(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
Today is a good day to remind ourselves of the age old saying:
“The market climbs a wall of worry and slides down the slope of hope”
Indeed the recent rally in the midst of rising worries is befuddling some investors. So let’s dig in further so we emerge on the right side of the market action going forward.
Indeed stocks have been climbing the “Wall of Worry” as we made a new closing high at 3626.91 on Monday. The main building block of this wall is surging Covid-19 cases around the country that is leading more states to go back into lockdown mode.
(Before I go into the next part, please remember our previous pledge to give me immunity to talk about these vital political matters without anyone getting offended.
Now read that last sentence again.
Now proceed with the rest).
On top of that we most certainly have a contested election with President Trump unwilling and unlikely to concede. The issue is no longer about whether the election results will be overturned and Trump declared the winner. That is because of the many failed court cases to date pointing to no traction on the legal front.
No…the real problem is that the President Trump’s loyalists are starting to hit the streets with the message that this election was stolen from them. The Million Maga March in DC this past week is a good example.
And yes, as feared, that did elicit some backlash from the liberal camp with some altercations, arrests and even a stabbing in the process. The fear is that this is not a one-off event. But the first of many such demonstrations around the country that devolve into greater civil unrest which could rattle markets.
But for now stocks are easily climbing this wall of worry. The most obvious reason is the news of a second successful vaccine trial from Moderna on the heels of Pfizers announcement. The more viable candidates we have…the more likely a real winner emerges that is proven effective and widely adopted by people in 2021. This helps pave the way for life getting back to normal which is of obvious benefit to the economy, corporate profits and thus share prices. So for now the rise of long term solutions to the Coronavirus is outweighing the short term negatives.
Yet still we haven’t even brought up the REAL reason that stocks continue to rise at this time. And yes, this same reason was behind why they bounced back in March 2020 at the height of the Coronavirus panic.
Low Interest Rates
This was the core bullish argument brought up in my recent webinar outlining my 2021 Stock Market Outlook. Watch It Here>
You can skip through the first 4 minutes of introductory info and get right to the heart of the conversation from there and for the next 20 minutes. I truly recommend watching it in full. But for those short on time, here it is in a nutshell…
Low interest rates leads to the following:
- Cash is trash because the rate of return is so low
- Bonds just as unattractive as the 10 year Treasury rate is less than inflation. And likely with rates to go higher in the future, then you will lose money on the value of the bond investment.
- This leads to a TINA stock market
Alternative…to buying stocks.
Meaning that stocks are the best value proposition for investors in a low rate environment. Heck, even just the dividend yield on the S&P 500 pays twice as much as the 10 year Treasury. And when you add even the most modest capital appreciation on top you have a much better risk/reward with stocks.
It is this environment that paves the way to further stock market advances even as more bricks are added to the Wall of Worry. And yes, it is also the kind of environment that skews people’s perceptions of risk that can lead to bubbles. We certainly saw that happening to some degree with many of the Coronavirus winners like Zoom, Teledoc and Peleton.
Each has suffered pretty stiff beatings of late taking some excess out of valuations. However, I would say the job of bringing them back down to earth is not yet fully done.
For right now, don’t worry about a bubble in the rest of the market. And certainly not in the “back to normal” groups most depressed by the virus (airlines, cruises, hotels, casinos, restaurants, banks, materials and energy). Plenty of room for them to rise before we have to worry about “irrational exuberance”.
Again, this was a pretty brief overview of this important subject of TINA. So do consider watching the full version in my recent webinar with 2021 Stock Market Outlook.
Of course, another key to the stock market is that the economy continues to rebound from the severe devastation this year. The key economic reports from this week continue to support that notion starting with last Thursday’s Jobless Claims report heading lower and lower. This time down to 709K.
The sister report of Continuing Claims saw 440K more people no longer needing unemployment payments from the week before. I cannot understate just how impressive it is how quickly people have been getting back to work. This defies the prognostications of virtually every economic model from earlier this year.
As you would expect there is a strong connection between the outlook for employment and the consumers’ willingness to spend. With that we saw Redbook Retail Sales report in the plus column year over year for the 8th straight week at +1.7%.
At this stage I expect there to be a bit of a Santa Claus rally that has us probing higher before we close the books on the year. Maybe 3700…maybe a notch higher. But overall I expect investors to keep positioning themselves for what the market should look like in 2021. That being a greater focus on the “back to normal” trades mentioned earlier.
So continue to lessen your exposure to all the bubblicious tech stocks that were the big winners in 2020. Their time in the sun has already come to an end. The path to outperformance is a better understanding of value.
Gladly that is my specialty as right now we have 12 positions in total that have attractive upsides from a double barreled shot of growth and value. The sum total of which should have us nicely outperforming in the weeks and months ahead. More on each of these positions below.
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:
9 growth stocks trading at attractive discounts to fair value. Even our tech stocks are uniquely positioned to side step the air being let out of the tech bubble. In fact, two of them just came off monster beat and raise earnings reports that should propel shares much higher in 2021. The rest are in good industries like home building, auto sales, transportation and clean energy infrastructure.
3 sector ETFs that are perfectly suited to be winners in the back to normal trade. And even with the 20% gains in hand in November alone, they still have plenty of room to run as they get back to pre-Coronavirus highs and beyond.
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 $359.61 per share on Wednesday afternoon, down $1.01 (-0.28%). Year-to-date, SPY has gained 13.33%, 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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