There was a famous moment early in the second Gulf War where President George W. Bush stood on the deck of a Navy ship with a famous “Mission Accomplished” banner behind him. That was a premature celebration back in 2003 given the many years of difficulty that followed before the US packed up their bags.
So yes, the news of tariff deals quickly coming together with China is reason for some excitement. Directionally it does point to things going in a more positive direction. But it is hard to waive the Mission Accomplished banner with confidence at this stage.
Let’s review the updated market landscape and what that means for our trading plans in this week’s Reitmeister Total Return commentary.
Market Outlook
Late April and early May were marked with a tremendous bounce for the S&P 500 (SPY) after hitting an intraday low of 4,835 earlier in April.
Bit by bit investors grew in confidence, but stocks still stayed below key resistance at the 200 day moving average @ 5,753. Then on Monday investors were emboldened by news of healthy agreements with Chinese trade officials that led to a decisive break out above all 3 major trend lines:
(Yellow = 50 day moving average (MA) / Orange = 100 day MA / Red = 200 day MA)
This does have a Mission Accomplished kind of feeling. But history is littered with examples of brief breakouts followed by stunning collapses. So time will tell if this is built to last.
The more things go smoothly with China, then other large trade partners like Mexico, Canada, Europe etc...the more likely this bullish breakout remains. Then we start talking about when we break above 6,000 and after planning on making new all time highs above 6,147.
Or to put it another way, this is still a bull market til proven otherwise.
That’s because the above will path for trade talks would also lower uncertainty on the part of businesses and consumers...which would improve spending habits. That in essence subdues fears of a recession. Perhaps we call this a soft landing before the next take off.
Reity, are you saying that you are now gung ho bullish once again?
No.
Better said that I am cautiously optimistic that the bull market is back in charge AS LONG AS trade talks continue on this new amicable path. The longer it takes...and the more uncertainty that remains...the higher the probability of a recession forming with resulting downside for stocks. (Like retesting the previous low and if becomes a full blown bear then likely all the way down to around 4,000).
This cautiously optimistic tone was behind yesterday’s trades to get more aggressively long the market (and thus less defensive). Yet still we have a couple defensive elements still in place with gold and bond ETFs.
These will be a modest drag on the portfolio if we have a bullish stampede higher from here. But we will be glad they are still on board if trade talks get bogged down as stocks will no doubt get weaker and these 3 ETFs will outperform.
The last thing we will discuss is the Fed meeting from May 7th. The phrase that came up time and again is there is great “uncertainty” about tariffs. Thus, they need more info on the final plans to assess impact.
Or to put it another way, Powell was very clear in saying they don’t need to be in a hurry to do anything. Their dual mandate of full employment and stable prices is in good shape. And would rather wait for the tariff situation to play out and then act quickly as needed.
To be clear, acting quickly may be to raise rates if new policies are inflationary. Or if a recession starts unfolding, then lowering rates will be the course of action.
Right now tariffs are the #1 issue...followed by recession watch...with the Fed being a distant third in importance.
Thus, we will keep vigilant watch on tariffs and the economy to plan our next moves. For now it is fair to say we are cautiously optimistic that the bull market is still in place and thus have a portfolio that is well suited for that situation.
What To Do Next?
As shared above I have 4 defensive ETFs in place. Plus a short of a very popular stock that should be trading for 80% less than it is now.
On top of that I have 7 stocks that I believe are perfectly suited for today’s volatile market environment:
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 and ETFs for the current environment.
If you are curious to learn more, and want to see the tickers for all 12 of these recommendations, then please click the link below to get started now.
Steve Reitmeister’s Trading Plan & Top 12 Recommendations >
Wishing you a world of investment success!
SPY shares fell $0.24 (-0.04%) in after-hours trading Tuesday. Year-to-date, SPY has gained 0.43%, 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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