Screening for Tariff Stocks
As you just read in the Publisher’s Note, I’ll be collaborating with some great analysts and writers in TradeSmith Daily starting next week. The team does an excellent job. You are already familiar with Lucas Downey, my business partner, friend, and fellow TradeSmith analyst. He’s a regular contributor to the Daily. Chances are you also know Keith Kaplan. He’s CEO of TradeSmith and the brains behind its amazing software products that keep getting better and better. Our stories are similar in that we were both frustrated with how we invested when we first started, so we set out to create data-based tools to make smarter decisions. I developed the Quantum Edge system, and Keith helped shape TradeSmith’s best-in-class software products. If you’re not a TradeSmith Daily subscriber, you might not be as familiar with the editor, Michael Salvatore. (You can click here to sign up now and start receiving it immediately.) I’ve worked with Michael before. He’s a smart analyst who does great work by bringing readers his own original research and some of the best analysis from various contributors and tools. I’ll do my best to measure up. I thought I would share a part of Michael’s column from Tuesday, where he analyzed what everyone is talking about – what’s going on in this somewhat crazy market? He also highlighted some interesting stocks you might want to look at, including one I recommend in Quantum Edge Pro. Here’s Michael, and then I’ll be back with a few more thoughts and the Quantum Score on one of the stocks… Why Is the Market Crashing? To start, the market isn’t really “crashing.” It’s just changing leadership. It’s important to understand that money hardly ever really leaves the market. Especially if you’re focused on the long term. As just one example, the most popular S&P index fund is the Vanguard S&P 500 ETF (VOO). Millions of people hold this in their retirement accounts (and so do I). Despite stocks just roundtripping the post-election euphoric move, there have been only four days so far this year where VOO saw net outflows. And funny enough, none of them were this past week. In fact, long-term investors are buying the dip. Monday saw the highest net inflow to VOO since the week of the presidential inauguration (when the fund was about 6% higher): 
Source: etf.com Prices are down, but the flows in retirement accounts are still up. That puts an indeterminate but rational rising floor on asset prices. And the bigger point is that some sectors are outperforming right now. Take a look at this… The chart below gives you the comparative performance of the Consumer Staples SPDR ETF (XLP) against the SPDR S&P 500 ETF (SPY) – that ratio is the red line – and the Consumer Discretionary SPDR ETF (XLY) vs. SPY, which is the blue line. So, staples are not only up, they’re outperforming the market, while discretionaries are losing ground: 
Okay, so the market isn’t crashing… It’s just rotating. But overall, the prices in my retirement account are down anyway. Why’s that? There’s a small reason and a big reason. The small one is investors with low “time preference,” otherwise known as traders. We can see just how skittish traders are compared to long-term investors with the same data we looked at for VOO above. Look at the fund flows for the S&P 500 ETF (SPY), about half the size of VOO in terms of assets… The difference is stark. Traders, using ETFs like SPY that are optionable, tend to have a greater impact on short-term prices because the fund flows are all over the place. More than half of the trading days so far this year have seen SPY outflows: 
Trading activity is causing noise. That’s the small reason. The big reason, of course, is President Donald Trump. On the campaign trail, Trump promised a shake-up to the status quo. And love him or hate him, he’s delivering on that promise. Right now, the most impactful shake-up is tariffs. It’s 30 days after the first tariff postponement, and now it’s time to fight again. Here’s the next question: “Should I change my investment portfolio to account for tariffs?” Now, I’d usually start by saying to stick with the S&P 500 unless you have time to really learn what you’re doing here. But you’re not my friend at the bar, you’re a TradeSmith Daily reader (and a Power Trends reader). So here’s what I think… If you want to make an omelet, you gotta break some eggs. Trump has spent the last month and a half breaking dozens of eggs. He broke Mexico’s eggs, and so Mexico is expected to announce some countermeasure tariffs on Sunday. He broke Canada’s eggs, and now Prime Minister Justin Trudeau is as incendiary as I’ve ever seen, actively encouraging Canadians to eschew American products and boo the U.S. national anthem at hockey games. He’s breaking China’s eggs, and that’s tricky because China has a few eggs of ours to break as well. Now, it’s not clear if all this egg-breaking will result in an omelet. But if we’re optimistic and say that it will make the four-egg omelet of Trump’s dreams: - A second renaissance in U.S. manufacturing,
- Better jobs and higher wages for American workers,
- Higher revenues for the U.S. government,
- And added political leverage against countries that depend on us…
Then the takeaway of what to do is simple – and maybe a bit boring. (Though, after the last two weeks, I could go for boring.) You want to buy American stocks, and especially companies that do most of their business in the U.S. Given the trend toward value-oriented names right now, you should tilt in that direction. You might want to consider looking at some mid-cap stocks with good valuations that fit this mold, as mid-caps have the best long-run returns of any market cap class. And most importantly, you should be in stocks that look great in TradeSmith’s software. I just ran a screen for value stocks with an entry signal in the last 60 days across the three top benchmarks and the S&P 400 mid-cap sector. Here are the top 10 that screener returned: 
What we find is utility company FirstEnergy (FE) – which does its business in the U.S., specifically the Northeast. We also have insurance firms Chubb (CB) and Aflac (AFL) – another industry well insulated from tariffs. Jason loves the insurance business model and the never-ending flow of premiums, and he recommends CB and one other insurer in his TradeSmith Investment Report service. Not all of these companies on that screen are perfectly tariff-proof. Looking at you, Walmart (WMT) and Hasbro (HAS). But Walmart certainly has been a tried-and-true retailer that folks will always look to for deals. And Hasbro is a well-performing discretionary stock. Better Days Are Coming I agree with Michael’s sharp analysis and the stocks he suggested looking at. I would also add a third reason for the selling. On the trading desks, we called it “forced selling” or “degrossing.” When Lucas Downey and I were on trading desks, some of our clients were multibillion-dollar hedge funds. Their job was to extract money out of the market like a slot machine, constantly taking profits and running risk. Staying with the casino analogy, imagine you have a hot hand at the blackjack table. You just keep winning and winning and winning, accumulating a big chunk of money. The pit boss might come over and tap you on the shoulder and ask you to leave. Professional traders on Wall Street also get shoulder taps from their firm’s central risk manager when they outrun their risk and lose too much money in one day. When your boss tells you to sell, you gotta sell. That is forced selling. It’s also known as degrossing because money managers lower their gross exposures, reducing leverage in the system. Forced selling isn’t necessarily a reaction to the news like tariffs or inflation, though that can play a part. Sometimes it’s the professional investors simply reacting to their own internal risk procedures. These bouts of forced selling tend not to last. I’m not sure we’ve hit the bottom yet, and the tariff headlines keep changing. But I strongly believe now is a good time to buy high-quality stocks with superior fundamentals, strong technicals, and Big Money inflows. Stocks like Chubb (CB), mentioned by Michael Salvatore earlier, with its Quantum Score of 74.1. 
I’ll talk to you again Saturday, and then I look forward to seeing you in TradeSmith Daily! Talk soon, 
Jason Bodner
Editor, Jason Bodner’s Power Trends | 
ليست هناك تعليقات:
إرسال تعليق