. That's figuring the market earns about 10% a year. This is especially likely since the market was going up before the correction began (by definition).
For clarity, let's call the time we start drawing cash T1 (market down 10%).
Now the market's 10% down, and we're beginning to draw on cash. Let's say the market drops another 30% from this point. All together, the market drops 10% followed by a 30% drop. So it's worth 90% x 70% = 63% of its peak value. That's a 37% drop, or about what @hank suggested.
We'll call the trough T2.
The average duration of a bear market (peak to trough) is about 22 months. Since we start using our cash reserve (of three years) only after we are already down 10%, we almost surely have at least another year's worth of cash past the trough T2 before we run out.
So let's see where our stock is in another year. So far, it's down 30% - it was flat from a year before the correction until T1 (when we started drawing cash), and the market dropped 30% from there. The average first year recovery after a bear market (T2 - trough) is nearly 50% (same link).
Put these together: 70% x 150% = 105%, i.e. 5% higher than where we started. And before running out of cash.
Of course each recovery is different. But what this shows is that by starting to draw on cash only upon entering correction territory one can expect to have enough cash left to hold on for at least a year, possibly a lot longer, after hitting bottom, to get back to that 10% down level.
Even though we lose a little (10%) value in the stock from the peak, we come out ahead over the longer term (since cash wouldn't have made money before the market peak). So we're usually better off keeping money in stock rather than cash. We just need enough to outlast the worst of the dip. Three years seems fine for that.

If the headline, "dividends the IRS can't touch" means that for some taxpayers the IRS can't tax the dividends, we can say the same thing about lots of funds.
For example, VFIAX (Vangard 500) pays dividends the IRS can't touch "if one doesn't make enough". For taxpayers (roughly) below the 22% tax bracket, the IRS can't touch qualified dividends. Lower threshold, but same idea.
Either a fund's dividends are beyond the IRS' reach regardless of who receives them, or they are not. As an investor, I can't blindly buy these funds confident that the IRS cannot touch their dividends. Despite what the headline says. This is especially important since the article is making a big deal about how much the taxable equivalent would be for taxpayers in the highest tax bracket.
States with AMT (though I don't see how that affects whether the IRS could touch the funds' dividends):

@hank

If your equity heavy portfolio falls by 35% during a 3-year bear market while you draw from your cash reserves, do you really want to start selling your equitiy heavy portion as soon as the bear ends?

Yes.

Say your equity portion is still down 20-25% 3 years later after the bear market has “officially” ended. Having to withdraw funds (even though it’s now a bull market ) could still be problematic

could be

Per portfoliovisualizer, for the period Jan 2000 - May 2019, XLV has a CAGR of 6.99 vs.SPY's 5.22.
XLV had a beta of 0.77 vs SPY. XLV's biggest drawdown during this 20 year period was (35.5%) vs SPY's (50.8%)
So, XLV has modestly outperformed the market, with materially lower volatility.
Disclosure: I own a small position in FHLC (the Fido version of XLV), and also a position in IHF (healthcare provider ETF).

”Nothing magical about 3 years, though I think that is about the average recovery time for a bear market.”

I borrowed @MikeM’s remark for illustration here, but my question applies to many others who have discussed their withdrawal plan (as relates to cash) in event of a bear market during the distribution phase of retirement.
If your equity heavy portfolio falls by 35% during a 3-year bear market while you draw from your cash reserves, do you really want to start selling your equitiy heavy portion as soon as the bear ends? Say your equity portion is still down 20-25% 3 years later after the bear market has “officially” ended. Having to withdraw funds (even though it’s now a bull market ) could still be problematic.
Looks like the average duration (from peak - to bottom - and back up to that level again) is about 5 years. Since that’s just an average, some of these periods during which you would have to either (1) sell depreciated equities & funds or (2) rely on your cash reserves might last considerably longer than 5 years.
https://www.dividendgrowthinvestor.com/2008/07/average-durations-of-previous-bear.html

Minor point, but the headline is incorrect. 10.5% of last year's income from VMO was subject to AMT - the IRS can touch it.
Click on the second to last item under Income breakdown:
Federal Alternative Minimum Tax - National Funds
https://www.invesco.com/portal/site/us/investors/closed-end-tax-guide/#tab_tab2

FYI: What if I told you that I'd found this article posted by @JohnN two days ago with the exact same headline?
https://mutualfundobserver.com/discuss/discussion/50312/3-big-dividends-the-irs-can-t-touch