Environment Ripe for Market Rout Time Sensitive Opportunity to Attempt to De-Risk

Environment Ripe for Market Rout Time Sensitive Opportunity to Attempt to De-Risk
September 21, 2021 phillip_toews_1p9l0e9h

Losses have accelerated and broken through technical resistance, suggesting that the seasonably unfavorable months of September and October may delver a potentially large correction.  These losses are mounting at the same time that the FED is considering removing maximum accommodation.

A key behavioral riddle to be understood is that the market doesn’t always correlate with the economy.  Last year, when the U.S. was printing the results of the worst GDP contraction since the great depression, stocks were rallying fiercely…even before clear evidence that we would be successful at creating vaccines.  This year the GDP is powering higher and employment numbers continue to improve.  However, the last two significant bear markets (2000 and 2008) were led lower by the stock market drops that played out before significant economic contractions.

Finally, stock market valuations create a perilous historical landscape.  Since 1900, the S&P 500 entered a bear market 6 out of the 8 times that it moved above 20 times trailing earnings, with an average decline of 44%.  The only time that we’ve been near 28 times trailing earnings on the S&P 500, where the market resides today, was prior to the internet bubble burst.

Today’s move poises Toews to move defensive across its risk assets.  Even before we exit, however, we hold put options to help defend against losses in our stock portfolios.  For advisors who have enjoyed gains over the past 18 months, but are wary of valuations, we recommend:

  1. Despite negative market action today, avoid making a market call (either higher or lower).  Instead, position portfolios to address the contingency of either market gains or severe market drops by allocating parts of stock portfolios to hedged or high conviction tactical strategies.
  2. If you wish to lower portfolio risk, act before or in the early stages of market declines, not after them.  Despite consistent daily moves lower over the past two weeks, the decline thus far has been minimal in percentage terms.
  3. Watch the riskier part of the market for indications of further market moves.  Innovator and growth tech stocks have led the past few market declines, and we expect that will continue.
  4. Avoid buying the dip until the market moves beyond this unfavorable season and earnings results for the third quarter appear on course to meet expectations.

We’ll keep you updated if we make additional defensive moves over the weeks ahead.


All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.

This commentary is intended to provide general information only and should not be construed as an offer of specifically-tailored individualized advice, and no representation is being made as to whether the information provided herein would be beneficial for any or for a specific Employer Benefit Plan or investor.

For additional information about Toews, including fees and services, send for our disclosure statement as set forth on Form ADV by contacting Toews at Toews Corporation, 1750 Zion Road, Suite 201, Northfield, NJ 08225-1844 or (877) 863-9726.