A Brutal March
Okay, so the month of March was brutal; I say get over it quickly and get ready to make lemonade. After such an amazing rally last Thursday, the market that was ripe to take it on the chin; a lot of nonsense that had zero to do with the economy and investing, coupled with overreactions and wild negative speculations, did the trick.
There are pros and cons to the fact that the market is lower. Even though the data is impressive, it’s showing clear tailwinds at work. The pros are the swoon that has created share prices that undervalue companies. The con is what happens when winds stall or shift directions.
Right now, the market remains range-bound. The Dow Jones Industrial Average bounced perfectly off its 50-day moving average (exponential) and could make a major upside reversal with a close above 24,730.
First, you must continue to have a portfolio of ideas, which isn’t to say that you have to be 100% vested; you just need to have exposure to certain areas.
Secondly, you should focus on industries and companies that are getting it right yet are still undervalued.
The S&P 500 is down year-to-date, and only two sectors are in the plus column. I say these are the areas you should look at first, even if your instincts want you to sift through the most oversold names to find gems among the ashes. That’s a tough game that involves too much guessing. Case in point: I know a lot of folks that have been buying General Electric (GE) at the bottom since it was $20 a share.
The top two movers in this sector are Netflix (NFLX) and Amazon (AMZN). If you don’t want to own them for political reasons, I say fine. However, if sending your kids to college matters more, then you should consider them on current weakness.
On the brick-and-mortar side, there are a lot of names I like, including Gap Stores (GPS), which is clicking again - with a string of earnings beats and a soaring consensus for this year and next year.
Yes, there are chinks in the armor right now, but this is still the most powerful part of our economy, and it’s only going to become stronger as the next wave of innovation from artificial intelligence to the Internet of Things creeps deeper into our lives. Seagate Technologies (STX) has been the big winner this year thus far, and I still like it, but this stock, along with Western Digital (WDC), is extremely volatile. In addition, Red Hat (RHT) and Adobe Systems (ADBE) posted amazing numbers as well.
Everyone should own a chipmaker, too.
I think you must also own a winner in consumer staples. I like Estee Lauder (EL) a lot.
I think you should also be overweight in industrials. Certainly, have exposure to defense contractors.
I think you should also have material names as well.
Keep an eye on bond yields as the two-year yield continues to move higher while the ten-year yield continues to drift lower. This suggests an inverter curve, which has always been a harbinger of a recession. I would caution that it’s not foolproof, nor is this a fait accompli.
Moreover, the market can continue to rally during and after. That said, the “experts” with a firm belief that the bond market is the canary in the economy’s coal mine are worried. Some have already concluded that the Fed will blow it, and the economy will suffer as a result.
This week sees a reset of sorts. We will get a bunch of brand new data, including the jobs report on Friday. I’m looking and rooting for a strong number and strong wages even if that the idea of a pay raise on Main Street scares the elites on Wall Street.
March was a reminder that stocks don’t go up in a straight line, but I think they’ll keep pace with our growing economy, and it would be a shame for any American not to have a piece of the action.
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