How to Avoid Stock Market Insanity?

(Please enjoy this updated version of my weekly commentary from the Reitmeister Total Return newsletter).

Let’s take it from the top...

What is a “Taper Tantrum”?

This is an overdone stock market sell off that begins when the Fed first signals that they plan to take actions that will raise rates. This gets some hyperactive traders to start selling immediately because they foresee that the tide has turned and there will be more Fed actions to raise rates in the future. 

This reaction sounds logical on the surface. But is completely insane given all historical reference points which we will dig into below. 

More to the point, when the Fed shifts to a more hawkish view (less accommodation with higher rates likely to follow) the stock market typically goes up for 2-3 more years afterwards. That is the norm. 

In this case, rates are so far below normal...that it may take a lot longer than 2-3 years for higher rates to cramp the economy and stock market. Thus, to have any kind of sell off now is irrational and borderline insane. 

Here is a chart going back over 35 years and 4 bear markets (the gray vertical bars). See how long before the bear markets arrive that the Fed starts moving rates higher. And see how high rates had to go before the bear market began. Meaning the ticker tantrum sell off last week was a downright JOKE. Thus, not a surprise how quickly stocks have rebounded since. 

Then it begs the question; Why do these illogical market reactions happen so often? 

It comes down to the difference between traders and investors. In particular day traders and computer based trading is a world view compressed to just seconds and minutes. That is opposed to the months or years that the typical investor contemplates. 

When your time horizon is that compacted, then you are hyper vigilant to the headlines. There the view becomes binary such as: 

More Fed accommodation = Buy

Less Fed accommodation = Sell

These decisions are instant and reflexive with no care or concern for the longer term ramifications. Indeed, looking at the chart above, last week’s sell off would be like bailing out of the stock market in 1994 at the first sign of Fed rate hikes even though there was 6 more years of glorious stock gains to follow. 

Just to solidify the point, below is the chart which shows the value of the stock market if it was on equivalent with the yield of 10 year Treasuries. This is an important chart because as you will see on the left side, the stock market has been relatively on par with that valuation model between 1979 and 2001. So now picture how much more rates would have to rise to call into question the value of the stock market and end this bull run. 

I think you see my point. That rates are so incredibly low creating an undeniable value story for stocks that will NOT be undone anytime soon. 

This does not mean to take a second mortgage on your house to put into the stock market. 

This does not mean the stock market will just go up and up and up. 

This does not mean that there will not be other extended sell offs here or there along the way. 

It simply means that the long term market outlook is bullish til proven otherwise. And to undo that we would need to see some great threat to the economy that meant recession with subsequent bear market on the way. Virtually nothing taking place right now points to that outcome which is why a bullish bias is warranted. 

Having that clear eyed view in place allowed us to unflinchingly stay in our stocks during the taper tantrum to enjoy some pretty impressive gains since then including +1.94% today. More on the Reitmeister Total Return portfolio below...

What To Do Next?

The Reitmeister Total Return portfolio has beaten the market by a wide margin this year. (+26.78% YTD through 8/24/21 close) 

Why such a strong outperformance? 

Because I hand-pick the very best stocks from across the POWR Ratings universe. In fact right now there are 12 Buy rated stocks and 2 ETFs in the portfolio ready to excel in the days and weeks ahead. 

If you would like to see the current portfolio, then start a 30 day trial by clicking the link below.  

About Reitmeister Total Return newsletter & 30 Day Trial

Wishing you a world of investment success!

Steve Reitmeister

…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network and Editor, Reitmeister Total Return

SPY shares . Year-to-date, SPY has gained 20.60%, versus a % rise in the benchmark S&P 500 index during the same period.

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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