The writing is on the wall. The rest of this December should be strong, but I have taken the liberty of cashing out of small caps in my retirement portfolio. I am placing 25% of my 401 into the Wellington Fund and then diversifying the rest into large cap value. Im also going to cut my holdings in the foreign markets and aiming for large cap value in the regions in which I am invested. Im not completely certain if this will help me out in the event of a recession, however, I feel that aiming for large cap value is probably a better answer then growth or small caps. Before any event, there is always a warning. I feel the warning bell has been sounded and thus we must prepare now instead of waiting for what the spring will bring to us.
if you really believe that a recession is on the way and that the market hasn't priced it in properly yet (which is key - if it has been priced in, you might as well do nothing) then bonds are likely your best bet. interest rates are very unlikely to go up in the context of a real recession and indeed the fed will likely have to cut.
If you forced my opinion on the issue, then I would say that stocks are rallying towards the end of the year on account of year-end bonuses and window dressing. The charts tell me that I should suspect a 7-10% fall in the domestic market within the coming months. I could be wrong, so thats why I dont want to suddenly go 100% into bonds. There are certain factors that tell me that the signs of recession might in fact be false. Instead, I am positioning myself away from growth and small-caps. In the past when the US market has had problems, the foreign markets seem to follow suit. Indeed, when there were little headaches in the domestic market in 2006, there were some waves overseas, although the foreign markets have performed very strongly. I feel a small amount of bonds and portfolio larger cap value oriented issues would be the safest bet at this time.
Footnote: I would also like to add that some of this rally is probably due to short covering. There had been an expected decline that never emerged in the sept-oct timeframe. Some larger concerns had to cover the short shares. I still see lots of short interest. When the covering is done though, who is left to buy?