U.S. stocks have rallied nearly 15% since the start of June, and one expert said that means the market is ripe for a pullback.
"We've just come too far, too fast," said Sean Clark, chief investment officer of Clark Capital Management Group in Philadelphia, who expects stocks to pullback between 5% and 10% during the next month, leading up to the election. "We think it's time to take some money off the table."
Most of the gains during the summer were driven by speculation that the world's central banks would intervene and take new steps to stimulate the global economy. Then in September, stocks spiked on the days that the European Central bank outlined its bond-buying program and the Federal Reserve announced its third round of quantitative easing, or QE3. With the exception of those two days of robust gains, Clark notes that that stocks were relatively flat through September, adding that the first couple months of the fall are historically weak months for the market.
Plus, the uncertainty over the election and how and when lawmakers will address the looming fiscal cliff presents major risks for investors, he added.
"It could get really ugly, like what we saw over the debt ceiling debate during the summer of 2011," said Clark. "I don't think we'll get to that kind of scenario because nobody -- not the president, not Congress -- will want to take the blame for that. But we still could see a lot of political drama and increased market volatility."
In anticipation of a pullback, Clark has boosted the firm's cash position to about 15%, from less than 5% just a few weeks ago. The firm's current cash position is close to what it was during the depth of the financial crisis.
Clark has also shifted into defensive sectors, including health care, utilities and telecom, which tend to boast high dividend yields. The firm is also focusing on blue chip stocks, which tend to be steadier, as opposed to small and mid-cap companies.
After enjoying the QE3-fuled gains, Clark has also cut its exposure to commodities like oil and copper. The only commodity he is still holding onto is gold, but he has slashed its position in the precious metal by 50%.
Fresh stimulus action from the Federal Reserve drove commodity prices sharply higher Friday, but experts say don't expect the QE3-fueled boost to last long.
Crude oil prices briefly topped $100 a barrel for the first time since early May Friday morning, as investors grew encouraged after the Fed announced a third round of quantitative easing, or QE3, saying it would buy $40 billion of mortgage-backed bonds each month for however long it deemed necessary.
The Fed's open-ended bond MOREHibah Yousuf - Sep 14, 2012 2:25 PM ET
Is the Fed really that powerful? One look at CNNMoney's Fear & Greed Index says yes.
Early Friday, the index surged to 94! That's a record high for the index, with data available since 2004.
The index has been in 'extreme greed 'territory for the past week, as investors have been betting that central bankers around the world would do something to inject life into the sluggish global economy. And boy have MORECatherine Tymkiw - Sep 14, 2012 12:49 PM ET
This week's Federal Reserve meeting is front and center, with many still on the fence about whether or not the central bank will announce any new stimulus measures.
More specifically, investors have remained divided about a third round of bond buying, or quantitative easing, by the central bank.
A little more than half (52%) of the 13,000 respondents to a CNNMoney poll say they don't think the Fed will announce so-called QE3 MORECatherine Tymkiw - Sep 11, 2012 11:24 AM ET
Investors who have been burned by holding onto coal stocks this year may finally be feeling the right type of heat.
Coal stocks started heating up Friday, after China announced a $156 billion commitment for improving the country's roads, rails and other infrastructure.
With China planning 55 new major infrastructure projects, investors are betting that those projects will rev up demand for coal, which China uses to make steel for its bridges. MOREMaureen Farrell - Sep 10, 2012 1:38 PM ET
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