Since the lows in March of 2020, the stock market has doubled. Think about that for a moment. The S&P 500 closed at 2,237 on March 23 of that year and closed Friday at 4,432 an incredible 100%+ gain in 17 months. Numerous reasons have been cited, including the incredibly loose monetary policy that has been in place for years but went nuclear when COVID-19 showed up in the winter of 2020. Toss in the Reddit WallStreetBets crowd, which had government hand-outs to trade with while locked down at home, and you had all the ingredients for the proverbial melt-up.

The truly scary situation for investors is that the market hasn’t had a 5% correction in almost a year, which is very unusual. However, the past two weeks and Monday’s rout may be the beginning of the long-awaited sell-off. The difficult question for investors is what to do now. We have warned for the past couple of months that stock prices were very overextended, and while all the ingredients are there to keep wind in the rally’s sales, it makes sense for more conservative investors to pivot to a safer stance.

If any one equity strategist across Wall Street has been right on the money over the past few years it is Stifel’s Barry Bannister. We have covered his outstanding and prescient calls for years, and generally when he talks, we listen. Those who did at the height of the sell-off in 2020 posted some massive gains.

Once again, Bannister sees storm clouds on the horizon, and with good reason. Everything from stocks to gold to Treasury debt to oil have been pushed higher. The meme stock traders from the WallStreetBets crowd have juiced the market volume higher, while hammering hedge funds with crowded short positions, and basically have become part of a new lexicon in the trading world.

Bannister remains concerned and feels that defensive positions are the best place to be now. While he was targeting a sell-off later in the year, one may be well underway now. Citing slowing liquidity, the potential for a continued drag on the economy from the COVID-19 variants and a host of additional negatives, it makes sense to take precautions now and make some moves before all the bids dry up, like they did back in 2020 in the first quarter.

Take Profits and Raise Cash

Take profits and raise cash positions, especially on high-flying momentum stocks. These often include technology, biotechnology and similar areas. The FAANG stocks are emblematic of this silo. During big sell-offs, these are the stocks that are the biggest casualties, because institutional accounts often have the biggest gains, and while they will not dump all their shares, they could easily part with a large position, especially if they face redemptions.

When taking profits, see if there are stocks in your portfolio that are down that could be replaced with better ideas, or rebought after 30 days to avoid a wash-sale rule penalty.

For income and growth investors that need to keep a flow of income coming in, stick with the safest sectors. While they too will be subject to selling when the algorithm program selling kicks in, the damage inflicted will be far less than om the momentum and high volatility stocks. The best sectors to rotate to include consumer staples, utilities and real estate.

Sell the Meme Stocks

By all means, sell any of the meme stocks that could be in the trading section of your portfolio. These companies are supported by retail investors that will run for the hills in a sharp sell-off. Many of them have limited capital (the average Robinhood account only has $6,000 in assets) and they cannot afford a prolonged and deep sell-off.

Stocks like GameStop Corp. (NYSE: GME), AMC Entertainment Holdings Inc. (NYSE: AMC) and even Chinese internet giant Alibaba Group Holdings Ltd. (NYSE: BABA) could be eviscerated in a large correction.

Add a Market Hedge

Consider adding a market hedge to your portfolio. One of the most widely used across Wall Street is of course gold. SPDR Gold Shares (NYSEARCA: GLD) is a good way to actually own physical gold without having to keep it in your safe at home. Plus you can buy or sell any day that the market is trading the shares. Investors also can buy the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) to own the top miners in the sector, many of which mine for silver as well.

Sell and Go to Cash

When anxiety gets to the highest point, you can always sell and go to cash, but there are a host of negatives with this tactic. It would be a great idea if money markets paid anything. The highest yielding money market savings account pays a lousy 0.40%. Banks literally pay almost zero for funds held in checking accounts.

One great idea for those with a touch of risk appetite is to buy a non-leveraged investment-grade exchange-traded fund like the Invesco Bond Fund (NYSE: VBF). The portfolio is focused on debt from top companies like AT&T and Corning, while also holding government Treasury debt.

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The bottom line, as Bannister has alluded to in the past, is that it’s not a question of if but when. Those with any sense of stock market history are well aware that’s the case. That being said, veteran investors also know that over time, the best long-term investment strategy is buying stocks of quality companies.

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