(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
Stocks have spent the past week churning below 3,700 in typical consolidation fashion. This was to be expected given the ample gains in hand since the election.
At this stage I sense that the market is just building up the energy for one more surge to end the year on a high note. That would be a Santa Claus rally to remember.
Let’s dig in deeper as to what is going on these days and plot our way to new record highs by years end.
Policy negotiations in Washington DC are often called a “sausage making process”. Meaning that you don’t really want to see the process in action. Kind of gross and disgusting…but in the end you will be happy with the outcome.
That is a pretty good description of what it is like to watch the ever changing headlines as our politicians wrangle over the new stimulus package. We all know that one will come together soon enough. Just a matter of when and what “pork” will be put in there for special interest groups.
On top of that is the conflicting headlines in the battle against the Coronavirus. In the near term we see wave after wave of new highs in cases, hospitalizations and deaths. And in the long run is the promise of the potential eradication of the virus from recently approved, and shipped, vaccines.
Right now the long term picture of a world starting to leave the Coronavirus in its rear view mirror is winning out over the short term negatives. That is pretty typical for the stock market which is usually making bets on what happens 4-6 months down the road.
On the economic front you have mostly positive news from the recent wave of reports. But let’s start with the one spot of bad news. That being the weekly Jobless Claims about 20% above expectations at 853K.
This is an unfortunate statement that the recent increase in Coronavirus cases has led to further business shutdowns and, consequently, more layoffs. This is what clearly makes the new round of stimulus so important to help those most negatively affected by the virus.
In the plus column is the strength of the US consumer. That is on display with this being the 3rd straight week of holiday shopping results nicely ahead of last year’s pace according to the Redbook Weekly Retail Sales report.
Also last Friday’s Consumer Sentiment reported echoed the good vibes as the current conditions reading came in well ahead of the 86 expected to a reading of 91.8. The future expectations component was also nicely above forecast level. This is a sign that the mood of the consumer is on the rise which generally translates to improved spending levels ahead.
Finally, we have the first of the monthly regional manufacturing reports still in positive territory. I am referring to the Empire State Manufacturing report that came in this morning at +4.9% with New Orders also firmly positive. Hopefully the rest of the upcoming regional reports also ring positive.
As noted up top, I suspect that this recent trading under 3,700 is just your typical consolidation period where investors digest recent gains and get ready to feast on stocks once again. But even if the overall market averages don’t close higher on the year from here…that doesn’t mean that there’s not money to be made with stocks.
That is because many of the leading stocks on the year dominate the S&P 500…like the FAANG stocks. They blazed a trail higher early on when most other stocks were crushed under the weight of the bear market.
Now their time in the sun is coming to an end and new leadership groups are emerging. Namely “back to normal” stocks as investors prepare for the Coronavirus to slowly, but surely NOT be the center of our world in 2021.
Our focus on these stocks, and other value priced growth stocks, is why our portfolio is up +11.9% over the past month while the S&P has provided a more modest 3.1% return.
No…we won’t always command such a sizeable lead over Mr. Market. However, it is a clear sign that what worked in 2020 is NOT the path forward in 2021. We got the message and continue to reap the rewards.
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:
8 growth stocks trading at attractive discounts to fair value. This is a diversified collection including home building, tech, consumer discretionary, cloud computing and clean energy infrastructure.
4 ETFs. 3 of them are direct plays on the “Back to Normal” trade. And even with the 25 to 32%+ gains in hand in November alone, they still have plenty of room to run as they get back to pre-Coronavirus highs and beyond. Then one more ETF to gain from the long term trend for interest rates to get back to previous levels. That position got a boost from Wednesday’s Fed announcement.
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 $370.36 per share on Wednesday afternoon, up $0.77 (+0.21%). Year-to-date, SPY has gained 16.72%, 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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