(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
Stocks have come a long way from the early November lows associated with the question marks hovering over the election. Now a month later investors are looking ahead to 2021 that has the promise of new vaccines and improving economic conditions. That is a recipe for new highs once again today and likely more gains in the days ahead to close out 2020.
Understanding these dynamics, and aligning ourselves with the profitable trade winds, will be our focus today.
Let’s take a step back to review how we got to new record highs today at 3,662.
Coming into early November the focus was on the Presidential election. The polls showed that Biden would have no problem running away with this election. However, I think everyone knew that was a bit too optimistic especially after what happened in 2016. This explains why stocks were in the midst of a 10% correction as we opened trading in November. However, it didn’t take long for investors to read the tea leaves that the election would be called for Biden in time allowing investors to step on the gas pedal racing higher.
The next catalyst for stocks came from 3 successive reports of strong vaccine results greatly increasing the odds that we could keep emerging back to a normal economy in 2021 and beyond. This was not only a boost to the overall market, but specifically a trigger to many investors to take profits on their 2020 coronavirus winners and shift that money to “back to normal” stocks. We have certainly benefited from some well-timed moves in the back to normal space with airlines, banks and leisure investments.
The cherry on top of this tasty treat is continuing signs of economic improvements that gives us more confidence of higher earnings ahead, which supports higher share prices. Today was a perfect example of this with a trio of strong economic announcements:
First, was Redbook Weekly Retail Sales report coming in +9.2% ahead of last years pace. This is not the first positive indication that holiday shopping trends are better than expected even with many people still out of work because of the virus.
Second, was Construction Spending nearly double the forecasted growth level at +1.3% month over month. And yes, single family homes is one of the clear winners in this space and why we have a position in one of the industry leaders (more on them below in the Portfolio Update section).
Third, and probably most importantly, ISM Manufacturing continues to impress at 57.5 with the forward looking New Orders component even more sizzling hot at 65.1. If manufacturing is the “canary in the coalmine” of the economy…then this is a pretty good signal of improving economic health ahead.
The sum total of these facts had December taking the bull market baton from November sprinting another 1.1% higher. At this stage hitting 3,700 before years end is pretty much a forgone conclusion. 3,800 is possible, but just for arguments sake I will say that 3,750 looks like a solid yearend target.
However, there will be some groups that do much better than the 2.4% gain implied in that target. 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.
Our portfolio is more than just keeping pace with the market. We continue to excel including the +1.20% gain today. Yes, that is only a notch better than the S&P on the session, but when you see that the Dow only gained +0.63% and the Russell only +0.89% then you understand how we did better than most.
It wasn’t all perfect today. There were 3 eye sores with red arrows next to them. But in a diversified portfolio like RTR not all 12 of the picks will be on the right side of market action that day. Gladly the 9 winners on the session more than made up the laggards with a special nod to 4 of our stocks that rose between +2.6% and +3.1% on the session. (Tickers reserved for subscribers to Reitmeister Total Return. Learn more about that below).
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:
9 growth stocks trading at attractive discounts to fair value. Even our tech stocks are uniquely positioned to side step the air being let out of the tech bubble. In fact, two of them just came off monster beat and raise earnings reports that should propel shares much higher in 2021. The rest are in good industries like home building, auto sales, transportation and clean energy infrastructure.
3 sector ETFs that are perfectly suited to be winners in the “Back to Normal” trade. And even with the 25%+ gains in hand in November alone, they still have plenty of room to run as they get back to pre-Coronavirus highs and beyond.
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 $365.84 per share on Wednesday afternoon, down $0.18 (-0.05%). Year-to-date, SPY has gained 15.30%, 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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