As previewed in our recent commentary there was little doubt that the market was going to touch the all time high. That took place today in an odd session where basically the usual suspect FAANG + Tesla type stocks were on the rise pushing the S&P and Nasdaq higher. However, the broader market was very Risk Off as best represented by the nearly -1% decline of the Russell 2000. Heck, even the Dow was in the red.
What does it all mean? And what is the trading plan from here…
The answers await you below…
The sector rotation discussed last week did continue onward. And as suspected it was a 360 degree rotation with investors flocking back to the same names that were their favorites beforehand. I am referring to the top tech and growth stocks. And also precious metals.
Gladly we did not buckle under the pressure of the rotation and stayed firmly entrenched in these same names with serious outperformance as our reward. In fact, our the Reitmeister Total Return portfolio rallied +4.06% since last Tuesday’s commentary. (More details on performance in the Portfolio Summary section below).
After most sector rotation periods you see the overall market continue in the same direction it was headed before it started. That is why we saw stocks pushing higher and finally eclipsing the all time highs at 3,393 to a new mark of 3,395. After that stocks slinked into the finish line at 3,389.78.
My outlook remains the same. That this mini stock bubble will keep blowing up til sometime in September where there are some things stacking up against the market and we will want to get more defensive. Here is the best hits list of those negative elements:
- September is historically the worst month of the year for stocks with 38 out of the last 70 years in negative territory. That is not a horrifying stat on its own. So what matters is what the environment looks like for that specific September. And as you will see below there are some things stacked up pointing to likely downside.
- Presidential Election years are VERY unkind to stocks starting in September. We covered that in detail in our 8/3/20 Members Only Webinar. I suspect stocks will fall into this same pattern.
- Students returning to school could cause a new spike in coronavirus cases. There are signs of that potential already coming from the University of North Carolina that saw a scary outbreak leading to all classes being online only. As the father of two college age daughters I am very aware of these things as they are set to return to school over the next couple weeks.
- The spike in economic data from pent up demand is starting to run out of steam and investors should be faced with more negative reports. Let’s talk more about this one below.
Consumer Sentiment continues to be very low and is usually a good predictor of future buying behavior. On Friday we got the latest reading coming in at 82.5 for current conditions.
Remember that below 100 is consider negative. And 82.5 is truly a horrifying number. But for as bad as that is the Expectations of the future component is at…
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