“The market can remain irrational longer than you can remain solvent”
- John Maynard Keynes
The Portfolio Performance
The portfolio is UP +9.32%
Our benchmark, the S&P 500 closed UP +3.61%
Buying on Pull-Back Today's broad pull-back in stocks has presented some opportunities. By the time you read this I will be adding shares to the portfolio in Advanced Micro Devices (AMD) and the iShares Clean Energy ETF (ICLN). Both of these stocks are still in a down trend so I'll be taking a bite out of the remaining shares that we need to buy and leaving the rest for better opportunities.
Investors are reacting, maybe over-reacting to a jobs report that was worse than expected. That was the headline, but digging deeper into the actual report I find that the report is better than expected when viewed in terms of where we were same period last year. From my perspective, something else is at play here and I'm sure its valuations.
In plain language, the condition of our jobs market is bad, really bad, but what I'm looking at is the reaction of investors to a headline. Specifically, investors sold off stocks today because "the initial jobless claims were worse than expected". Expected by who? Compared to what? Over what time-period? Were there any other metrics that contradict the jobs report?
Initial Jobless Claims came in at 861,000 for the week ending February 13, 2021, which is significantly higher than where we were in February 2020, but as the chart shows, this was a small uptick from last month and a dramatic decline from where we were last Spring.
Included in the report are the numbers for Continuing Jobless Claims and the benefits paid for claims. Continuing Claims has continued to decline as have the total amount paid out in benefits. I would say that the unemployment situation as awful, but certainly much better than where we were a few months ago. Considering all that investors have looked past in recent months, this one jobs report can't be the sole trigger of this weeks sell-off.
Just yesterday the Retail Sales report delivered a huge surprise, to the upside. That's kind of a contradiction, jobless claims are up, retail sales are way up, therefore we should sell our stocks. Excluding autos, retail sales in January surged 5.9% vs an expected increase of just 1.2%. The jump in retail sales was fueled by $600 stimulus checks that came out of the $900 billion package. Keep in mind Congress is still noodling on $1 to $1.9 trillion more. While retail sales broadly were way up, Walmart just delivered an earnings call with mixed results that did not meet analysts expectations in every respect. Most important was the forward guidance is a bit gloomy.
I think investors have been looking for a reason to sell because valuations have become stretched so high, that even the Reddit crowd wanted to take some profits. Looking at the S&P 500 Oscillator, the overbought condition becomes apparent.
There's an old saying,
Valuations don't matter, until they do
From where I'm standing, it looks like we reached a point where valuations matter...at least for a little while.
BUY AMD 100 shares @ $87.80
BUY ICLN 1,000 shares @ $27.75
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
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Keep Me Honest 2021
The S&P 500 will achieve year-end earnings of $170-$175 (1-1-2021).
We are likely to have a significant pull-back during the 1st quarter, about 5%-10% (1-1-2021).
Stocking picking will outperform algorithmic trading again as it did in 2020 (1-1-2021).
Rule #1: Don't lose money
Rule #2: See Rule #1
Rule #3: Portfolios go to zero, markets don't, Stay Invested
Rule #4: When good stocks you own drop 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank sells below book value, buy it
Rule #8: Tips are for waiters. Do your own homework.
Rule #9: Don't sell a stock because you're bored with it. Do your own homework.
RULE #10: Being early and being late is the same as being wrong...move on.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
AMD, AMRN, AMZN, AAPL, ARKK, ARKG, CNRG, ENPH, FB, GNRC, GBTC, GLD, HRTX, HD, IPOD, MSFT, NVDA, PSTH, TWLO, VBIV
I am invested short in these securities mentioned in this post:
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.