December was tough enough for stocks. Yes, hard to see that with only modest losses for the but once again it was really only Mag 7 stocks getting any love from investors.

The market hates uncertainty.

This is not the first time you have heard that…nor the last as it’s one of the truest statements in all of investing.

When the path forward is uncertain investors become more cautious. And that is the simplest explanation for what is happening now which I don’t believe gets cleared up for 3 to 6 months.

In the meantime, the market will become more volatile with a modest downside bias. Perhaps down to test the 200 day average for the S&P 500 (SPY) currently @ 5,576.

This leads me to reduce the Reitmeister Total Return portfolio to only 65% long the stock market.

Why not take more money off the table? Because still don’t believe it changes the fact that it’s a long term bull market. Just seems like this is a natural place to press pause for a while and wait for a clearer green light to move forward. Thus, don’t want too much money out of the market when primary trend still bullish and it could start running without warning.

The specific trades to get us there are shared at the end. For now, I think it’s best to stay focused on the bigger picture.

What is Uncertain?

I could create an incredibly long list of uncertain things. Never a shortage of those given that economics itself is a soft science with uncertain outcomes. Yet we will narrow it down the 2 that are really the central conversation at this time:

• Why Are Long Term Rates Rising Again???
• Tariffs: What Will Be the Final Outcome?

These are real game changers with a wide range of possible outcomes. Thus, a natural time for investors to pause in order to see how things play out.

But they never really press pause as that is far too subtle. It is more about volatility and a changing of the odds every time new information comes out. Since early in the cycle, then downside more likely than upside which is why we are applying this dose of caution in our approach.

Why Are Long Term Rates Rising Again???

At first it was easy to assume that the stickiness of inflation and thus the delays in future cuts by the Fed was the reason for the 10 year rising. That was a fine adjustment at first…but the longer it goes on, it points fingers towards a more sinister cause…that being the long run fear of having too much government debt.

I previously talk about this in my commentary back in October 2023 in this article that you should read now. (Just start 1/3^rd of the way down after it says BUT WHAT IF THIS TIME IS DIFFERENT?)

The possibility of a debt crisis has been a CERTAINTY in my mind because of the basic economics discussed in the article above. It has always more a matter of WHEN it would happen. And that might not be for 20-50 years…or it may be tomorrow. Yes, it’s that complicated as are most other Black Swan type events.

Because it could happen at any time is why I have a weekly calendar reminder every Tuesday to keep an eye on Global Bond Rates with a focus on other largely indebted countries that would likely fail first like Italy, Portugal or Singapore. Maybe even Japan.

Simply don’t need to panic until at least 1 domino is starting to fall. To be clear, no domino is falling at this time…just a swelling of long term Treasury rates which has other possible meanings…or it could mean precisely that investors want a better rate of return for the higher risk involved with a Government with a debt AND spending problem that never seems to get better.

One more thing I should mention on this front. I recently moved 10% of my portfolio out of the stock market and bought a 7 year Fixed Annuity Index (which is the longest period they would agree to as I would have taken it to infinity if they would allow).

The reason for this is that too much of my family’s net worth is in the stock market which will go in the toilet when debt crisis comes to town. So too will bond investments. So beyond cash and gold this was the best idea of how to protect against a potential catastrophic event and still have some upside if all remains well.

Why not larger allocation to annuity? Because as stated above, this debt crisis problem might be 20-50 years down the road. So 10% is enough for now and can always increase when risks increase.

Now let’s shift too…

Tariffs: What Will Be the Final Outcome?

The more I read this weekend to get my head around current market conditions…the more I realized this is likely the bigger question mark for investors. Truly such a wide range of outcomes because the policies bandied about during the campaign were so outrageous as not to be believable.

The posturing since then has not really softened and thus investors are confused as to how this plays out including the risk of higher inflation (because higher tariffs = higher costs to US consumer). Or trade wars. Or ???.

Let’s imagine that at best this is resolved in the Spring of 2025 with Summer being more likley. Now picture all the headline risks between now and then?

Each salvo from the US or trade partners (namely China) would have serious ripple effects to the market. Meaning it likely gets worse before it gets better.

In the end I think it will be just fine. John Mauldin shares some insights in his well reasoned piece from over the weekend. You can skip to half way down to the section labeled “The T Word” talking about tariffs.

But do consider reading his entire article as he talks about other reasons the outlook is uncertain (or what Mauldin calls “partly cloudy”). In the end Mauldin is optimistic that all turns out well enough. This is really a vote of confidence in the resilience of the US economy which is often very hard to knock off its axis.

I feel the same. That is why I am still bullish in the long run. But for next 3-6 months the uncertainty discussed above needs to become more certain before the next bull run starts again.

What To Do Next?

We still have an interesting portfolio of trades to consider now:

• 7 stocks to buy
• 1 stock to short
• 1 ETF to buy

All the stocks have been selected using the proven outperformance that comes from our POWR Ratings stock selection model which has done 4X better than the S&P 500 since 1999.

Now add in my 44 years of investing experience seeing bull markets…bear markets…and everything between. This helps me pick the right stocks for the current environment.

If you are curious to learn more, and want to see my current 9 recommendations, then please click the link below to get started now.

Steve Reitmeister’s Trading Plan & Top Recommendations >

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
Editor, Reitmeister Total Return

SPY shares rose $0.71 (+0.12%) in after-hours trading Monday. Year-to-date, SPY has declined -0.80%, 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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