(Please enjoy a Thanksgiving banquet of commentary from the Reitmeister Total Return portfolio).
What we are seeing this week is typical holiday trading action with upward bias. And this goes back to the Boy Who Cried Wolf analysis from last week that investors are now immune to negative news and are continuing on their merry way to record highs.
As we climb higher, it sets us up for a “buy the rumor, sell the news” event. Meaning that the market is pretty much pricing in 100% odds of the Phase 1 deal going through. Thus, the actual upside after the fact may be minimal…and may actually trigger an immediate round of profit taking given the impressive gains in hand the past two months…not to mention the impressive gains on the year.
As for the China trade talks, it has been a light week of news on that front. Here are two articles that I think are worthy of some discussion:
China’s top trade negotiator talks to Lighthizer, Mnuchin to address ‘core issues’ = China wants some roll back of existing tariffs to sign Phase 1 deal. And the US wants some solid guarantees behind agricultural purchases. This seems to be an easy trade off to make for each group. I doubt that ALL tariffs would be removed. But a solid reduction would be enough to appease China with the pledge of more rollbacks in Phase 2.
‘Phase two’ US-China trade deal less likely as countries struggle on ‘phase one’. This one fell on deaf ears as the market kept sprinting to new highs fitting in with the Boy Who Cried Wolf analogy. But also investors know that the investment media has a negative bias under the tried and true heading “fear sells”. So at this stage a lot of the negative news is being taken with a grain of salt.
Now let’s turn to the economic front. The most important bit of news came in this morning as the revised version of Q3 GDP rose from +1.9% to +2.1%. This is impressive given how the trade dispute has limited limiting business spending. And does bode well for GDP and earnings growth to be on the rise after a deal is finally put to bed.
The only other economic report worthy of note was last week’s PMI Flash report. Both Manufacturing and Services increased from the previous read. Most impressive of which is the 52.2 tally for manufacturing that has looked so deathly ill from the ISM Manufacturing report that still lingers under 50. This hopefully is a sign that the worst is behind us.
Note that next week brings the big 3 monthly economic reports: ISM Manufacturing, ISM Services and Government Employment Situation. No one is worried about the employment picture at this time. But the other two are often market moving events. Or at least should be if China trade was not our central fascination these days.
So I will monitor and report on them. Because in time, the health of the economy…and what that means for profit growth…will once again affect stock prices.
We will wrap up with this semi-interesting headline after a recent speech by the Fed Chairman.
Powell says the Fed is ‘strongly committed’ to 2% inflation goal = Fed not going to raise rates any time soon as they want to see the economy heat up a bit more before that point. This is another feather in the cap of the bull market and why it continues to rally unabated.
To sum it up, there is good reason for this leg of the bull rally. However, much, if not all, of the recent good news is priced into the record highs.
Sure we can always press higher because the market doesn’t move in logical steps. It moves from fear to greed. And right now there is ample greed at work pressing the market to record high after record high.
At some point the music will stop…and we will see a typical 3-5% pullback to digest these gains. But until proven otherwise the bull market is alive and well. And that is what we should plan for coming into 2020.
Speaking of planning for 2020…I will be writing that up for RTR before we close out 2019. Probably 2-3 weeks from now.
The short version is we will get back to more traditional 5-10% annual gains for the overall market. However, the closer the Presidential election looks…the more investors will pause or pullback awaiting the outcome. That is not an issue til about August/September of next year. Just an idea to keep in the back of our minds.
Last week we noted a touch of underperformance during the first leg of the recent sector rotation period. Our solution was to have patience with our fundamentally sound stocks expecting a solid turnaround.
This proved to be the right approach once again because indeed our performance and spirits brightened this past week. The fun started on Friday as the overall market was up only +0.22% while we had a lot more green arrows pushing the overall portfolio to +0.73%.
The good times continued for all investors Monday and we certainly enjoyed our fair share of gains. Then on Tuesday we had another impressive session of outperformance at +0.80% versus only +0.22% for the S&P. And early on Wednesday I see some healthy green arrows in our portfolio.
Here is my main point. Yes, active investing is the approach that I advocate…but it does have its limits. Sometimes it is better to stand still and let the good fortune come to you. Otherwise you might turn out like a dog chasing its tail. Exhausted and unrewarded.
OK…here are some updates on our individual positions:
End of Free Preview
The rest of the commentary is reserved for subscribers to the Reitmeister Total Return portfolio.
However, it may be worthwhile to see the “horn of plenty” in this portfolio as we come into the Thanksgiving Holiday.
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SPY shares were trading at $314.55 per share on Wednesday morning, up $0.47 (+0.15%). Year-to-date, SPY has gained 27.62%, versus a 27.62% 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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