The serious moderation of the CPI report has me seeing a greater possibility of soft landing navigated by the Fed, states Steve Reitmeister of Reitmeister Total Return.
That plus the recent price action cannot have our strategy fighting the tide any longer. With that, we are removing all elements of the previous hedge except we will keep XLG in the fold. Along with that will be adding seven Risk On positions (two ETFs and five stocks). All in all, we are shifting to 70% long the stock market with the trades that follow.
- Sell all current positions EXCEPT hold onto 11.5% allocation to Invesco S&P 500 Top 50 ETF (XLG)
- Buy 10% allocation to Russell 2000 ETF (IWM)
- Buy 10% allocation to Regional Banking ETF (KRE)
- Buy 8% allocation to Commvault Systems (CVLT)
- Buy 8% allocation to EnerSys (ENS)
- Buy 7.5% allocation to NetScout Systems (NTCT)
- Buy 7.5% allocation to Tennant (TNC)
- Buy 7.5% allocation to Vontier (VNT)
Given the large number of trades, we are not going to go into detail on each one. So, let's simplify by giving this quickie version. I expect small caps to outperform. Buying IWM is the "Easy Button" to buy this group. The regional banks, as you know, were incredibly beaten down given a small group of bank failures. The greater the odds of a soft landing...the greater the odds this group bounces back with gusto.
As for the five individual stocks, we added they are all attractive growth, Risk On positions that I got from a mix of POWR Screens ten portfolios. Meaning they are filled to the brim with the best POWR Ratings, which increases the odds of future outperformance. We will give more specifics on each in future commentaries.
Likely you are wondering...why we are only 70% long instead of 100%?
First, consider a large shift that is already from the bearish hedge we had before. Second, realize that the possibility of a recession and stock sell-off still exists. So, I am not ready for 100% long at this time...but the more that good news prevails...the more we will shift in that direction.
What should you do with the Top Ten Small Caps strategy that I have been including in commentary when I was more bearish?
Technically speaking the massive changes to the RTR portfolio today means those extra picks are no longer needed. And thus, I will not show these stocks in my commentary going forward. Does that mean you should sell those small-cap selections in your portfolio? That is entirely up to you. If you plan to follow RTR to the letter and not invest in other stocks/funds, then yes, you should sell them.
Yes, this is a dramatic shift from the recent past. And for as bearish as I was, I still very much had an open mind that this could indeed be the start of the next bull market. That notion was most certainly behind the 4/1/23 change in strategy to become 50% long by adding the Top Ten Small Caps. And that open mind had me prepared to shift even more bullish as new facts emerged. My commentary yesterday spelled some of that out. Plus, the undeniable good news found in the CPI report helps us appreciate the greater bullish possibilities. I guess you could say these fit with my investment style. First, create a market outlook given the facts in hand, and then select a portfolio that befits that outlook.
Next, understand that you might be 100% wrong and thus also wise to create contingency plans of what would make you change your mind...and what trades you would make. Gladly these trades were already making it an easy move after the CPI report came in. Yes, there is a little part of me that fears the Murphy's Law moment. That we are buying in on the last rush of this bull run before a sell-off.
That is always possible with the stock market. Thus, it is important that you know this move is not being made about what I expect to happen in the next few days or weeks. Rather, this is a longer-term shift to appreciate the greater possibility that the long-term bull market may be in hand. So, the sooner our portfolio is aligned with that the better.
