Fishing boat entering Depoe Bay.
What to make of Friday’s sell off? Hi Tech took a hit last Friday, but the broad market is still bullish based on the Bullish Percent Indicator (BPI) for the NYSE. These mixed signals are confusing at best. This next week, as well as the behavior of the U.S. Equities market over the summer will provide an abundance of information. We are well aware of the fact that seven to ten mega-cap tech companies are driving this bull market. Friday was a crack in this bull market. Will the gap widen or will it close with the market higher next Friday. Regardless, the Shiller CAPE Ratio and Buffett Indicator are overbought by a wide margin.
The Shiller PE ratio (also known as the CAPE Ratio or PE) for the S&P 500 is hovering around 41.5. A reading between 16 and 18 is normal with 25 or higher is considered to be overvalued. The current value is closing in on the Dot Com bubble high of 44.2.
Once more, watch the key signals and they are:
- Employment numbers. This was a good week for workers. Give it a + sign.
- Inflation – Not down to 2.0%. Rather, it is creeping up. Give it a – sign.
- Interest Rates. Most likely will not be lowered as the bond market is shaky. Give it a – sign.
How to handle a volatile mark is a cogent question? Broad diversification is certainly one method. I am using two types of diversification.
ETFs is an excellent way to diversify within a give portfolio. Diversify through the use of ETFs such as VEA and VWO. In other words, invest in international companies rather than concentrate completely within the United States. A second diversification is to use different investing models for different portfolios.
This morning I asked ChatGPT the following request.
Here is the portfolio recommendation based on the above request.
If the goal is to prepare for a significant market correction within the next 12–18 months while still generating retirement income and maintaining long-term purchasing power, I would emphasize:
- Higher-quality bonds than a typical 60/40 portfolio
- Short-duration Treasuries for liquidity
- Dividend-oriented equities rather than broad market growth
- Inflation protection
- Gold as a hedge against monetary and market stress
- Modest international diversification
- Lower overall stock allocation than a typical retiree portfolio
Defensive Retiree ETF Portfolio (100%)
| ETF | Asset Class | Allocation |
|---|---|---|
| SGOV | Treasury Bills / Cash Reserve | 12% |
| VGSH | Short-Term Treasuries | 8% |
| SCHR | Intermediate Treasuries | 10% |
| SCHP | Inflation Protection | 10% |
| SCHD | Dividend Stocks | 15% |
| VIG | Dividend Growth | 8% |
| USMV | Low Volatility U.S. Stocks | 10% |
| VTV | Value Stocks | 8% |
| VEA | International Developed Markets | 7% |
| VWO | Emerging Markets | 3% |
| IAU | Gold | 7% |
| VNQ | Real Estate Income | 2% |
Portfolio Characteristics
Fixed Income / Cash: 40%
- SGOV, VGSH, SCHR, SCHP
- Designed to reduce portfolio volatility and provide dry powder during a correction.
Equities: 51%
- Focus on dividend-paying, value-oriented, and lower-volatility stocks.
- Less exposure to high-valuation growth companies that often experience larger declines during bear markets.
Alternatives: 9%
- Gold and real estate provide diversification and potential inflation protection.
Why This Portfolio May Hold Up Better During a Correction
- 40% in Treasuries and TIPS
- Historically, high-quality government bonds often provide stability during equity selloffs.
- Dividend and Value Tilt
- Dividend-focused and value stocks have frequently experienced smaller drawdowns than broad growth indexes.
- Low-Volatility Factor Exposure
- USMV specifically targets stocks with historically lower volatility.
- Gold Allocation
- Gold often performs well during periods of financial stress, declining real interest rates, or policy responses to recession.
- Limited Emerging Markets Exposure
- Keeps diversification benefits while reducing risk.
Rebalancing Strategy
If a major correction occurs:
- Rebalance annually or when any holding deviates by more than 20% from its target allocation.
- During a sharp market decline (20%+), consider gradually shifting a portion of Treasury holdings into equities to restore target weights.
- Maintain at least 6–12 months of living expenses outside the investment portfolio in cash or cash equivalents.
This portfolio is designed for capital preservation first, income second, and growth third—an approach that many retirees find appropriate when they expect a meaningful market correction in the near future.
The above response is an excellent portfolio for retired investors or for those who wish to preserve capital in the even of a market correction.
Here at ITA Wealth Management I am not only diversifying across the globe through the use of ETFs, I am also diversifying through the use of different portfolios so as to meet the needs of different owners.
Here are the different models.
- Schrodinger is a Robo Advisor portfolio housed at Schwab. This portfolio is managed by a computer so it is hands off for the owner. All one does is add cash when available and let the computer do the management work. Thus far this model has worked amazingly well.
- Another approach follows an equity only style of investing. Copernicus is the portfolio using this aggressive approach. The Copernicus will likely end up as one of the most volatile portfolios as it will rise and fall with the broad market. Recently I moved from ETFs such as RSP, VTI and VOO to dividend ETFs such as SCHD, VIG and VYM. This move is to temper portfolio volatility.
- Sector BPI Investing is a unique investing model that is showing promise as an active management model. Three portfolios are following this model and the are: Carson, Franklin and McClintock. All named after female scientists.
- The remaining ten (10) portfolio fall into the Asset Allocation investing model. Over the past few months I’ve been adjusting these portfolios so they are better situated to handle the anticipated market draw-down.
This coming week portfolios up for review are: Kepler, Bohr, Schrodinger and Franklin. Three different investing models will be explained to viewers.
Comments and Questions are always welcome. Pass on the ITA link to your friends and family if you think this information is useful.
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Hi Lowell,
I’m very interested in your BPI model of investing and would like to use the indicators for my own investing. Where can I find the indicators you use online.
Thank you,
Bill
Bill,
The different Sector Bullish Percent Indicators are found in StockCharts. You likely read this blog from back in May, but if not, here is the link to the last Carson update.
https://itawealth.com/carson-sector-bpi-portfolio-review-22-may-2026/
Another way is to keep tabs on Sector BPI action is to check the Forum as any changes, be they a Buy or Sell, I update through the Sector section within the Forum. I posted an update this morning that Health is overbought so I placed a TSLO under VHT.
Anything else you need to know?
Lowell