Last week we had a vital discussion on the growing fear that a recession and/or stagflation could be in our future, states Steve Reitmeister, editor of Reitmeister Total Return.
The conclusion of that piece recommended that we all keep a keen eye on forthcoming economic data as any noticeable softening there does increase the idea of malaise or contraction that would send stocks lower. The most vital of those monthly economic reports are on the docket this coming week.
So our focus in today's commentary is to review recent economic activity and what it portends for the upcoming slate of reports that will be market movers.
Let’s review the roll call of the upcoming key economic reports:
3/30 ADP Employment 4/1 Government Employment + ISM Manufacturing 4/5 ISM Services
These are the key reports to start every month. Since the market is still skittish from the recent correction then good news should be a positive catalyst for share prices. Conversely bad news could have us retreating in a hurry.
Gladly there are leading indicators that can help us foresee what these reports are likely to tell us. For example, the weekly Jobless Claims report tell us a great deal of what to expect with both the ADP and Government Employment reports.
In that light, the most recent weekly Jobless Claims report from last Thursday was actually at the lowest (aka best) level since 1969.This tells us that employers are not buckling under the pressure of rising inflation, supply chain issues, or any supposed worries about Russia/Ukraine. Thus, there is no reason to suspect any weakness flowing from these monthly employment check ups.
As for the monthly ISM Manufacturing and Services reports we got a preview of what is likely to come from the Markit PMI Flash report last Thursday. There we saw the Services component on the rise from a healthy 56.5 to an even healthier 58.9. Same song for Manufacturing, which churned out a 58.5 reading versus 57.3 previously.
Add them together and we have a Composite reading of 58.5. And just a reminder, everything above 50 points to economic expansion. And everything north of 55 is a sign of robust improvement.
So here again, if there were even the slightest signs of weakness they would start creeping into these reports. I am not saying they would dive directly under 50 as proof of problems. Perhaps seeing it slink lower and lower and thus getting closer to 50 where we would be more worried about a looming correction.
At this stage we have pretty strong foreshadowing that the next round of key economic reports should continue to show signs of health. This makes for a good segue to the following market update piece I read on CNBC today. Here is the key excerpt: “Our base case is that the US economy can avoid a recession, lowering the threat of a sustained downtrend in stocks. As such, investors should brace for higher rates—including potentially adding exposure to value and financial stocks which tend to outperform as central bank policy tightens—without overreacting by exiting equity markets,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note to clients.
This pretty much sounds like the Reitmeister Total Return game plan including how we are leaning into higher rates by focus on the financial stocks (KRE) and shorting the bond market with TBT. Then of course you have the call for more value stocks…which is right in my wheel house with the 10 stocks we have loaded up in the portfolio.
The sum total of employing this game plan has us currently at +3.55% on the year when the S&P 500 (SPX) is still well into the red. And let’s not forget how most growth investors are getting clobbered like the much more painful -24.52% loss for Cathie Woods beloved Ark Innovation Fund (ARKK).
We will stick with this effective game plan till stronger logic comes around to make us change course. For now, the trend is indeed our friend.
Indeed the market climbs a wall of worry. So even though there are still concerns over Russia/Ukraine…and inflation is a tad too hot…investors are seeing more and more that the investing equation still points to stocks being the best game in town.
Learn more about Steve Reitmeister at StockNews.com.