The market had a strong first half of the year, but don’t expect the rest of 2013 to be as “spectacular,” Hugh Johnson, chairman and chief investment officer at Hugh Johnson Advisors, told “Nightly Business Report.”
The market hit record highs in the first half of 2013, with the S&P 500 gaining more than 12 percent, its best showing in 15 years.
That’s left the market “2 percent to 4 percent overvalued,” Johnson said. He expects a “good but not great and maybe even modest correction as we move through the third quarter.”
So what should investors do?
Johnson urged patience.
“Drag your feet,” he said. “Buy a little now and wait for that so-called correction that I think will be coming and then buy some more.”
While he thinks stocks are still the place to be, Johnson believes we have likely entered a bear market in bonds. He suggests having at least 57.5 percent to 60 percent of your portfolio in stocks and the balance in bonds.
“The stock part of the portfolio is going to perform the best between now and the end of the year, and particularly between now and the end of 2014,” he noted.
“Look for the returns from the stock market to be roughly the 6 percent level through 2014 and maybe minus 1.5 percent in the bond market as a guess.”
If you are looking to add stocks to your portfolio, go with names that are working, he said, like Coach and Disney.
He also likes the financial sector, which “has been on fire,” because he thinks its margins are going to expand. First Republic and Fifth Third are two names on his list.
Lastly, Johnson said the health-care sector has been doing “extraordinarily well.” The price-earnings ratio is low and it has good dividend yields. Johnson likes Merck and Pfizer in that space.