(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
Stocks continue to test 3,700 with a hearty +1.09% week over week gain for the S&P. However, those investors that got the memo about the change in market leadership from FAANG and coronavirus stocks to value plays like “Back to Normal” companies are doing quite a bit better. Like the +3.93% return for the Reitmeister Total Return portfolio this past week.
Let’s discuss the elements at play so we can continue to plot our way forward to end on a high note.
First up I need to make sure that you check out the RTR Members Only webinar we recorded yesterday. This was the most well attended webinar we have put on…and for good reason.
That’s because we covered the vital topic of my 2021 stock market outlook. Not just the bullish catalysts at play, but also some of the things that could crop up on the year that could get us back in a bearish stance.
This view gets boiled down to a year end target for the S&P followed by my game plan to outperform in the year ahead. That starts with what stock groups should be hot…and which will likely be not. And then afterwards a full review of our current 12 portfolio positions to appreciate how they are playing up on the most beneficial trends for the year ahead.
Long story short, this webinar is a “must see” for RTR members. So be sure you check it out soon.
Now back to our market commentary for this week…
Last Friday I noted the following about the market reaction to hitting 3,700.
“Right now I think the gains are coming a little too fast and a little too easy. Thus, wouldn’t be surprised if 3,700 proves to be a point of resistance for the overall market followed by a consolidation and sector rotation period.
During that time market leadership should keep getting tossed from group to group like a hot potato. And thus you see big winners one day become the biggest loser the next day. The way to keep your lunch down is to keep an eye to the longer term horizon. That steadier view of things will have you not overreact to any short term volatility.
If that comes we will should end up on the other side just fine. And, if instead, this Santa Claus rally just keeps shoving presents down our portfolio’s chimney…then we will just smile and thank our lucky stars. Just be sure to put out a plate of cookies and glass of milk every night to thank Santa for all our good fortune.”
It has been 2 trading sessions since that commentary. And yes, 2 days does NOT a trend make. However, it would seem at this stage that indeed 3,700 is a spot of resistance and likely we have not closed below that mark for the last time.
Most certainly the point about a consolidation and sector rotation period is coming true. A good place to see that on a daily basis are the features on a website like Finviz.com that shows the daily action for various industries. For Tuesday the top of the chart showed big winners in electric equipment, oil drilling, solar and more. And on the flip side education, home furnishings, lodging and residential construction were harshly beaten like red headed step children.
The first paragraph from the quote above is the solution of how you get through the topsy-turvy world of a sector rotation period. Just stay focused on the long term horizon and the stocks most likely to excel in the months and year ahead. In that regard, I will pull from last’s week’s commentary the following section:
“That is because the winners of 2020 are on their way out and the leadership of the market is being taken over by the back to normal trades in industries like:
- Travel, leisure, entertainment
- Banks and other financials
- Economically sensitive groups like industrials, materials and energy
We perfectly timed our way into these groups with 2 of them up nearly 30% each in the past month alone. Gladly, given how beaten down they were from their all time highs…they still have so much higher to climb. So don’t think about taking profits just yet. And certainly new members of the Reitmeister Total Return should not hesitate adding these positions if they have not already.”
Again, the 2021 stock market outlook and game plan shared in yesterday’s RTR webinar spells this plan out in much greater detail. So let this be the 2nd friendly reminder for you to watch it to best align your portfolio for the year ahead.
Now back to the state of the economy, which is always a focus of our commentary. There has been a slew of meaty reports since we last talked. So let’s take a quick dive in to understand what is going on.
Last Friday was announced the monthly Government Employment Situation report which some experts bemoaned the modest 245,000 jobs added versus the 500K expected. Well, let’s first remember that expectations have been very hard to set for the last several months as there has NEVER been anything quite like the Coronavirus economy.
So the concern of some is that this most recent surge in virus cases is hurting employment more quite a bit. Indeed there may be something to that given the ripples in weekly jobless claims. However, the overall trend of unemployment has been pretty steadily headed in the right direction and it takes a lot to get it off track.
That still positive view of employment is the one that I believe will continue to win the day til proven otherwise. Especially true with the unemployment rate getting cut in half over the last several months to 6.7%.
Also last week we got another impressive ISM Services report at 55.9 which is the sixth straight month in positive territory. As I have stated before, above 50 is essential. Yet above 55 is impressive. And that is where we are at and likely will continue given that the forward looking New Orders component came in at 57.2.
The only potential negative to discuss is that interest rates are finally moving higher in a meaningful way. No…not enough to have everyone rushing to cash or bonds. But enough for the rest of us to take notice as higher rates is positive for some investments and negative for others.
For clarity I am noting that the 10 year Treasury rate hit 0.986% on Friday. Since then it has rolled back a couple notches to 0.913%.
In absolute terms that change doesn’t seem that much different from the 0.5% rate seen as recently as August. However, on a percentage basis it is nearly a 100% higher rate. More important is the trajectory that bit by bit it is getting higher and what that means for the future of rates and how it effects the investing landscape.
This topic of rates, and its relationship to the stock market was a BIG central part of my stock market outlook discussed in yesterday’s RTR webinar. (So yes, this is your 3rd friendly reminder to watch it now 😉
Banks are certainly one of the best groups to play to enjoy the benefit of rising rates. We have been the beneficiary of that with the +26.7% gain for our banking ETF (ticker withheld for subscribers only) since late October.
But another interesting play that I am considering is actually shorting the bond market. Meaning that as rates rise, the value of bonds falls which makes shorting a interesting play. TBF and its 2X cousin TBT are the easiest ways to make this happen. So don’t be surprised if one of these climbs aboard our portfolio in the not too distant future.
All in all, we have been reading the tea leaves of the market quite well and are enjoying the benefits of that clear eyed view. More on that in the Portfolio Update section that follows…
We keep finding ourselves on the right side of the market action. In fact, we have been in the plus column for 12 of the last 13 sessions.
Our total return in that time is +9.12% which favorably compares with the 3.77% return for the S&P.
At present, all 12 of our positions are in positive territory. Gladly 3 more have risen into double digit territory. And 1 has risen to 20%+. And 2 have leapt all the way into the +30% club. (Don’t forget that all these positions were added recently in October and November).
Long story short, we have had a GREAT run of late. And so glad to know the benefit is showing up in your personal portfolios.
What To Do Next?
Right now my Reitmeister Total Return portfolio is correctly positioned to benefit from the “Back to Normal” trade for the market. That’s because we are overweight the groups most likely to benefit from society slowly, but surely emerging from the dark hole of the Coronavirus period.
In all the portfolio has 12 picks ready to excel in the weeks and months ahead including:
8 growth stocks trading at attractive discounts to fair value. This is a diversified collection including home building, tech, consumer discretionary, cloud computing and clean energy infrastructure.
4 ETFs. 3 of them are direct plays on the “Back to Normal” trade. And even with the 25 to 32%+ gains in hand in November alone, they still have plenty of room to run as they get back to pre-Coronavirus highs and beyond. Then one more ETF to gain from the long term trend for interest rates to get back to previous levels.
If you would like to see the current portfolio of 12 stocks and 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 $369.48 per share on Wednesday morning, down $0.69 (-0.19%). Year-to-date, SPY has gained 16.44%, 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. More...
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