Week 1 (Nov. 1 – 9):
The October sell-off has created opportunities for stock pickers. On the other hand, Friday’s hot inflation read means the market is now sure of a Dec. Fed rate hike. As Warren Buffet warns, “Interest rates are like gravity to stocks.” A more mechanical rationale for this phenomenon is that the higher the interest rate the higher is the discount rate on expected future earnings for stocks. This simply lowers their present values.
If you’re cautious like me, simply hold cash or near cash funds that pay a dividend tied to short-term interest rates. Cash isn’t going to change its value much, if at all. The dividends, however, will increase along with Fed rate hikes. This will also tend to increase the value of these funds over time. For example, you can hold JPST, ICSH, USFR, and FLOT and be safe given the markets increased volatility. Moreover, a severe sell-off leaves you holding money that you can then convert into opportunities in much lower stock prices.
In the meantime, some growth stocks you might want to consider are ARC, CRC, MOS, and USAK. Growth oriented ETFs to look at include JJOFF, BJO, HDV, XLV, IHI, DGRO, and MGV. Two good dividend growth stocks are AUO and MCY. Good investing!
Week 2 (Nov. 12 – 16):
When you don’t like the market, be defensive. In other words, making money requires positioning for the prospect of belter opportunities. I am holding only ICSH, JPST, and FLRN. If the market improves and doesn’t crash I will look at SPHD, PEY, and BST. The main problem is that tariffs will drive the global economy into a recession and take the US with it. The Fed can only accelerate this process by raising interest rates too fast. They probably won’t though as they are aware of the global economic slowdown caused by tariffs. However, failing to raise rates as expected will send a bad signal to the markets. A crash might follow. If you expect a crash, be in cash! Good investing!
Week 3 (Nov. 19 – 23):
The market will either get better, get worse, or stay the same. To end getting worse, there must be large volume and disorganized or panic driven sell-off. Until then you must wait by holding cash in the form of ICSH, FLRN, JPST, USFR, and TFLO. The Fed looks only at the economy to see if tightening and unloading its balance sheet assets continue to make sense. To the stock market it looks like the Fed is taking the punch bowl away from market partiers. That’s why you continue to hear from brokers things like, “. . . the Fed knows nothing!” I’d ignore that. The Fed must dampen inflation expectations by being a bit overly aggressive, not invert the yield curve, and sell its financial assets to keep the economy from overheating in the short-run. It’s only the short-run that it can manage. So ignore that noise about the Fed.
The real problem is that Trump’s tariff policies are probably going to cause a global recession from which the US can not escape. Dealing with the Chinese is required, but be done differently so as not to adversely effect our main trading partners in the EU. Having the Congress take away Chinese most favored nation (MFN) status would be a better strategy. Prohibiting our companies from engaging in joint venters with the Chinese would be another. Incentivizing companies to move their international operations to countries other than China is yet another strategy. One could go on but you get the point.
If you want to consider a short-run growth stock try CONN. Another thing to consider is the iShares Evolved Health care staples ETF which uses the symbol IEHS. Otherwise, hold cash. In the long-run, interest rates may continue an upward trend as the Federal budget will soon be comprised of only nondiscretionary entitlement expenditures such as Social Security. All discretionary expenditures such as military funding will then require additional borrowing. If a socialist is elected president, then there will be even more discretionary expenditures associated with government income redistribution that will require even more borrowing. Moreover, the supply side of our economy will be destroyed and this represents our tax base.
This will put us in a situation like Greece. Already, our gross national debt is above 100% of our economy’s GDP. Before Obama, it was only 50%. Naturally, Obama’s Keynesian fiscal stimulus expenditures not only failed to pay themselves back, they made everything worse. Because of the rise of socialists, this situation is more likely to repeat itself than not. Thus, you might want to just hold cash forever. On the other hand, if the stock market gets low enough opportunities may once again appear. Until then, good investing!
Week 4 (Nov. 26 – 30):
The Fed has softened up and considers the secular decline in the neutral discount and Federal funds rate targets as near. That leaves the problem of trade protectionism of the Trump administration as the remaining headwind and major global problem. Markets are on edge as the G-20 summit begins. If China and the US have a more or less pleasant meeting, then the market should react positively. Still, don’t expect a deal. Eventually, trade protectionism that continues will lead to a world-wide economic collapse. Already the negative effects of employment loss in export industries and higher production and consumer costs (inflation) are showing up in the US. Things can get much worse as continued protectionism will simply support a continuation of this trend.
In the meantime, those that want to be in the market might look at TITN and ABG as potential growth stocks to add. A good dividend paying ETF is HDV. Some defensive oriented ETFs that pay monthly are SPHD and PEY. I also like JRO, DHS, and PDT for dividends and growth. Three good dividend growth stocks are VLO, MO, and T. A defensive but growth oriented ETF is IEHS. The preferred stock LDP is now at a substantial discount to NAV and pays over 8%. I would continue to hold cash or near cash funds like TFLO, JPST, ICSH, and USFR as the largest part of your portfolio. These will reduce portfolio volatility and produce monthly dividends. Good investing!
