The stock market was having a glorious session on Friday touching record highs once again for the S&P 500 (SPY).
Next thing you know comes the headline that we will impose 25% tariffs on Canada, Mexico and China starting Saturday.
SCREEEEEEECH!
Stocks reverse course and end solidly in the red. That pain extended into Monday’s session.
As I keep saying...there is a lot of headline risks on tariffs in the near term and thus why it will be the focus of this week’s Reitmeister Total Return commentary.
Market Outlook
I have already been very vocal about my concerns with looming tariff talks devolving into a trade war not unlike the second half of 2018. To put it mildly...that was not a good time for stock investors.
The main thesis for this argument was laid out in my recent commentary: Fade THIS Stock Market Rally.
As the title implies...don’t get drawn in the recent flirtation with the all time highs. That was really just range bound trading exploring the upper end of the range. More likely we head lower in the range from here.
How low will we go?
(Yellow = 50 Day Moving Average / Orange = 100 Day MA / Red = 200 Day MA)
The trading range scenario has a top of the recent highs around 6,100. The lows are a trickier story. Perhaps the 5,800 because of our journey there earlier in January...but that really had more to do with the 100 day moving average now at 5,895.
That would make for just a 3% range which seems a bit too narrow. This increases the odds that we test 200 day moving average (aka Long term trendline). If we are about to have a repeat of the trade wars from 2018 then pretty likely we retest that lower level now at 5,644.
This should not truly scare any investor. Let’s remember that just a couple years back the bear market low was 3,491. That’s a lot of profit stored up in our portfolios that makes it easy to give back a little in this looming pullback/correction.
This likely exploration of recent lows or lower has pushed me to only be 62.5% invested in the Reitmeister Total Return. That means we have 37.5% in cash to deploy as we explore the lows.
Or to put it simply, we are still in a long term bull market where we have a “buy the dip” mentality AS LONG AS any trade disputes do not prove to be inflationary.
If higher inflation is on the way, then we are right back to the negative discussion of the Fed not lowering rates any time soon. Or even worse, raising rates to stamp out the flames of inflation.
If the latter proves to be where we are headed...then we will explore lower than the 200 day moving average to truly recalibrate equilibrium is for this market.
My gut tells me that won’t be the case. That just like the 2018 trade war, Trump is just using tariffs as a bargaining chip to get certain concessions he wants. Just look at the recent concessions from Colombia and Mexico where tariffs were then taking off the table (or delayed until more concessions are made).
Trump is quite obviously pro-business. And he often touts the strength of stock market as one of the measures of how well his policies are doing. Thus, I don’t see him truly enacting anything truly harmful to the economy, or by extension, the stock market.
So again, I still believe we are very much in a long term bull market. And that the 37.5% cash will be deployed in a “buy the dip” fashion to snap up attractive POWR Ratings stocks.
That 62.5% that is currently invested is in 7 stocks and 1 ETF. More details on them below...
What To Do Next?
Check out my portfolio with hand selected picks for the current market environment:
- 7 stocks to buy
- 1 stock to short
- 1 ETF to buy
All the stocks have been selected using the proven outperformance that comes from our POWR Ratings stock selection model which has done 4X better than the S&P 500 since 1999.
Now add in my 44 years of investing experience seeing bull markets...bear markets...and everything between. This helps me pick the right stocks for the current environment.
If you are curious to learn more, and want to see my current 9 recommendations, then please click the link below to get started now.
Steve Reitmeister’s Trading Plan & Top Recommendations >
Wishing you a world of investment success!
SPY shares were trading at $601.66 per share on Tuesday afternoon, up $3.89 (+0.65%). Year-to-date, SPY has gained 2.66%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
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