(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).
The S&P has slipped a very modest -0.02%s in the past week. However, we all know that the action has been anything but calm. Here is the S&P 500 final tally for each of the past 5 sessions:
-1.84% > +1.50% > +2.24% > -0.24% > -1.55%
So we truly have gone 360 degrees this past week. Let’s talk about why, as well thoughts on where stocks head next.
Market Commentary
Let’s start with a backdrop.
Markets were tumbling down on the fear of a Russian invasion of the Ukraine. Because of that I wrote the following in my 2/22 Reitmeister Total Return commentary:
“This is a bull market til proven otherwise. However, it is true that the market doesn’t like uncertainty. And a potential military conflict is an uncertainty.
However, at some point it will become certain. And that may include some kind of cold war…or hot war with Russia. And oddly that uncertainty flipping to certainty will be a positive for the market. And that is why we remain bullish.
Remember the goal is to buy low and sell high. But if you already bought your shares, then that expression become “hold low and sell high”. And that is why we will not be shaken off this bull before it runs higher once again.”
Now flash forward to Thursday when the markets tumbled -2.62% at the open on the “shock and awe” of the actual invasion. Yet from that intraday low, stocks rallied +4.23% into a very positive finish the same day. This was followed by a +2.24% gain on Friday.
This compelled me to focus the Friday POWR Value commentary to explain why this happened in greater detail. 2 Ways to Explain Recent Market Action.
It boils down to the market following 2 long held investing maxims:
Market Maxim 1 = Buy the Rumor, Sell the News
Market Maxim 2 = The Market Hates Uncertainty
But then I added the following to appreciate what likely comes next:
“The market is still susceptible to scary headlines coming out of the Russian situation. Everything that sounds like the odds are increasing that the US will be dragged into a real military conflict will be detrimental to the market. And indeed the idea that Russia government hackers are messing with the US economy via cyber warfare will not be favorable for stocks (this is the higher risk in my opinion than on the ground military conflict).
Putting it all together, expect continued volatility in the short run. The downside risk in my opinion is around 4,000 on the S&P 500 whereas the upside reward with the bull market getting back on track is 5,500 this year. But even if 5,000 is as high as we get in 2022 then you appreciate that upside reward is greater than downside risk. And that is why we continue to keep a bullish bias in place.
Yes, there are scenarios that would harm the US economy and lead to a much steeper decline for the stock market. I think the odds of those are fairly low. But if we did start to tip in that direction than we would move our portfolio into a more defensive posture.
Until then expect volatility with a bias towards upside action.”
Another reason why the bias remains to the upside is that the rest of the economy continues to show healthy signs of improvement. Again, there is virtually nothing about the Russian invasion that stops anyone in the US from living their lives as normal…and thus no real impediment to the economy…and thus in time why investors will grow bored discussing these scary headlines and just getting back to finding good value in the stock market.
The very healthy ISM Manufacturing reading today of 58.6 goes quite some distance to prove the above point. For those who want to say “that is a view of the past and not the future” then behold the even better 61.7 reading for the New Orders component which shows unwavering commitment on the part of buyers regardless of the threatening headlines they see every day in the news. And no doubt that ISM Services and the Government Employment Situation report later this week will show an unblemished view of the US economy.
So yes, volatility will likely reign supreme a while longer. Just don’t let it scare you to the sidelines only for a 3rd investing maxim to come true:
Stocks Climb a Wall of Worry
And it often climbs that wall very fast. So again, stay invested in healthy companies trading at a discount for they will rebound with gusto when the bull market finally resumes.
(3/2/22 update: See for example the +1.86% tally for the S&P 500 on Wednesday and even better +2.51% for the small caps in the Russell 2000. The point is that now is not the time to be on the sidelines as gains may accrue incredibly fast).
What To Do Next?
Discover my top picks for this hectic market environment.
I am referring to the 12 stocks and 2 ETFs in my Reitmeister Total Return portfolio that firmly beat the market last year. And is actually in positive territory so far in 2022.
How is that possible?
The clue is right there in the name: Reitmeister Total Return
Meaning this service was built to find positive returns in all market environments. Not just when the bull is running full steam ahead. Heck, anyone can profit in that environment.
Yet when stocks are trending sideways, or even worse, heading lower…then you need to employ a different set of strategies to be successful.
Come discover what 40 years of investing experience can do you for you.
Plus see get access to my full portfolio of 12 stocks and 2 ETFs that are primed to excel in this unique market environment.
Wishing you a world of investment success!
Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return
SPY shares fell $0.95 (-0.22%) in after-hours trading Wednesday. Year-to-date, SPY has declined -7.80%, 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.
The post Stocks Just Did a Full 360: What Comes Next? appeared first on StockNews.com