Investment strategist Bob Doll, sounding a cautionary note, said he is focusing on capital preservation in portfolios and suggested investors resist the temptation to jump in should the stock market rally continue.
"While we still have our doubts about the sustainability of the market rally even over the shorter term, it is possible that global stock prices will continue to rise for some time before unambiguous recessionary signs emerge," Doll, Crossmark Global Investments' chief investment officer, said in his weekly newsletter Monday.
"We advise against chasing the market if the rally continues," he said. "At this point in the economic cycle, we value capital preservation over return maximization as a portfolio goal. We continue to recommend that investors stay defensively positioned."
U.S. stock valuations are stretched after a strong second quarter in which the S&P 500 rose for the third straight quarter, with an 8.7% gain, and the Nasdaq composite surged 17%, Doll noted. Investors should expect choppy markets and buy on dips and trim on rallies, he wrote.
He suggested they own some bonds and diversify across asset classes and geographic regions, and focus on companies with free cash flow and high earnings predictability.
