(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
The run up to 4,000 is already beset with a nasty sector rotation. The oddity is that normally that type of action occurs AFTER you reach the summit of new highs and then you see sector rotation as a means of profit taking.
This is not really that nasty of a curveball for investors. We have seen it countless times before and easy to look beyond the current action to the continued bull market that lies ahead. Wrapping our heads around this and plotting our course forward will be the focus of our market commentary today.
Often investors miss the signs of sector rotation. They simply look at the S&P 500 and then compare it to their results for the day. And if there is a large discrepancy they figure it just because they have a small collection of stocks and that is just part of the ebb and flow of a person portfolio.
So to better see the sector rotation in place we need to look at the WIDE disparity between the returns for the 4 main market indices to start the week.
+1.43% QQQ (Tech Heavy Nasdaq)
-0.07% S&P 500 (Large Caps)
-3.18% MDY (Mid Caps)
-4.29% IWM (Small Caps)
No doubt you can see the spread between the nearly unaffected large caps and modest gain for tech stocks versus the STIFF beatings inflicted on small and mid caps. At this stage you need to consider the main lessons learned from these sector rotation periods of the past.
Do NOT Overreact!
That’s because in sector rotations today’s big losers are often tomorrows big winners. And vice versa.
Your job is to see to a time horizon past the volatility and determine which stocks have the right upside potential. Along with that is looking for opportunities to buy the dip on great stocks that are brutally beaten down in the process.
I almost pulled a trigger on one such buy the dip opportunity today. However, I put the gun back in my holster as I still suspect that the overall market will have a stiffer overall pullback after we hit 4,000. So I am keeping our stash of cash in place a while longer as I think there will be steeper discounts on my favorite target stocks.
Back to the Big Picture...
The market is still bullish. There is no question about that from the main perspective that stocks offering the infinitely better value proposition versus cash or bonds in a low rate environment.
And yes, rates are coming higher from the historic lows of the coronavirus period. Yet even at current levels (1.62% for 10 Year Treasury) stocks are still a better value by 150% versus the return offered by bonds.
So don’t be fooled by the smattering of articles written by journalism majors masquerading in the investment media about stocks falling because rates are rising. All true investors know at this time the real math and why stocks are still the slam dunk choice at this time.
On top of that you still have an improving economy that just got a shot of steroids from the latest stimulus package. Indeed some of that money may already be spreading across the economy given today’s reading of the Redbook Weekly Retail Sales report showing a +9.4% year over year increase.
That was not the only positive economic report this past week. We also got two impressive regional manufacturing reports. The Richmond Fed announcement this morning was nicely above last month’s reading of 14 up to 17.
Even more scintillating was the 51.8 reading for the more widely followed Philly Fed report from last Thursday. When you roll these regional reports together it spells good news for the often market moving ISM Manufacturing report the first week of April.
As noted in recent commentary, we need to keep a vigil watch on Coronavirus stats which may start to spike after a long stretch of heading lower. First, because of the new more contagious variants springing up around the globe causing renewed shutdown in places like Italy.
Second, is that Spring Break is in full swing in the US and, let’s be honest, youth and booze don’t mix well with social distancing. In fact, there are many headlines coming from Florida of things getting a bit out of control with reveling college students.
At this stage there is no clear worry in the stats. However, it is the next 2-4 weeks that we need to watch closely. Any serious spike could affect the overall market. And certainly it would affect investors sector choices that may lead to a broader sell off in “Back to Normal” trades in travel, leisure and entertainment.
Pulling it altogether we are still in the midst of a bull market. And as you most certainly know, the bull does not just go up and up and up. It is more of a dance of 2 steps forward and 1 back.
Sometimes that step back is a modest sector rotation as we are enduring now. Sometimes it a modest -3 to 5% pullback. And sometimes we are dealt a nasty -10%+ correction.
Each of these is possible as we go forward. And we are prepared to deal with each accordingly. The key is to not lose sight that it is just a short term wave inside of a long term bullish ocean. Thus, if you lean too hard into the brief downward action you will be caught off guard when its starts racing higher once again.
That explains why we continue to have a decidedly bullish posture at this time. And the small stockpile of cash is there to help us buy some great looking stocks on any attractive forthcoming dips.
Monday & Tuesday were the exact kind of brutal results I warned about in last week’s commentary. Here is that key section again for full clarity:
“This week we only doubled the S&P 500 return. (he say’s sarcastically ;-)
That outcome is normally great in any market condition. However, as shared earlier, we have a 4 to 1 lead over Mr. Market on the year. So this past week seems tame by comparison.
Here is what I really want to say about performance.
DON’T GET USED TO IT!
Yes, the goal of the RTR service is to help you outperform. However, it is impossible to do it on a consistent day by day, week by week, month by month scenario.
Given that the market often rotates, then a portfolio that is outperforming as much as RTR is at some point going to get pummeled. That is not an IF statement...that is a WHEN statement.
No one is immune to that. Not Goldman Sachs. Not Warren Buffett. And not good Ol’ Reity.
So yes, I am pleased with our results this year. And most happy to receive emails of improved financial success from our many subscribers. However, just when the applause hits a crescendo is when Mr. Market will want to remind you that he is in charge. And that investing is never that easy.
Long story short, please keep this all in perspective. And when our # comes up for a ripe beating, then we will do our best to adjust the portfolio to get us on the right side of the action soon enough.”
Well it didn’t take long for our number to come up. Our performance was not truly worse than the mid cap and small cap indices. But ugly nonetheless.
Just remember this is part of investing. That if you can crush the market one day, then indeed the market can crush you the next day just the same. The key is to pull back and look at the big picture and that continues to be quite rosy for RTR year to date:
+17.92% RTR portfolio year to date
+4.11% S&P 500 year to date
Heck, we could endure a couple weeks of being on the wrong side of the action and still be way ahead on the year (no I don’t want that to happen ;-) The point is that we won’t always have the upper hand day in, day out.
As for our stocks most beaten up this week, the key is to remember what we discussed in the market commentary above. That being how the stocks that are the most beaten down one day will bound back the most the next day. That is the very nature of sector rotations.
So with that perspective you can understand why I am not overreacting to these temporary declines in our portfolio. Instead of rushing to a panicked sale at the darkest hour I am fully planning on seeing these stocks provide an ample, outsized bounce in the days and weeks ahead.
With that healthy outlook in place, now let’s review some insights on our individual positions:
(the rest of the commentary is reserved for Reitmeister Total Return members).
What To Do Next?
Right now my Reitmeister Total Return portfolio is well positioned for where the market’s headed in 2021. And that is a VERY different playbook than what worked in 2020.
Gladly we have been reading the tea leaves well which is why our portfolio is solidly ahead to start the new year.
If you would like to see the current portfolio of 10 stocks and 3 ETFs, and be alerted to our next timely trades, then consider starting a 30 day trial by clicking the link below.
Wishing you a world of investment success!
…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return
SPY shares were trading at $391.09 per share on Wednesday afternoon, up $1.59 (+0.41%). Year-to-date, SPY has gained 4.95%, 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.Why Are Stocks Struggling with 4,000? appeared first on StockNews.com