What To Own In An Expensive Market

Sebastien Page is the head of asset allocation for T. Rowe Price Group. He and his colleagues determine the investment mix for the company’s multi-asset mutual funds, including target-date funds.

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Kiplinger: How do you feel about the stock market for the rest of 2017?

Page: First, I should say that T. Rowe Price does not have a “house view.” In the Asset Allocation Committee, we are somewhat bearish, but not too bearish. We have been reducing our exposure to stocks relative to bonds. For investors with a long time horizon who are saving for retirement, stocks are crucial. But as we look toward the end of the year and early next year, we’ve been reducing our exposure slightly. If a portfolio normally has 60% in stocks, for example, now we’d have 58.5%. We do things incrementally; we’ll see how things unfold.

Why lighten up now? As of April 30, Standard & Poor’s 500-stock index is up 7.2% year to date, 18% in the past 12 months and 90% in the past five years—that’s 13.7% annualized. The market is close to an all-time high. Price-earnings ratios are higher than they have been 90% of the time over the past 20 years. No matter how you look at it, share prices are expensive as you stare down the barrel of an eight-yearlong bull market.