Survey: Best Ways To Play The Stock Market’s Momentum And Allocate Cash, According To Experts

The inventory market has been on a powerful run because the begin of 2023 with the Customary & Poor’s 500 (S&P 500) index topping new all-time highs a number of occasions this yr. Many buyers and merchants are betting that this momentum can proceed, as rates of interest appear to have nowhere else to go however down. But when that momentum falters or charge cuts don’t happen, an expensive inventory market may tumble shortly.

In this type of setting, what ought to buyers be contemplating? Bankrate’s First-Quarter 2024 Market Experts survey requested consultants how buyers ought to navigate the present market, significantly with the speedy run-ups that large-cap tech names such because the Magnificent Seven shares have acquired.

The survey additionally requested how buyers ought to use revenue from investments equivalent to dividend shares and CDs on this setting. Ought to buyers with a long-term orientation reinvest into high-yielding and protected money investments or put it to work in belongings with traditionally larger long-term returns?

Forecasts and evaluation:

This text is one in a collection discussing the outcomes of Bankrate’s First-Quarter 2024 Market Experts survey:

How the professionals say to play the market’s sturdy momentum

With the S&P 500 surging to new all-time highs in 2024, it appears to be marching ever larger on the again of sturdy investor curiosity in large-cap tech names equivalent to Apple, Microsoft and Amazon. These shares have demonstrated what buyers name “sturdy momentum,” powering larger week after week and attracting increasingly more {dollars} as buyers search to journey the momentum larger.

After all, this pattern may show harmful if the valuations on momentum shares grow to be too stretched or buyers lose religion in its underlying drivers, equivalent to synthetic intelligence (AI). In that case, the momentum darlings may shortly retreat with the momentum swinging to the draw back. So, profitable momentum depends on timing the market properly reasonably than shopping for and holding positions.

The professionals in Bankrate’s Market Experts survey advocate quite a lot of methods within the face of the momentum in large-cap tech shares, together with diversifying and never taking part in it in any respect.

“Momentum investing is actually an affordable funding philosophy,” says Brad McMillan, chief funding officer, Commonwealth Monetary Community. “So long as the place is right-sized primarily based on the potential return and threat that an allocation would add to a portfolio, we imagine there’s a place in a well-diversified portfolio. That stated, the important thing to momentum investing is getting the timing proper and that’s actually not straightforward.”

“By definition, momentum investing works till it doesn’t, which is why it’s so dangerous,” says Charles Lieberman, chief funding officer, Advisors Capital Administration. “Among the tech corporations have glorious prospects, however that’s acknowledged by the market, so they’re extremely valued. However even a slight falter of their prospects exposes them to massive declines.”

However different consultants suppose buyers are finest served by avoiding momentum investing fully.

“Momentum is harmful always, however particularly when it’s pushed by a tech rollout,” says Kim Forrest, chief funding officer and founder, Bokeh Capital Companions. “Nobody is aware of when generative AI will gradual spending, however when it does, the shares which might be tagged as taking part will get killed.”

“As a long-term basic investor, there isn’t any place for momentum investing in my world,” says Michael Ok. Farr, president and CEO, Farr, Miller & Washington. “I’d advise particular person buyers to allocate solely a small proportion of their investable {dollars} to momentum methods.”

Nonetheless, others imagine that the basics of tech shares are superb whereas acknowledging the dangers.

“I feel it’s nonetheless okay to put money into momentum shares with sturdy fundamentals,” says Chuck Carlson, CFA, CEO, Horizon Funding Companies. “These shares are nonetheless displaying top- and bottom-line development.”

Moderately than utilizing momentum investing in a theme equivalent to AI, it’s higher to make use of diversification to seize a number of themes, suggests Dec Mullarkey, managing director, SLC Administration.

“Higher to speculate throughout all funding themes by shopping for the market index,” he says. “If buyers are switching themes, which will have little impact in your total index efficiency as you maintain the shares they’re focusing on.”

One straightforward manner to do this is to purchase a broad-based index fund primarily based on the S&P 500. The index has returned about 10 p.c over lengthy intervals of time.

How the professionals recommend you reinvest your funding money

With sturdy returns in money now equivalent to in high-yield financial savings accounts and CDs, in addition to dividend investments equivalent to shares and funds, buyers could have a number of revenue on their arms. The Bankrate survey requested the professionals how long-term buyers ought to be deploying the money now.

The professionals advocate that buyers think twice in regards to the returns of various asset courses and their very own wants. For instance, shares ship sturdy long-term returns however are unstable within the brief time period. Bonds ship average returns with much less volatility, whereas returns on money accounts equivalent to CDs and financial savings accounts now have respectable returns with out volatility.

“Asset allocation is usually crucial in funding efficiency over time,” says Farr. Farr advises buyers to determine what they want by way of returns and liquidity and what they’re prepared to endure by way of dangers. With larger returns on safer belongings now, Farr stresses that buyers must rigorously contemplate the place these match into an funding portfolio.

“Longer-term buyers would possible submit better whole returns with income-oriented shares than with CDs since shares not solely earn revenue but additionally supply price-appreciation potential,” says Sam Stovall, chief funding strategist, CFRA Analysis.

“Shares win over any form of affordable long-term horizon,” says Lieberman. “Holding CDs is acceptable just for anticipated short-term money wants or to protect towards surprising massive bills.”

Different professionals cite extra particular inventory methods as nice methods to drive long-term returns.

“Incorporating a dividend technique is a worthwhile pursuit for any investor with an extended time horizon,” suggests Patrick J. O’Hare, chief market analyst, Briefing.com.

One excellent spot to get money revenue and diversification is with the perfect dividend ETFs.

“When you have a long-term horizon, then development is extra essential than revenue,” says Mullarkey. “Subsequently on the most simple degree, you’ll allocate most of your belongings to development alternatives like equities and have a modest allocation to fastened revenue equivalent to bonds or money.”

“The overall precept, that youthful folks ought to make investments extra in equities for retirement after which rebalance to fastened revenue as they get nearer to retirement, nonetheless holds,” he says.

Editorial Disclaimer: All buyers are suggested to conduct their very own unbiased analysis into funding methods earlier than investing resolution. As well as, buyers are suggested that previous funding product efficiency is not any assure of future value appreciation.