I’m pleased to share an update on recent market developments and the strategic positioning of Portfolio Shield™ for February 2026.
With earnings season for the Magnificent 7 now behind us, the market appears priced for perfection. The risk of a near-term correction currently outweighs the likelihood of an immediate breakout to new all-time highs.
The S&P 500 advanced modestly to a new record high in January before pulling back, but it is the Nasdaq-100 that raises greater concern. Technology stocks have remained range-bound for nearly three months, and Wall Street is showing signs of diminishing confidence in AI-driven growth.
Additional warning signals come from Bank of America’s latest Global Fund Manager Survey, which reveals cash allocations at their lowest level in over twenty years and little evidence of downside hedging among managers. The firm’s Bull & Bear Indicator is also flashing an extreme bullish reading—a classic contrarian sell signal. Meanwhile, short interest across the broad equity market sits at a twenty-year low.
These conditions suggest that investors are fully invested and largely dismissive of downside risk. Historically, such extreme positioning and sentiment have preceded corrections rather than sustained rallies.
On a more positive note, high-yield bonds rallied in January and show no signs of imminent credit stress.
Given these risks, Portfolio Shield™ will adopt a cautious stance in February by implementing a hedge. Rather than using long-term Treasuries—the traditional equity hedge—the strategy will hedge with short-term Treasuries.
For February, the equity allocation will be reduced in both the S&P 500 and Nasdaq-100 to accommodate a 31% position in short-term Treasuries. The bond allocation remains unchanged and fully invested in high-yield bonds. A minimal cash position of 0.3% will be maintained across all models.
Utilizing the latest Artificial Intelligence tools, I have been working diligently to build out the optimization engine to determine what is the optimal design for equity allocation, bond allocation, and hedging mechanism.
We tested different time windows for measuring volatility and momentum across the 2020-2025 period. Our optimization found that using a shorter volatility window with a longer return lookback provides better risk-adjusted returns. This allows the strategy to react more quickly to changing market conditions while still capturing meaningful trends.
We tested multiple approaches for when to include protective assets, from long-term Treasuries (as it is now), to gold, the dollar and even inverse-like funds, in the portfolio when it hedges. Our optimization found that the existing hedge was still the best choice but by adding gold when long-term bonds didn’t qualify, it provided better downside protection.
For the fixed income portion, we optimized how we choose between Intermediate-Term Treasury Bonds, high-yield bonds, or Short-Term Treasury Bills. We determined that a dynamic bond selection utilizing a dual momentum strategy adapts to interest rate and credit conditions better, generates higher returns and lower drawdowns.
I am looking forward to implementing these improvements in 2026.
As a reminder, all Portfolio Shield™ models are rebalanced on the first trading day of each month, and new funds received are invested according to your selected model at that time. If you wish to adjust your strategy or risk level, please contact us before the next rebalance. Accounts with a zero balance for six consecutive months may be closed, and the associated advisory agreement terminated.
We remain fully committed to your financial success. Please don’t hesitate to reach out with questions, to discuss your Portfolio Shield™ strategy, or to inform us of any changes in your financial situation or objectives so we can continue providing the most suitable guidance.
Thank you for your continued trust. We are dedicated to managing your Portfolio Shield™ with discipline and care as we work together toward your long-term financial goals.
Steven Van Metre
