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LivestreamMenuThis is not the time to get lulled into a false sense of security, according to BTIG. The S & P 500 is up more than 13% for the year, having notched fresh records just last week. The equal-weight S & P 500 has gained roughly 16% over the same time period, itself hitting all-time highs. On top of that, just about every single sector in the broader index is now in positive territory for the year. But investors shouldn’t get complacent, as this is the point on the calendar during midterm election years that tends to get dicey. Ongoing hostilities in the Middle East, as well as the prospect of higher interest rates, could also weigh on equities. “The ‘broadening’ has happened, and the vibes are immaculate,” Jonathan Krinsky, chief market technician at BTIG, wrote on Sunday. “Unfortunately, history says don’t get too comfortable as we enter the worst part of the calendar during mid-term election years (8/18-10/11).” It’s not as though the midterms themselves are bearish, the technician said. Often, some exogenous event has been the trigger, such as the Iraqi invasion of Kuwait in 1990 that sparked the Persian Gulf War, or the Ebola outbreak of 2014. .SPX YTD line SPX year to date Regardless of the cause, however, the fact remains that the S & P 500 has dropped at least 7% in the August to October stretch in every midterm year going back to 1990 — except just once in 2006, the technician said. The prospect of seasonal weakness is especially daunting when you consider that the stock market remains at all-time highs, with volatility at year to date lows — suggesting a level of complacency among investors that is unnerving. What’s more, the bond market continues to flash warning signals, with the 10-year yield above 4.7% and the 30-year topping 5.2%. In such an environment, Krinsky expects that health care is an especially attractive place to build a defensive positioning. The sector has been the best-performing sector of the last three months, up more than 15%. “In summary, we think this a very attractive time to pare down risk, or look at hedging broad-based equity exposure as we enter a very difficult part of the calendar, historically speaking,” Krinsky said.Read More
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