(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
The S&P 500 is flexing its muscle with a break above 4,000. However, the rest of the market is not joining in on the fun. For example the small caps in the Russell 2000 are actually down since the S&P breakout began to start April.
To me this is just a sign that the bull market is a bit lopsided. The likely next step is for this to reverse. For the large caps to take a breather while smaller stocks, often with growthier outlooks, to take the baton and run ahead.
If true, then it bodes well for our portfolio which leans smaller and growthier and higher beta’ier (yes, I know that’s not a real word...just roll with it ;-)
We will talk about this market action, economic events and updates on our portfolio of 11 stocks and 3 ETFs in the commentary that follows.
As shared in the intro, the headlines read bull run...but small cap investors are calling BS.
That’s because the large caps are running ahead on their own. That is actually quite odd as most break outs to new heights are a sign of bullish zeal on the part of investors. That usually comes hand in hand with smaller, growthier stocks leading the way higher. That is simply not happening at this time as the Russell 2000 and the Mid Cap indices are actually in the red in April all the while large caps are bathed in green.
No, I am not saying this is a sign of trouble. Just an oddity that will likely be rectified by a rotation in the other direction. Meaning that small and mid caps will likely outperform in coming weeks. If so, I suspect that will be very good for the RTR portfolio to push to new heights.
There is not much new information to report of late. The economic picture continues to improve with the 1 main report of the past week heading higher. I am referring to the NFIB Small Business Optimism index rising from 95.8 to 98.2.
The reason this report is so important is that this group was the most harmed by the Coronavirus turndown. So as their optimism for the future improves, the more likely they are to hire more employees and invest more on equipment and services for their business. This is truly the key to the economic engine of the US and it continues to head back in the right direction.
On top of that the Government wants to throw another couple trillion on the fire with a forthcoming infrastructure bill. In general, infrastructure is a pretty bi-partisan concept with broad support. The key is where that money will be spent leading to a typical DC sausage making process to churn out the final bill.
Plain and simple, the economy was already on an upward path. So any additional stimulus from the government only adds to the upside potential of the economy, and stock market for that matter.
The main risk of these efforts is causing inflation to spike higher which indeed was showing up in recent reports.
+2.6% YoY for CPI Core Inflation
+3.1% YoY for PPI Core Inflation
Both of those are running hotter than the typical 2% target of the Fed. However, there is some noise in these numbers because the economic implosion of the Coronavirus back in March/April of last year is by its very nature deflationary. So we are looking at a year over year picture versus a very soft time for inflation.
On the other hand, don’t overlook inflation either. Typically that goes hand in hand with an improving economy. And it certainly goes hand in hand with ROBUST government spending (if you get the hint that I think the government is spending too much these days, then you are right. But then again, both parties have been handing out money like candy from a bottomless Halloween bowl for longer than I have been alive. So don’t think I am casting aspersions at one party or another. I am casting aspersions at ALL POLITICIANS...but lets not digress any further ;-)
The point is that inflation IS on the rise which begets higher Treasury rates which is still good for two of our existing rate trades (tickers reserved for Reitmeister Total Return members). Yes, neither has been that robust of late. Just remember that investors move in advance of most situations. In this case, it was obvious that rates would move higher and investors pressed hard on both investments pushing them substantially higher.
After this pause in share price action for our two interest rate trades noted above, I still fully expect them to be outperformers in the future. That is why they remain in the portfolio and would advise newcomers to RTR to take their rightful allocation in these positions.
Summing it up, we are still most certainly in a bull market. Its just that the action is a bit skewed towards large caps of late which likely gives way to a rotation to smaller/growthier stocks in the weeks ahead. That outlook bodes well for our portfolio. Now let’s dig into more insights on those individual stocks & ETFs below...
(The rest of the commentary on the individual stocks and ETFs in the portfolio is reserved for Reitmeister Total Return members).
What To Do Next?
The Reitmeister Total Return portfolio has outperformed the market by a wide margin this year. That’s because we know that 2021 stock market is playing by very different rules than last year. And thus a different breed of stocks will lead the way higher.
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Wishing you a world of investment success!
…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return
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SPY shares fell $0.05 (-0.01%) in premarket trading Wednesday. Year-to-date, SPY has gained 10.76%, 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.Bull Run or Bull S#*t? appeared first on StockNews.com