The main article on CNBC explaining the rise of stocks on Tuesday is that Trump’s inauguration speech was not as bad as expected. More specifically that his tough talk on tariffs softened a notch and thus not considered as inflationary for the economy.

That is great news now…but the story is FAR FROM OVER!

We will talk about that concept and others as the S&P 500 (SPY) gets back within a stone’s throw of the previous highs of 6,099. (Spoiler Alert…more trouble for stocks in next 3-6 months).

Market Outlook

Let’s set the stage for the last time tariffs were the center of the investment conversation. That was back in 2018 where we had extended trade talks with China where it is fair to say it became a trade war.

So even though the stock market had enjoyed 9 straight years of harmonious bull market gains, things hit the skids in late 2018 as you can see in the S&P 500 chart below:

There is not enough space on the above chart to append all the back and forth on that discussion and what caused the dips…and what caused the rallies. But for those who want to dig in deeper then check out this site sharing a US-China Trade War Timeline.

Trump is an old dog…and he ain’t learnin’ any new tricks.

Thus, we should fully expect the same “Art of the Deal” negotiating style that we saw back in 2018 where he makes strong demands…then China responds with their own brand of tough talk…and then things get worse…and then they improve…and then after a llllllooooonnnnnggggg drawn out process a resolution will be made that probably will be quite reasonable.

Unfortunately, there is ample opportunity over this timeline for things to go bad and stocks take a dive. That is why I had a good chuckle Tuesday morning with stocks on the rise because Trump said things during the inauguration that were “not as bad as expected” on tariffs.

Meaning things will get worse. And China will say scary stuff with the market rising and falling on every major trade headline.

This is a big part of the reason that I got more defensive last week and expect volatile market conditions over the next 3-6 months with a downside bias as outlined in this recent commentary.

Meaning no matter that stocks are now within 1% of the all time highs, I still think this is just range bound trading where we likely retest 5,800 as we did earlier in January…and maybe a touch lower.

Not because of the economy. Or risk of recession. Or the Fed’s next move.

Plain and simple the first 2 years of the bull market provided robust returns as it always does. Now investors are ready to take a breather before the next serious run higher.

Matching up with that timeline is the risk involved with a renewed trade war with China or any other major trading partners. (But mostly about China).

Just for 110% clarity…I am still bullish in the long run and thing we have another 2-3 years on the clock before the next recession and bear market. But even during a long term bull market there will be extended periods where things get more difficult.

This is a natural spot in the timeline of the bull market to take a step back.

And a logical spot to take a step back given the odds of trade war issues not unlike late 2018 which saw a notable decline for stocks.

This explains why I am only 65% long in the Reitmeister Total Return portfolio. Gladly the positions we do have on hand are enjoying a strong start to the new year. Especially this past week as the market has bounced from recent lows.

The best part of Tuesdays action was all of our long positions in positive territory and our 1 short (TSLA) in negative territory (and thus padding our portfolio total). That shows that some logic is being restored to the market.

Meaning the best stocks are being rewarded.

And the worst stocks are being punished.

That sounds like a time honored tradition. But sadly, overpriced stocks like TSLA were enjoying too good of a time in Q4 making for a ripe shorting opportunity.

To be honest, TSLA is worth no more than $100 and even that PE of 30 is a bit too ripe for a car company with most peers at PE of 10 or less.

Yes, TSLA is a more innovative growth company…but a PE of 140 is the height of insanity.

To appreciate more of the stocks I am buying now, then read on below…

What To Do Next?

Check out my portfolio with hand selected picks for the current market environment:

• 7 stocks to buy
• 1 stock to short (spoiler…it’s TSLA)
• 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 were trading at $602.71 per share on Tuesday afternoon, up $5.13 (+0.86%). Year-to-date, SPY has gained 2.84%, 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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