Fading The Rally

Video Length: 00:04:44

Last week I did an interview in which I discussed my strategy for February. Now, normally that’s crazy to speak about monthly timelines. There was a reason I told the producers to focus in on a particular timeline: March 1st. It’s the China trade deal; the only thing markets care about right now (since Brexit only has one permanent headline: disaster). Let’s break it down and understand how important this is, or really, isn't.

First, what DO we care about? Somewhere 2800 on the S&P 500 (we are close!) we will start to take profits on our purchases last quarter. Why? Because I get paid to buy low and sell high. The current volatility has a reason, and it’s my job to take advantage of it. Interest rates are low because growth is in question. Profits will be lower this year and everyone already knows it. The key is to be in a more neutral position in the portfolio to take advantage of whatever slowdown occurs later this year or in 2020. It takes courage, a steel stomach, and thoughtful allocations that can provide several years of income without selling stock at a loss. This is why you have bonds in your account.

Second, do we care about all the China trade talk? Not really, but it’s moving markets. There is always something driving short term noise and volatility in markets. You just need to understand what it is and IF you can take advantage of it. In this case, many investors are obsessed with how the world’s two largest economies will get along regarding trade. Up until this week, there was a March 1st deadline. Last week Larry Kudlow was pessimistic on a deal. Come on!!! I know this guy personally, he’s a negotiator and will push it until the ink is dry. This week the White House said the March 1st deadline could be extended if things start to work out. Market down, market up, yet no progress

None of these things matter. It’s just noise. Our expectations of earnings for corporations suggest a reasonable valuation around 2800-3000 on the S&P 500. We are almost there. So, my job is to play the news, not get played by it.

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