Yes, I see the red arrows on the screen like everyone else. But I am finding the recent downward action all quite boring and foolish, states Steve Reitmeister, editor of Reitmeister Total Return.
That's because war is actually good for the economy and the stock market rallies consistently during these times again and again.
Today's title of "Ho Hum" is because I look forward to getting past the current downward shenanigans to when common sense returns, along with higher prices. I will share more specifics on that very rational idea in our weekly commentary below.
Market Commentary
I recently summed up the whole Russia/Ukraine situation quite well. Here are the key segments, followed by some fresh insights.
The stock market was rebounding from the January correction thanks to improving economic conditions. This was corroborated by yet another solid earnings season.
Then investors started to wet the bed Friday on increased concerns that Russia could invade the Ukraine at any moment. This led to a spate of Risk Off trades:
- Falling stock market
- Flight to safety in bonds
- Gold on the rise too
The one oddity versus typical Risk Off activity is that oil was also on the rise. But comes from the idea that any military actions or sanctions on Russia would come with oil supply problems that would push prices higher. Gladly, we have two oil positions in the portfolio and both are doing very well today (2/17 RTR Note: We have just one oil position in APA, while POWR Value has two thriving energy positions).
Now the reality check.
There is not much “there, there” when it comes to the markets suffering during times of potentially new military conflicts. After initial pullbacks from the shock of the event, stocks come roaring back to life. And that’s mostly because the markets move on economic conditions and wars=higher spending=higher economic activity.
Of course, I am not pro war. I am just pro facts. And making decisions off those facts to put ourselves in the best possible position to benefit. Those facts (as you will see in this article) point to not selling at this time and expecting a bounce soon, even if a conflict erupts between Russia and Ukraine. In the meantime, expect volatility to be the norm (which we were getting used to already).
Today, we see more of the same in the market action, particularly the continued strength of gold. This also makes sense with the continued rise of inflation. Almost have to wonder what took the gold bugs so long to get the memo as they are usually all over inflation trends.
Then again, a lot of the love for gold has shifted to crypto as another store of value. Add to it the tulip bulb mania price action the past few years and you can understand it taking some market share from gold. But that is off the course of the main story today.
And that is to simply state we are still in a bull market until proven otherwise. Thus, with the S&P 500 (SPX) nearly 10% off the all-time highs (and many other good stocks in correction territory down 20%+) then it says the prudent move is to stay invested at this time. And if you have fresh powder in cash, then now is a good buy-the-dip opportunity.
Yes, some of you may want some magical symbol telling you we are out of the woods to make that move. And that would probably be on a clear break above the long-term trend line (200-day moving average) which stands at 4,457.
Given the speed this market moves (plus the fundamental facts in hand) then I don’t see a need to get cute. We will just stand firm with our 100% bullish stance knowing that history and logic are on our side.
Portfolio Update
Our portfolio is barely in the red on the year while most other investors are licking their wounds. Same is true for my POWR Value portfolio, which is actually in positive territory year-to-date.
The point is that for as rough as things are, the combination of the POWR Ratings and my understanding of market dynamics have given us welcome shelter from the storm. I can’t promise that will be the case every day, week, or month going forward. However, I very much like our odds to come out the other side of this market dip in very good shape.
There is not really much to say about our positions this week as they continue to ebb and flow with the overall market no matter how strong their recent earnings results. I will let the following note about AEO stand as a proxy for most of the recent price action, and why it should be so easy to slough off recent weak price action.
American Eagle (AEO): My best friend is a real estate developer and says he refuses to invest much money in the stock market because pricing is far too irrational. It is hard to argue that when you see a company like AEO drop 5% today.
Just think about it. What does the Russia/Ukraine situation have to do with likelihood of teenagers in the US buying more clothes from American Eagle?
Yes, there is zero correlation.
Just that when the market is going down…then lots of innocent babies get thrown out with the bathwater. The good news is that when clearer heads prevail, those same stocks will get outsized retribution to the upside. That is why the analyst from Deutsche Bank unflinchingly gave AEO a $38 target yesterday. And why we are sticking behind AEO shares at this time.
Closing Comments
Commentary will get back on the regular Tuesday track next week. I appreciate your patience with it coming out later than usual this week as my wife and I enjoyed four terrific days in Cancun. Kind of hard coming back to Chicago to endure another couple months of winter before spring is ready to get sprung. Yet, we tell ourselves that these tough conditions help build character. That better be true 'cause I can’t find much else to enjoy about it these days.
Learn more about Steve Reitmeister at StockNews.com.
