Editor’s Note: Jim’s analysis today makes a specific case for protecting your portfolio from a second-half correction. For where he’s positioning the growth side of the Personal Finance portfolio in 2026 — and the disciplined framework behind 51 years of navigating moments like this one — see his AI Margin Rotation briefing. Read it here →

Three months ago, I asked, “Is this the Year to Sell in May and Buy in July.” The title of that article was a nod to the Wall Street adage to “sell in May and go away” for the rest of the year with regard to the stock market.

It is based on the belief that stocks tend to perform better during the first half of the year while optimism is high, then struggle to live up to those lofty expectations over the second half of the year. It doesn’t always work out that way, but this year I believe it will.

The day that article was published (March 2) was only two days after the start of the war in Iran. That afternoon, the S&P 500 Index closed near 6,881. Four weeks later, the index bottomed out below 6,317 as high fuel prices caused by the closing of the Strait of Hormuz threatened to destabilize the global economy.

Since then, stocks have been on a tear. Three weeks ago, the index hit a new intraday all-time high above 7,620 in response to strong first quarter corporate earnings.

One week later, the index fell below 7,266 after the Consumer Price Index (CPI) date for May was released that all but eliminated any chance of a rate cut from the Federal Open Market Committee (FOMC) anytime soon.

Those bad vibes were quickly forgotten when the White House announced that an agreement to end the war in Iran had been reached. Wall Street celebrated by driving the index almost all the way back up to where it was three weeks ago.

High Anxiety

Don’t get me wrong, I’m thrilled that the war might be over. But at the same time, I do not see how that changes the fundamental narrative concerning the economy. At best, it will put us back to where we were in February before the war began.

If I am right about that, then I do not understand why Wall Street is so bullish on stocks. To be sure, the economy is not cratering. However, it isn’t firing on all cylinders, either.

During the first quarter of this year, real gross domestic product (GDP) in the USA grew at an annual rate of 1.6 percent. That is higher than the anemic 0.5 percent growth rate registered during the fourth quarter of 2025 but below the 2 – 3 percent range regarded as healthy for a developed economy.

Also, inflation is on the rise and probably won’t slow down based on the latest Producer Price Index (PPI) numbers. Last month, core PPI (excludes food and energy prices) rose 0.8 percent and was up 5.1 percent over the past year. That was its largest monthly rise since March 2022 and its biggest annual gain since October 2022.

At the same time, the Personal Savings Rate has fallen to its lowest level since the pandemic while the amount of revolving debt outstanding (mostly credit cards) is the highest it has been since the pandemic. Consumers do not have enough savings to pay down their revolving credit, which tends to carry the highest interest rates so it can compound quickly if not immediately paid off.

On top of all that, the upcoming midterm elections in November will raise the anxiety level on Wall Street. The last thing our economy needs now is a last-ditch effort by politicians from all parties to win votes by engaging in questionable fiscal policy, but that doesn’t mean it won’t happen.

Bonding Moment

Now that we are approaching the end of June, I am going to answer the question I posed three months. I do not think that you should sell all your stocks, but I do I believe that the odds of a stock market correction during the second half of this year are high enough to warrant action.

Rather than sell all your stocks, I suggest taking some defensive measures to protect your portfolio should a correction occur. Last week, my colleague Robert Rapier provided a comprehensive list of ways investors can protect their portfolios from inflation.

Also read: “Inflation is Back. Here’s Where Your Money Can Hide.”

Some of those items – cash, CDs, and Treasury bills – would not lose value during a stock market correction. They have fixed values and short maturities, so they won’t lose value even if the stock market crashes.

However, if you are looking for something that should increase in value during a stock market correction, I suggest fixed-rate, investment-grade bonds. A surge in demand for Treasury securities triggered by a stock market correction would drive down the entire yield curve, thereby pushing up bond prices at the same time.

I’m a BLVer

Buying individual bonds is cumbersome for individual investors. To create a diversified portfolio of bonds requires more money than most people can afford to dedicate to that purpose.

That is why I suggest using a managed fund for that purpose. For example, the Vanguard Long-Term Bond ETF (NYSE: BLV) holds nearly 3,000 separate bond issues. It is an index fund that is managed to “track the performance of the Bloomberg U.S. Long Government/Credit Float Adjusted Index.”

All the bonds held in this portfolio are rated BBB or better. A little over half (53 percent) are issued the U.S. government. Its annual expense ratio of .03 percent means that almost all the net income generated by the fund’s holdings is passed on to shareholders.

The fund pays dividends monthly. Its most recent distribution of $0.28171 per share works out to an annual dividend yield of 4.9 percent. If you don’t need the dividends, you can instruct your broker to reinvest them into more shares of the fund.

Adding this fund to your portfolio is a cheap and easy way to lessen the blow of a stock market correction. And if interest rates go up and a stock market correction does not occur, the dividend yield on this fund should also increase to partially offset a decline in its net asset value.

To be clear, I am not suggesting that you use this fund instead of the inflation hedges mentioned in Robert’s article. Instead, I recommend doing both in case a spike in inflation is the reason for a stock market correction.

Today’s recommendation covers the defensive half: protecting what you have from a correction I believe is likely this year. At Personal Finance, I’ve also been laying out the offensive side — a specific rotation out of overvalued mega-cap stocks into traditional businesses quietly using AI to widen their margins. The framework, the four catalysts, and the full portfolio are in the briefing. Read it — $49 for the first year →