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Recent Federal Reserve chairs have, at best, a mixed record as market seers.
Remember in December 1996 when then-chairman Alan Greenspan said stocks were in the grip of "irrational exuberance"? The S&P 500 (.SPX) nearly quadrupled.
And then in February 2004, Greenspan urged homeowners to get adjustable-rate mortgages rather than standard 30-year fixed-rate loans. People who took his advice may have lost their homes in the housing Armageddon that followed.
A year and a half later his eventual successor Ben Bernanke assured Americans there was no housing bubble.
But in a pivotal interview on CBS News' 60 Minutes in March 2009, Bernanke spoke of "green shoots" in the economy even as things were at their bleakest. Investors who bought stocks then (or didn't sell the ones they owned) have done spectacularly well.
And now the current Fed chair, Janet Yellen, has thrown her hat in the investment guru ring.
During testimony two weeks ago before the Senate Banking Committee, Yellen addressed potential asset bubbles in the capital markets. Doom-and-gloomers have been warning about this for years, but other, more sober observers have expressed concern as well.
Yellen first dismissed fears that stocks, corporate bonds or real estate are in bubble territory, declaring that "they remain generally in line with historical trends." The exception: hot social media and biotechnology stocks.
But "in some sectors, such as lower-rated corporate debt, valuations appear stretched and issuance has been brisk," she testified. "Accordingly, we are closely monitoring developments in the leveraged loan market and are working to enhance the effectiveness of our supervisory guidance."
Translation: hold most stocks, real estate and investment-grade bonds. Sell momentum stocks, leveraged loans and lower-quality credits that pay abnormally high interest rates.
It's not bad advice. Although risks are rising, I don't think the whole market is ready to come undone. So, bailing out completely could cause you to miss substantial price gains if stocks continue to rally as the economy recovers.
But rebalancing your holdings and reducing risk makes good sense.
Over the last few years, this column has rejected the doom-and-gloomers' apocalyptic scenarios, shut out the noise that accompanies major political events, and focused on positive trends like earnings and a painfully slow but still real economic recovery.
Those favorable trends are still in place, but in the short run, the market is getting tired.
Fewer stocks are hitting new highs, market breadth is thin, and the S&P 500 has struggled to reach the magic 2,000 level. That's despite a super-strong earnings season in which more than three-quarters of the S&P 500 companies reporting so far have beaten Wall Street analysts' estimates.
And this week is particularly heavy in economic reports — impressive consumer sentiment and bang-up second-quarter GDP, the Federal Open Market Committee's decision on Wednesday to reduce its extraordinary bond buying by another $10 billion a month, and the July jobs report on Friday.
But we're entering the "dog days" of August, with little prospective good news to keep stocks advancing. Whatever traders are left on Wall Street will decamp for the Hamptons, leaving potential mischief makers at their desks while volatility remains low.
Meanwhile, the battle between Israel and Hamas, and Russia's war against eastern Ukraine will likely drag on. Although international crises don't do lasting damage to stock markets, this all creates instability.
Taken together, we may have a recipe for a sell-off, although it's impossible to tell whether it could be the big correction so many of us have predicted.
I also think there are good arguments made by my MarketWatch colleague Brett Arends and others that the risk of a substantial downturn is rising.
That's why investors should do a mid-summer portfolio cleaning now:
Rebalance. See if the stock market gains of the past 18 months have pushed your equity holdings above your goals. If you have, say, 55% of your money in stock and your target is 50%, it might be prudent to sell that additional 5% of stock and rebalance into bonds and cash.
Sell your riskiest assets first — faddish social media and biotech stocks and aggressive-growth and small-cap ETFs and mutual funds — and only then trim core holdings (for example, broad-market index funds).
Cut back on high-yield bond funds, floating-rate note funds and other popular vehicles for desperate yield seekers.
Sell emerging market debt, one of the four asset classes I said I wouldn't own now. Rising interest rates and heightened risk aversion would drive down prices of high-yield and emerging-market bonds, with much collateral damage. That's why I'd also avoid emerging-market stocks.
As I said, I don't know if we're near a big correction, but there are many reasons to be prudent. Janet Yellen's "sell" list is a decent place to start.