The table was set. The rally up to 3,200 petered out and stocks were finally ready to crack under 3,000 given the PREPONDERANCE of the bearish evidence. And then at the perfect moment the Fed steps in with a new plan to buy individual corporate bonds. This gets followed in the evening by a proposed $1 trillion infrastructure bill. Next thing you know stocks are bouncing back with Risk On gusto!
Truly it makes one ponder if the market is now rigged. And if TINA is the law of the land. What is that? We will cover that and more below.
Market Commentary
The timing of the Fed move is very curious indeed. If the economy is re-opening and everything is on the mend, then why does the Fed have to do anything more?
Because that is not true. The fact is that we have endured a nuclear explosion inside the world economy that will continue to send out radioactive waste for months and maybe years to come.
So just as the market is ready to get back to admitting these bearish facts and fall back under 3,000 the Fed ratchets up their game 1 notch more. That being the announcement to start buying individual corporate bonds.
This gets followed up Monday evening with new “red meat” from the Trump administration to spend $1 trillion on infrastructure projects.
That 1-2 punch has stocks soaring again this morning. And just to pile on investors are cheering this morning’s Retail Sales report surging +17.7%.
Going beyond the headline that is the month over month reading. Looking at it year over year we find it’s still a negative -6.1%. And the related Redbook Weekly Retail Sales Report shows -8.3% year over year...but who has time for such facts? (he says white knuckling the keyboard ;-)
This brings us back around to the notion that the market may be rigged. Or least the Fed and Government are trying as hard as they can to rig it as there seems to be no end to the lengths they will go to bolster the market and restore the economy. Yes, even greater lengths than during the Great Recession.
If that is true, then why fight the Fed? And perhaps it’s time to realize that this is a TINA market.
There
Is
No
Alternative
Meaning there is no alternative to buying stocks and other risk assets when cash is trash and bond yields are pressing towards zero. And yes, I am weighing this notion and what that means for our investment strategy.
I know that I am right in a historical context. That indeed we are in the midst of a violent recession...which could become a depression...and what that means for the cratering of corporate earnings...and how that SHOULD push stocks much lower, for much longer.
However, if the game is becoming rigged, then the rules of the past no longer apply. And perhaps time we play by these new rules.
Yet just as I contemplate that I read articles like this one pointing out that the Fed and Government cannot alter the true path of the market forever. And that sooner or later the normal tides of the market will come to fruition.
So at this stage the market is only 3% from the recent highs @ 3233. I suspect that forms a bit of a top for now and thus not going to chase. Nor will I get more bearish either. I simply want to see how this washes over the market.
That’s because I suspect that the rising tide of reality that came over the market last week, and was set to send stocks below 3,000 yesterday, is still right there at the surface. In fact, there was a whiff of that taking place around 11am ET today when the market tumbled to nearly breakeven on the session before bouncing once again.
The point is that it may not take that much to reawaken those bearish sensibilities. Especially if the re-opening of the economy continues to show increasing cases of the Coronavirus around the country.
That kind of 2nd wave should be too strong for investors to resist a round of selling. Because we all know that a rise in cases > rise in fear > decline in economic activity > SHOULD lead to lower stock prices.
Again the operative word is SHOULD. And if it doesn’t, then yet more evidence that the market has become rigged and that There Is No Alternative to buying stocks.
Certainly that has been true for the last few months. But what is unknown and unknowable at this moment if the Fed and Government can truly change the laws of economics and markets permanently.
Most experts will say no. That there will be a price to pay for this excess down the road. What some in the industry have called a “Tsunami of Debt”.
The simple version is to envision some future date when a debt crisis arises in a major world economy. Like a country in the top 10 measured by GDP and thus MUCH scarier than Greece. Once that wave of debt fear starts to rise and people look around and see that there are NO truly healthy governments to help get rid of the mess, then then you have a financial crisis of epic proportions.
Many believe that idea is not a matter of if...only of when. But that when could be 25 to 50 years from now. And not worthy of our current contemplation. So sorry for the tangent...but do tuck this away in your thoughts for when the day arrives so you can react quickly.
Back to the main point. Just yesterday stocks were ready to cave under 3,000 and it took another bail out “Hail Mary” to turn the tide. I just sense that buying into this rally is too late. Better to watch and see what happens.
If the long run picture is TINA...then we will play by the new rules and get more long the stock market.
However, if instead it is proven that the Fed and Government can only temporarily change the laws of economics and markets...and that we will return to the reality of economic recession/depression = stock market losses (as it has EVERY TIME in human history)...then we will be glad we did not chase at this moment.
What to Do Next?
My portfolio strategy right now is based upon the belief that the downside risk of the market right now is significantly greater than the upside. As such I have constructed a portfolio that will actually produce profits when the market declines.
The kind of portfolio that generated a solid +0.77% gain on Wednesday as the market had a Risk Off session. And the kind of strategy that I used to produce a +5.13% return the same week the S&P cratered -14.97% (March 16-20, 2020).
The 4 stocks and 5 ETFs currently in my Reitmeister Total Return portfolio form an effective hedge allowing investors to enjoy gains while the market tumbles lower. And gladly it is not too late to get on board this strategy if you have not protected yourself already.
Going forward I will look for spots to emerge from the hedge by buying more and more undervalued stocks for the eventual return to a bull market.
I know its crazy out there. And I am trying my best to help investors make sense and profit from the situation. The best way for me to do that is give you 30 days access to the Reitmeister Total Return.
This is my newsletter service where I share frequent commentaries on the market outlook, trading strategy, and yes, a portfolio of hand selected stocks and ETFs to produce profits whether we have a bull…a bear…or anywhere in between.
Just click the link below to see 4 stocks and 5 ETFs in the portfolio now, and all the future trades as we find bottom on this bear and the new bull emerges.
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Wishing you a world of investment success!
Steve Reitmeister
…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return
SPY shares rose $0.59 (+0.19%) in after-hours trading Wednesday. Year-to-date, SPY has declined -2.60%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
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