I took some of our weakest performers off the table with a statement that I didn’t think the worst was behind us. I wanted to have a little stash of cash for lower prices ahead, says Steve Reitmeister, editor of Reitmeister Total Return.
Turn the page and the market shoots up +1.49% on Friday. (Gladly we still outperformed with a total portfolio return of 1.71%). Am I going to change my tune about the short-term outlook for more downside and volatility?
No.
Here is the parade of reasons that I think the pullback is not yet over.
First, the market needs one of those good deep cleanings every 6-12 months. The last time was before the election in September and October. So, we are about in that range of time where it makes sense.
Second, there is often a sell-off that comes around tax season. That typically is in mid-April. But remember that got pushed out this year until May 17.
Third, inflation is the root cause of many recessions and bear markets. So, it is one of those buzzwords that often causes fear when it hits the headlines. Then we push on higher when investors are reminded that inflation is truly not hot enough to derail the economy YET.
But interestingly, the Consumer Sentiment reading today plummeted from 90.4 to 82.8 because of a massive increase in consumer concerns about inflation. That is certainly showing up at the gas pump where folks notice it first. I think this story will linger in the news longer and hamper investor near-term outlook.
Fourth, is the seasonal idea of “Sell in May and Go Away”. No, it’s not always a bad time for investors. But if it starts off bad, like it is now, then it can be a self-reinforcing idea that has some investors move to the sidelines.
Fifth, I have been running investment websites since 1999. And I can tell you without fail that website traffic is a concurrent indicator of investor sentiment. Well as it turns out week over week traffic is down about 30%. Not just StockNews.com, but many of my competitors.
This is a sign of losing interest, which is often short-term negative. Sure, some of that is the coronavirus receding. And some it is the weather getting better and less need to have your face stuck in a computer. But a 30% drop week over week is exceptionally bad and not quickly rectified.
Let’s draw the line there why I don’t feel bad moving a little money to cash even though today I am looking like quite the investment clown ;-)
On the other hand, don’t let this short-term picture divert you from the long-term picture that we are still in the midst of a long-term bull market. And that bull can run higher whenever it darn well pleases. In fact, that often happens when you LEAST expect it.
That is why I only have a modest 14% in cash because it is foolish to distance yourself too much from the long-term trends. So again, this is just a little short-term timing move made for the reasons noted above and will change it out if it proves to be an unfounded notion.
As for our overall portfolio, indeed it was a strong couple sessions. You can see the parade of green arrows as well as I can. The one that deserves the most conversation is the oddity of what happened with Alibaba’s (BABA) earnings.
My note last week got it right. That if earnings were off, it was because of heavy investments just like the FAANG stocks have done to everyone’s delight. But shares went down on the news. This is just more signs that BABA is not treated like the FAANG stocks even though it sure as HECK should be.
Some investors saw the error of the Thursday sell-off with a solid session on Friday. We will continue to hold on IF shares continue to outperform. But if the mistreatment of BABA restarts, then it likely will end up in the 360 DigiTech Inc. (QFIN) camp. That being removal from RTR because of poor timeliness but recommendation to keep tucked away in some long-term account giving it plenty of patience to have a long-term run of outperformance.
Learn more about Steve Reitmeister at StockNews.com
