Small Cap Investing for Uncertain Times

The major U.S. stock market indices trended modestly higher over the past week, with the S&P 500 Index rising by 0.2% and the Nasdaq Composite Index advancing by 0.8% as of Thursday, August 23 compared to their closes on Friday, August 17.

Meanwhile, stock market indices for other major regions of the world were somewhat mixed over the past four days, with both the European Monetary Union Index and China’s Shanghai Composite Index rebounding by 2.1%, while Japan’s NIKKEI 225 Index rose by a mere 0.6%, and Brazil’s Bovespa Index declined by 0.5% over that same period.

All of the market indices mentioned above have failed to rise above key price resistance levels over the past few weeks, while sector relative performance statistics indicate that stock market participants have become more defensive in terms of their stock allocations.

My research and experience thus continues to indicate that now is a time to exercise caution in regard to investing and speculating in the worldwide equity markets.

Meanwhile, economic activity in the U.S. housing market continued to slow during July and manufacturing activity in major regions of the world slowed during the first half of August, also suggesting that now is a time to be cautious.

Cautionary advice

That’s because economic activity in the housing market and manufacturing sector tend to serve as reliable leading economic and stock market indicators.

My cautionary advice enabled the value of S&P 500 Total Return Index to come within striking distance of our model portfolio over the past several days, due to our 85% allocation to cash.

However, in the event that stock prices in general were to pull back considerably, the value of our portfolio would remain substantially intact because of our high allocation to cash in money-market securities.

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