Clients might consider rebalancing into weaker performing stocks given the narrowness of the S&P 500 rally, rather than trying to perfectly time profit-taking or relying on a calendar-based schedule, Schwab Chief Investment Strategist Liz Ann Sonders suggested Monday.
"There is a little bit of halitosis with the move off the March lows," she said on CNBC's "The Exchange."
"Less than 10% of the S&P stocks are trading at 52-week highs and it's less than 20% that are trading even at four-week highs. So we have seen this narrowness and ... a lot of really rapid-fire rotations and churn under the surface. And I think best-case scenario ... that could persist at least in the near term," said Sonders.
"Trying to take a timing approach where you say, 'OK, when is profit-taking going to kick in?' — just consider portfolio-based rebalancing strategies," she said.
"So a lot of rebalancing that gets done, whether you're at the institutional level, the mutual fund complex or even individual, tends to get done based on the calendar. You might do a quarterly, you might do it annually, but you can do portfolio-based rebalancing where, because of how rapid these rotations can be and the extremes on the upside that we have seen in certain concentrated areas of the market, you force yourself to take some profits and add into areas where there has been commensurate weakness," said Sonders.
"And I think that's the better way to stay in gear as opposed to try to time some point where you're going to get that inflection point," she said.
Addressing incoming Federal Reserve Chair Kevin Warsh's likely moves, Sonders suggested he may not be able to lower short-term interest rates soon, saying that neither of the Fed's dual mandates — maximum employment and price stability — "is suggesting anything resembling rate cuts or easier monetary policy here."
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