Walk On Hot Coals

      In 1973 Rory Gallagher recorded this song on his album "Blueprint". It contains a high energy guitar solo that I loved to listen to as a younger man. Few young people have ever even heard of Rory today, but his music lives on in my memory even though he died way too young. The song reminds me of the stock market environment today. I say this because the market is undergoing a rotation from some super high valuation growth names into some left behind value names. Only a few weeks ago stocks that represented the "stay at home" economy were the darlings on Wall Street but now their sky high valuations are being questioned. The reason is that with so many people who are now vaccinated, the stay at home economy may be slowly coming to an end. One sign of this is the volume of air travel which is approaching levels not seen since the pandemic started. This creates a very treacherous investing environment. Stocks like Netflix and Peloton have already started to slide downward because they were the beneficiaries of the lockdown. So what should an investor do? First, take baby steps when adjusting your portfolio. Making bold moves rarely ever paid-off for me. If you have nice gains in pandemic related stocks, it would be wise to take some money off the table. New money deployed into this market should be directed at the reopening of our economy, especially if the valuation (PE ratio) is below the rest of the market. Also never forget about dividends. Over the last 75 years, dividends have accounted for a large part of the overall return of stocks. I am not ready to turn tail and run from the stock market into fixed income like bonds or CD's. The reason is that yields are still so low that after the effect of inflation, you are guaranteed to lose purchasing power for your money. Stocks are still the only game in town but the game has changed a bit. I still like financials like banks, pharma, materials, and old tech companies that have not participated in the mania of the last 18 months. Pay attention to valuation, dividend yield, earnings growth and sales growth to keep from getting burned.