(Please enjoy this updated version of my weekly commentary published October 28, 2021 from the POWR Stocks Under $10 newsletter).

Over the last week, the S&P 500 is up by around 1.5%. Our portfolio has continued to outperform as it is up 2.5% over that period despite some profit-taking in energy names. However, these losses were more than offset by gains in our other positions.

The market and economy are in an interesting place. Everyone is panicking about inflation, a deteriorating growth outlook, and the Fed’s taper. Some believe that the Fed is committing a grievous policy error by tightening policy given that the economy remains weak, while others see the Fed as being hopelessly behind the ball.

Despite this incessant chatter, the stock market continues to blithely trend higher. Growth is good enough for companies to keep making money and increase earnings, while inflation isn’t bad enough to affect demand.

When in doubt, I believe that the market’s price action is the decisive vote. And, it’s hard to imagine more bullish price action than what we’ve had. Everything about it says that stocks are being accumulated by institutions. Any selling gets immediately absorbed. Any declines are immediately met with higher highs.

And, the best the bears can do is an overnight drop, an intraday dip, or days when stocks are trading in a sideways pattern.

This brings us to the GDP report. In a sense, it’s a contradiction for the stock market to be so strong if the economy truly is weakening as indicated by the headline figure.

My hypothesis is that the market has already discounted the weakness in the GDP report and is now anticipating a pickup in growth. Part of this is clear by digging into the guts of the GDP report which shows that most of the slowdown was concentrated in sectors like restaurants, retail, and travel which were hit hard by the rise in case counts due to the delta variant.

And, another factor is that the chip shortage also affected sales, production, and inventories of many items like cars, PCs, and durable goods.

I don’t see this as being a permanent setback for the economy, but it’s simply delaying consumption and production that should be made up in the coming quarters.

And, there are already signs that some of the supply chain pressures and bottlenecks are easing. Shipping rates have come down dramatically as has the number of ships that are offshore at ports off of California. Additionally, Ford at its latest earnings call said it expects that 2022 should see production return back to full levels.

In fact, I see this as the next major market narrative, and I want to increase our exposure to these areas, while reducing exposure to areas that may have benefitted from these temporary conditions.

What To Do Next?

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All the Best!

Jaimini Desai
Chief Growth Strategist, StockNews
Editor, POWR Stocks Under $10 Newsletter

SPY shares were trading at $457.88 per share on Friday morning, down $0.44 (-0.10%). Year-to-date, SPY has gained 23.67%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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