Let’s wind back the clock to last Wednesday. There we got to two economic reports that are not as widely followed, but definitely are leading indicators of where their more widely followed cousin reports end up, says Steve Reitmeister, editor of Reitmeister Total Return.
First, I am referring to ADP Employment, which leapt from 176K jobs added in February all the way up to 517K jobs added in March. That indeed was strong foreshadowing of what awaited investors on Good Friday when then Government Employment Situation report was released.
There we saw an even more impressive picture of job growth with 916K jobs added, which was nearly 40% above the expected level. Along with that, the unemployment rate dropped another couple of notches to 6.0%. That is a far cry better than the 14% unemployment rate experienced a year ago at the darkest hour of the coronavirus.
Back to the leading indicator reports from last Wednesday. There we also got served up a delicious 66.3 for Chicago PMI versus the 59.8 that was expected. This is the most widely followed of the regional manufacturing reports as it often tips off what will be found in the national ISM Manufacturing report that follows.
Indeed that was the case as the very next day, ISM Manufacturing leapt from an already impressive 60.8 up to 64.7. This was no April Fools joke because the gains in the report were broad based in the key internal components. Most important of which was the 59.6 showing for the employment indicator.
Next up was an “off the charts” 68.0 for the forward looking New Orders component. Truly, I have never seen a better showing for ISM Manufacturing than what got served up last week. And that is before any positives that would likely come in from any forthcoming infrastructure stimulus package.
If all that wasn’t good enough, then we got ISM Services on Monday moving up from 55.3 to 63.7. And yes, just like Manufacturing, we saw gains in both New Orders (67.2) and Employment (57.2). No doubt recent stimulus checks in the hands of consumers bolstered these results.
Back to the big picture. The #1 reason that the market is bullish is that interest rates are so low that stocks are the better value by 150%. That is why the bull market rallies on even when the PE seems so elevated.
And the #2 reason for the bull market is the serious improvements in the economic picture as we emerge from our homes as the coronavirus begins to wane as the focal point of our daily lives. The most recent of those economic reports, shared above, is AMPLE proof to feed bulls for the next run higher.
So putting it altogether we understand why the market is bullish. And why we finally broke above 4,000. And why our portfolio is padding on more profits by the day. More on that below...
This week has started off on a profitable foot and further added to our gains on the year. Now we stand at +24.27% year-to-date in early 2021, which is a very healthy advantage over the S&P at +8.46%.
Now let’s give some additional updates on the positions inside our portfolio:
Virtus Investment (VRTS): One more bit of insight on our latest pick VRTS where we added a 7% allocation this morning. The thing I liked the most about them beyond the strong earnings momentum, was that nearly 70% of the funds under management are in equities. That is a very high percentage versus fund managers who lean more towards bonds. And this higher allocation to equities > higher profits as the bull market rolls on > higher likelihood of share price gains ahead.
Nothing Semi About These Gains (AVGO & KLIC): Semiconductors collapsed during the tech sell off. Nothing odd in that as this is one of the most volatile groups in the sector. But on the flip side, when the getting is good for tech, then semiconductors often lead the way.
That is why I am so glad that we did not succumb to the pressure of the past sell off to enjoy the gains that have unfolded since then. Here is the tally of the gains for AVGO and KLIC since the darkest hour of the recent tech sell off in early March:
+32.97% KLIC (pretty impressive bounce in just a month’s time).
Mimecast (MIME): In the April members-only webinar yesterday I talked about MIME being the laggard of the group and disappointed that it hasn’t bounced back with gusto like AVGO and KLIC. Today it looks like perhaps that patience is starting to pay off as it had the third-best session of any RTR position. That is one small step for mankind, but a big step for MIME. Hopefully there are more such positive steps to follow.
RPM International (RPM): They are set to report earnings Wednesday before the open. The good news is that they are riding a streak of eight strong earnings beats. The bad news is that any stock can mess up earnings at any time and you find yourself 10%+ in the hole at the market open. This is why many traders won’t own a stock through an earnings report. However, I find that if you go for stocks with consistent earnings strength in the past, then it’s not such a scary thing to own through an earnings report and often come out way ahead as stocks propel higher on the news.
General Motors (GM): The break above $60 seems to be for real with a second straight close above the mark. Yes, GM has proven to be very volatile, and it wouldn’t take much for shares to head below $60 again. But given that more heads are turning in their direction, including a lot of fresh love from Wall Street analysts with target prices of $80+, then I like our odds that GM keeps driving north from here.
Insperity (NSP): Rising employment, especially in small- and mid-sized business correlates VERY WELL with growth in NSP’s business. This is why the average target price is $115...and why I am still very fond of this stock still trading only in the mid $80’s.
US Airlines ETF (JETS): Airline traffic over the spring break holiday was much higher than expected and a sign that bit by bit industry trends are moving back in the right direction. This is why shares have responded so well of late. Don’t be surprised if by mid-year these shares are giving KRE and JCOM serious competition at the top of the RTR leader board.
The overall market may be bullish, but over the next month stocks will start getting measured by the individual merit of their earnings report.
The POWR Ratings is built on the notion of consistent growth and quality. On top of that is my focus on increasing earnings estimate revisions, which was the mainstay of my years spent at Zacks Investment Research. The sum total of these things should equate to better than average odds to own positions likely to have beat and raise results. If true, the good times should continue to roll in for our portfolio.
Just remember that perfection is not a realistic outcome during earnings season. Likely we will see two-four picks disappoint with their announcement and head lower. But as long as the vast majority are positive, then we will be in plenty good shape moving forward.
Learn more about Steve Reitmeister at StockNews.com