Rebalancing Risk: Why We've Changed Our Equity Position

Rebalancing Risk: Why We've Changed Our Equity Position

We recently adjusted tactical portfolios from an overweight to a neutral position in equities, reducing stock exposure by 5% and reallocating primarily to bonds. This brings portfolios closer to benchmark weights across equities, fixed income, and cash. We continue to maintain an underweight position to the US stock market and an overweight to international equities. While geopolitical tensions, particularly involving Iran, have contributed to recent volatility, this was not a headline-driven decision. The move reflects a broader and more gradual weakening in market conditions that has been building over time.

The macro environment has become more mixed. Economic growth remains intact, but persistent inflation has delayed anticipated Federal Reserve rate cuts and put upward pressure on interest rates. This has created a more challenging backdrop for equities and increased market sensitivity to uncertainty. Under the surface, market conditions have weakened. Participation has narrowed significantly, with the percentage of stocks trading above their 50-day moving average falling sharply to around 10%, an indication that fewer stocks are driving the overall market performance (chart below).

A sharp drop in stocks above their 50-day average has historically been associated with more cautious equity environments.

At the same time, momentum has deteriorated, with a growing number of major indexes now trending lower. This reflects a shift from a broadly supportive environment to a more fragile one.

The moving average composite above tracks trends across broader market indexes. It is currently below the -1.5 level, signaling softening momentum and a less supported backdrop. Historically, readings at these levels have often pointed to weaker equity returns. In short, more areas of the market are trending lower, suggesting reduced upside potential.

Taken together, these signals support a more balanced approach to risk. If underlying market conditions weaken further or interest rates remain elevated, stocks could face additional pressure. At the same time, there are still positive outcomes that could support markets, such as stabilization in global markets, easing geopolitical tensions, or a more accommodative Federal Reserve.

The Bottom Line

Our move to neutral reflects this balance. Stocks remain a core part of portfolios for long-term growth, and this adjustment modestly reduces risk as markets evolve. As always, volatility is a normal part of investing. Our focus remains on navigating these periods with a disciplined, data driven approach while staying aligned with long term objectives.

Disclaimer: The information contained in this market commentary reflects the opinions of Stratos Private Wealth. These opinions do not reflect the views of others and are subject to change without notice. Content in this material is intended for general information purposes only and should not be construed as specific investment advice or recommendations for any individual. Please contact your advisor with any questions or for specific recommendations regarding your own circumstances. Investing involves risks including possible loss of principal. Stratos Private Wealth is a division through which Stratos Wealth Partners, Ltd. markets wealth management services. Investment advisory services offered through Stratos Wealth Partners, Ltd., a registered investment adviser.  Stratos Wealth Partners and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only; and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.  To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.  Investing involves risk including possible loss of principal. Some of the information contained herein has been obtained from third party sources which are reasonably believed to be reliable, but we cannot guarantee its accuracy or completeness. The information should not be regarded as a complete analysis of the subjects discussed