Risk on, sort of

Well, Bernanke has spoken. He stands ready for more easing if necessary. The markets finished Friday on an up note and some experts are saying it’s time to put a little more risk into portfolios. Don’t go nuts people. Wall Street is still as tricky and as difficult as winning the big stuffed dog at a carnival game.

The Dow finished Friday up 90 to 13,091, the Nasdaq up 18 to 3,067 and the S&P 500 gained 7 to finish at 1,407.

Joe Mathews, Morgan Stanley Smith Barney vice president and the firm’s Fairfield office manager, said central bankers are supporting the markets and that should allow for a little more risk taking.

The firm has made a number of changes to its recommendations going forward, he said Friday, including a key change to its cash outlook.
With central banks pledging to keep interest rates low, there’s less reason to have cash. So they went from overweight to underweight.

Other moves:
Equities – overall position to neutral from slightly underweight and a reduction in the size of our underweight position in European equities

  • Investment Grade corporate bonds – Increase our overweight position
  • High yield bonds – Shift in position to neutral from slight underweight
  • Emerging market Bonds – Slightly overweight position from neutral
  • Commodities – position shifts from slightly underweight to neutral
  • Short duration bonds – Neutral from overweight
  • Managed futures – Reduced tactical overweight position.

Paul Schatz, president and chief investment officer of Woodbridge Capital, sees some order returning to the market as well.

“The market seems to be digesting the gains from June and July in a very orderly fashion,” he said. ”

Some of the pullback earlier in the week was expected, he said, as prices approached the April peak.

“Until proven otherwise, weakness can be bought,” he added. “I think the Dow is about take on a leadership role, which hasn’t happened in some time.

Shatz added if stocks make a new over the coming days and weeks,that could be a selling opportunity.

Mark Luschini, chief investment strategist for Janney Montgomery Scott, sees a similar picture of risk.

“We upgraded the probability of our optimistic scenario to about equal to that of our base case,” he said. “That means risks have receded somewhat, but remain elevated.

Rob Varnon