(Please enjoy this updated version of my weekly Tuesday commentary from the Reitmeister Total Return newsletter).
One of the classic Wall Street sayings is:
“As January goes…so goes the rest of the year”.
So with the market pressing to new highs right out of the gate in early January, that certainly seems to bode well for 2021. However, let’s remember that the market has risen over 70% in the past ten months. So the easy money has been made and we need to be a bit smarter to find those extra returns going forward.
Gladly our 2021 game plan is playing out quite well as the Reitmeister Total Return portfolio has already risen +5.75% in the new year which is nicely ahead of the 1.20% return for the S&P 500.
In today’s commentary we will spell out more details on the current market environment, our game plan to stay a step ahead of the pack, and details on our individual positions.
Why did the market bounce in March 2020 in the midst of the Coronavirus recession?
Why did stocks rally +71% from the market low into the 2020 close?
And why is the environment still bullish today?
The answer to all 3 questions is the same. And that answer is TINA.
Alternative…to owning stocks.
We have talked a lot about TINA and how the low rate environment continues to skew things in favor of stock ownership. That is why rising coronavirus cases don’t matter to investors. Nor does riots on the US Capitol.
However, in yesterday’s Members Only Webinar we talked about it from a new angle. That being my desire to answer this vital question:
Are We in the Midst of a Stock Bubble?
The answer is Yes, But…
The yes part is to say that on most historical measures of value we are either close to the bubble levels found in 1999 if not worse. But, there is one measure of value that tops them all. Of course, I am talking about Earnings Yield which shows that stocks are MUCH more attractive than bonds. Like 4X more attractive. This is why stocks will continue to rally this year until this value relationship deteriorates.
Again, you are cheating yourself with this short hand version of the TINA, Earnings Yield and Market Bubble explanation. See it in depth in Monday’s Members Only Webinar.
OK… two more things worth discussing this today. First, is a quick roll call of the key economic data points. Almost all are positive. Yet there is one negative that deserves to be on our radar screen in case that weakness appears in other places.
ISM Services on Thursday showed similar gusto as the ISM Manufacturing report earlier in the week. Here we see it rally up 55.9 last month to 57.2 this time around. Also New Orders accelerated to 58.5 which bodes well for future readings. So hard to complain about the direction of the economy when both ISM Services and Manufacturing are recovering at such a strong pace.
Redbook Weekly Retail Sales report was solid again with +2.1% year over year gains. So the good vibes from the holiday shopping season have extended into early January.
Now for the bad news. Today the December reading of the NFIB Small Business Optimism index unexpectedly dropped from 101.4 to 95.6. That is a shocking one month decline when the rest of the economic indicators look so positive.
Certainly the spike in the Coronavirus does not help the situation. But likely the biggest part of the erosion is the fear on the part of small businesses that they will see taxes go higher in the future. That is not an unfounded concern as Biden has made his desire to raise corporate taxes very clear. And heck, someone has to pay for the trillions in stimulus.
If these readings in business owner optimism continue to head lower, then it likely will end up in lower spending. That includes a decrease in hiring. And yes, that would be a negative for the economy.
No I am not sounding a warning alarm just yet. Simply we should all be aware of as we don’t want to drown in bullish euphoria and miss the signals when it’s time to head to the sidelines.
Gladly, the outlook remains bullish and our portfolio of 12 stocks and ETFs, described below, are well dialed into the groups outperforming in 2021. And when the outlook changes, so too will our trading plan and the picks to carve out those gains.
What To Do Next?
Right now my Reitmeister Total Return portfolio is correctly positioned for where the market appears to be headed in 2021. 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.
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 $379.46 per share on Wednesday afternoon, up $0.69 (+0.18%). Year-to-date, SPY has gained 1.49%, 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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