(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).

Consolidation

Sector Rotation

Range Bound Trading

Rolling Correction

These are all fairly synonymous terms for what is happening now. Which is to say a red hot market that cools off just under an important resistance level (4,000) for an extended period of time.

But dear friend, have no doubt about it…we are still in the midst a bull market and at some point we will start running higher once again. Let’s discuss all that and more in our weekly commentary.

Market Commentary

This past week, and especially on Monday, we saw a massive rotation out of the stocks that worked so well in 2020. Instead that money rotated to many other value based groups including the “Back to Normal” trades as the Coronavirus continues to diminish in size.

So OUT with FAANG, TSLA, ZM, TDOC and the like.

And IN with airlines, hotels, restaurants, cruise lines and more.

Gladly we nailed this move in the Reitmeister Total Return portfolio because we were fully expecting this to happen.  In fact, here is the slide from my December 7, 2020 RTR members only webinar talking about the game plan for the year ahead.

The net result of making this move so early is that our portfolio is now 5X ahead of the market so far this year. (More about that in the Portfolio Update section below).

Back to what this means for the stock market. This move to the Back to Normal trade is a realization that Coronavirus cases in the US are down more than 80% from peak levels at the start of the year. Add on top of that clear improvements in economic activity (more on that below). And add on top of that the new $1.9 stimulus package that is certain to become law soon enough.

Adding all that together increases the likelihood of better economic activity ahead. And that by its very nature will create higher inflation. And that will bring with it higher bond rates than the still quite low 1.55% rate for the 10 year Treasury at this time. Gladly we have had our higher rate rain buckets in place catching outsized profit in places like banks and shorting the bond market (tickers reserved for Reitmeister Total Return members. Learn more here).

Speaking of Inflation…

Last Thursday Fed Chairman Powell did his level best to calm investor nerves about inflation. Boy, did he fail at that 😉

His main points were that reopening the economy, as the Coronavirus retreats, could cause temporary inflation. And because it is expected to be temporary the Fed has no intention of raising rates.

However, seasoned investors did read these tea leaves correctly. All the factors noted earlier will lead to a rebounding economy. Especially with more stimulus money on the way. This WILL create higher inflation. And this WILL lead to higher bond rates. So to not trade this clear trend is a missed opportunity…but not for us.

Note that because of the increased sensitivity on inflation, investors should put it on their calendars to monitor the 2 key monthly reports: CPI on Wednesday 3/10 and PPI on Friday 3/11. The former gets more play in the headlines. However, PPI is the leading indicator of where CPI goes in the future. So both have merit and should be looked at closely for what happens next with inflation expectations…and thus the correlative moves in bond rates.

Now let’s turn to the economy where good news continues to rule the day.

ISM Services came in last Wednesday at 55.3. Yes, down a notch from the past. But still a pretty strong reading and bodes well for future economic activity.

Next up is Friday’s Government Employment Situation report where 2X more jobs were added in February than expected. With that the unemployment rate continues to fall from the scary peak of 14% back in April to only 6.2% now. Still room to go to get back to the sub 4% readings during the last few years of the last bull market. But I bet we make steady progress in that direction over the next 12-18 months.

Today we got two more pieces of positive economic news. The NFIB Small Business Optimism survey came up from 95.0 to 95.8. Still a tad lower than you would like, but there are clear signs of improvement in the internals of this report.

Finally, the weekly Redbook Retail Sales report leapt from 4.6% year over year gains last week to a scintillating +8.0% this week. And just imagine what a fresh round of stimulus checks in hands means for these already impressive numbers.

Putting it Altogether…

The market is bullish. That is most certainly true in the TINA environment of low rates that makes stocks the best value for investors. And then pile on the improving economic picture and fresh stimulus checks and the odds are heavily skewed in favor of stocks moving higher this year.

In the near term expect extended consolidation, sector rotation, rolling correction etc.

No matter what you call it…it’s not as much fun as a bull market that stampedes higher and higher. But that is NOT reality.

Instead we need healthy pauses that shake out investor complacency and gets us ready for the next rally. That is what is happening now.

Could last another week. Could be a month. Could be 3 months. That part is unknown and unknowable.

If that is true, then you just keep your eyes fixed on the bullish horizon with a portfolio that will give you good odds of outperformance. I believe that is what we have in hand, which makes it easier to slough off the current volatility.

Portfolio Update

Yes, it was a volatile week. Gladly we still topped the S&P 500 once again. And looking back at the year to date picture our lead grows ever larger:

+3.15% S&P 500

+17.59% for RTR portfolio

Now let’s dig in with some insights on our individual positions:

(the rest of the commentary is reserved for Reitmeister Total Return members).

What To Do Next?

Right now my Reitmeister Total Return portfolio is well positioned for where the market’s headed in 2021. And that is a VERY different playbook than what worked in 2020.

Gladly we have been reading the tea leaves well which is why our portfolio is solidly ahead to start the new year.

If you would like to see the current portfolio of 11 stocks and 3 ETFs, and be alerted to our next timely trades, then consider starting a 30 day trial by clicking the link below.

About Reitmeister Total Return newsletter & 30 Day Trial

Wishing you a world of investment success!

Steve Reitmeister

…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return

SPY shares were trading at $388.68 per share on Wednesday morning, up $1.51 (+0.39%). Year-to-date, SPY has gained 3.96%, 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...

More Resources for the Stocks in this Article