Two Friends, Two (or Three) Beers, One Big Problem By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - The money’s moving, but it’s not leaving…
- The difference between investors and traders…
- Tariff panic is creating great opportunities…
- A Trade360 blueprint for your next stock buy…
- What Andy and Landon Swan see in earnings this week…
I’m fortunate to have a lot of great friends in my life… And not only are they kind and a joy to be around, they each have special knowledge that I don’t have… which comes in handy. One of my friends started his own IT company. He’s the guy I ask about technical stuff and digital security. Another friend sells health insurance. Who do you think I called up when it was time for open enrollment? My wife’s best friend is a tax accountant. She’s getting a call sometime this month. My sister’s husband? He’s the reason I empty my own drain pan on my A/C unit. As you’d expect, I’m the stock market guy. Like all the folks reading this, my friends come to me when they want to get a better idea of where stocks are headed. So as I sat down to write this, and I saw that everyone’s retirement account was worth about 1% less today than it was yesterday, I tried to think about what I would say to these friends over a beer at the local Miller’s Ale House. I imagine them asking: “Why is the market crashing?” “Is it because of the tariffs?” “When do you think is a good time to buy?” “What’s the most exciting thing happening in markets this week?” Today, after a longer metaphorical sip of red ale than usual, I’ll try to answer. | Recommended Link | | | | As new allies, Trump and Musk could reshape America’s AI future. Elon Musk’s AI startup, xAI, might gain the edge it needs to dominate the industry. A shift in government support, fewer barriers, and a potential “backdoor” into the AI race are just the beginning. Is xAI set to become Elon’s most powerful venture yet? Click here to uncover this opportunity before it's too late. |  | | 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 So that’s the first thing I would tell them. 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: 
For context, here’s what this chart looked like last year: 
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: 
So, 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. Bloomberg has a good summary of what’s happening right now: […] Trump has imposed 25% tariffs on all Mexican imports and most Canadian ones – except for energy products, which face a 10% rate. He also has doubled his new charge on China to 20%, while 25% tariffs on steel and aluminum imports are due to take effect next week. He’s also pledging to implement reciprocal levels of tariffs on foreign nations, and to place additional levies on lumber, pharmaceuticals, semiconductor chips, copper, and auto imports, beginning as soon as April 2. Here’s the next question from my friend at the bar: “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. So here’s what I think… If you want to make an omelette… 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 omelette. But if we’re optimistic and say that it will make the four-egg omelette 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. If you’re a Trade360 subscriber, here’s one way you could do that. 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. Now, not all of these companies 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. This is a good shortlist of stocks to look at. But really, it’s just the tip of the iceberg of what’s available in our Trade360 software. With our brand-new Snapback Strategy, we can take advantage of Wall Street’s “sell first, ask questions later” attitude and ride those stocks into what could be quite a dramatic recovery. I should mention, the Snapback Strategy is seeing a ton of action. When I ran the tool on Friday, it picked up 17 signals – and that alone was the most it’d have given you since the pandemic crash… Today, after the continued volatility, there’s even more live signals to trade. And with our other new innovation, the Melt-Up Quotient algorithm, we can be certain of when a melt-up has begun… and when it’s likely met its end. Go here to watch our CEO, Keith Kaplan, demonstrate how Trade360 not only produces great trades – but also reveals the true nature of these market conditions. The next 12 months could be quite a ride… And I can’t wait to see how the Snapback profits stack up. To wrap up, let’s see what we have to look forward to… When you’re a subscriber to Andy and Landon Swan’s research service and it’s earning season, there’s something to look forward to practically every single day. This week, their subscribers are looking forward to Kroger (KR) earnings report Thursday morning. The Swans divide their sentiment data into Demand Growth and Happiness Growth. When that lines up with a positive Earnings Score, they know to get positioned for an upside surprise. Right now, that’s what they’re seeing on KR shares. The signal is so strong, they’re recommending what they call a “Coin Flip Bullish” options trade Here’s the breakdown for KR: 
Their Coin Flip Bullish trades are set up to limit downside risk at the expense of some profits, with the odds leaning somewhere higher than 50% (thus the coin flip). We’ll have to wait until tomorrow to see if the Swans are right on this one. But the edge is on their side… KR is up year-to-date, which is more than a lot of stocks can say, and is in exactly the same group that investors are chasing right now – high-value plays. Subscribers get access to the newest earnings plays every single Sunday. With some big tech names on deck for next week, like Oracle (ORCL) and Adobe (ADBE), as well as major staples play Dollar General (DG) and discretionary company Williams-Sonoma (WSM), this week’s report will be one to watch. Get the full details right here. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily | 
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