Does this mean sell stocks? No. DIA’s investment philosophy is to allocate a certain percentage of a portfolio to stocks and to maintain this allocation long term. However, it may be prudent to rotate among sectors while leaving the overall allocation the same. If your portfolio is heavily focused on technology stocks, perhaps rotate into less volatile sectors or dividend paying stocks. Portfolios should also undergo periodic rebalancing, so if a strong year in stocks brings your portfolio above the target allocation percentage, consider selling some stocks to bring the allocation back to target. The rebalancing process presents an opportunity to pare technology stocks.
Another topic of interest is the unemployment rate for February which dropped to 6.6%, approaching pre-recession levels. What is underreported, however, is the so-called “U-6 Unemployment Rate” which takes into account people that left the work force and part-timers who are actually seeking full-time work but can’t find it. Including these two groups the unemployment rate jumps to 12.7%. Amazingly, even as the headline unemployment rate has dropped in recent years, approximately 1.7 million fewer Americans are working today than six years ago, even as our population increased by 15 million over this same period. This anomaly results from government surveys which show that fewer Americans are seeking employment. These people “drop out” of the labor force and are conveniently not counted as unemployed anymore. The chart below tracks the movement of the official unemployment rate (red) versus the “U-6” rate (green):
Finally, while on the topic of misleading news reports, recent headlines stated that Obama’s call to raise the federal minimum wage would lead to the loss of 500,000 jobs. This figure is based on a report released by the Congressional Budget Office. What did this CBO report actually say about the effect of a minimum wage increase to $10.10? Quoting from the actual report: “in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range of a very slight reduction in employment and a reduction of 1 million.” So this means that there is a 1/3 chance of none of this happening at all, and even within this “about a 2/3” chance there is the possibility of no real impact. The CBO could not have been more vague. What the CBO was sure about is that 16.5 million workers would be earning far more than they are today, with $31 billion more total annual income. While the CBO apparently used sophisticated statistical analysis to come up with their conclusions, a simple chart confirms that the effects of minimum wage changes are not possible to accurately predict. The chart below shows the true minimum wage based on 2013 dollars (red) versus the stated/nominal minimum wage (blue).
Note that this article was written to provide information and education, and is not intended to be considered investment advice, which can only be provided by DIA following a consultation and execution of an Investment Advisory Contract.