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☕ The pause that refreshes or something else?

Jun 21, 2024

Good morning! 👋

The markets are tippy toeing through early going following the S&P 500’s brief foray above 5,500 yesterday.

Should you be worried?

Depends on whether or not you have a plan.

Most folks don’t.

Odds are those that do will be just fine.

Here’s my playbook.

1 – The pause that refreshes or something else?

Sam Stovall – who is an exceptionally bright guy btw - pointed out to Yahoo!Finance recently that 14 of the last 15 top Q1 returns were followed by a 5% or more pullback with some drops in excess of 12%.

The implication, of course, is that all hell is going to break loose. (Read)

Should you worry?

You can if you want; fear always has a platform.

What I’d rather see you focus on is the fact that the S&P 500 tends to finish the year higher by an average of at least 20% following strong Q1 starts AND pullbacks.

Play to win, not “not” to lose.

Keith’s Investing Tip: The sooner you learn that volatility is an opportunity, the sooner you can take the actions needed to move you and your money forward. Think about it. The markets are the only “store” on earth where people fear a discount.

2 – Gilead Sciences on the move

Biopharma company Gilead is on the move following news that Lenacapavir, its 2X yearly antiretroviral shot, was 100% effective in preventing HIV in late-stage trials. (Read)

I think there’s a good argument to be made that buying shares is a smart move, particularly if you own GILD in conjunction with a handful of other companies on the cusp of decisive medical breakthroughs. Not for nothing, but the dividends are great, too!

OBAers: Keep an eye on your email later today for an important update.

3 – A thaw: no nukes over Taiwan

Despite the fact that business relationships with China are icier than they have been in a long time, I was thrilled to see that US and Chinese officials have apparently held informal talks with Beijing’s reps telling US officials that they don’t need to resort to nuclear threats. (Read)

Never mind that they also told US officials that they believe they can take Taiwan anyway.

China doesn’t say things it doesn’t mean. And in this instance, there is no doubt they believe what they say. I do, too. But, again, at least nukes appear to be off the table.

Russia and North Korea on the other hand, ugh.

Same for the situation in the Middle East. Double ugh.

Defense stocks have never been more necessary.

I like the fact that they’ve been left behind in the rush to all things AI because it means I can snap up some juicy profit potential and dividends while everyone else seemingly can’t be bothered with ‘em.

OBAers who understand the same thing and share that perspective are grinning ear to ear, no doubt. 😊

Keith’s Investing Tip: Investors with a lottery-like mentality won’t be happy with defense stocks and that’s a-okay with me because they’re a much longer cycle game. The real value isn’t selling materiel now but longer cycle R&D that creates advanced weapons platforms and systems, all of which are integrated into a much larger military framework. And, hopefully, never used.

4 – An active ETF for metals

For a long time, ETFs (exchange traded funds) have been passive investments, meaning that you buy what you buy and that’s all she wrote because they’re intended to mirror an index or some other benchmark. The holdings rarely, if ever change.

Within the past few years, a new form of ‘em has shown up... so-called active ETFs, meaning they’re “actively” managed at the discretion of their managers.

The thinking is that managers will adapt to changing market conditions and, in doing so, that the ETFs will be more responsive and produce higher returns.

I wouldn’t bet on it.

This is just a new way to skin the cat under the guise of innovation while generating higher fees.

One of the primary reasons investors choose ETFs in the first place is because you know what you’re getting when you buy in. Which stocks, the holdings, the weightings and more... so you can keep your investments in line with expectations.

Active ETFs typically have higher expense ratios which puts plenty of pressure on managers to “beat” the indices by making decisions they wouldn’t otherwise consider. In other words, you could get a wilder ride.

At the same time, many actively managed ETFs are prone to contradict basic investing tenets including allocation, diversification, concentration, the use of specific riskier tactics rather than matching a previously established blend, etc.

Now, having said all that, one of the most intriguing I’ve seen in a while is Direxion Auspice Broad Commodity Strategy ETF (COM) which debuted in March 2017. So, it’s not really new despite the fact that it’s new to many investors. (Read)

The actively managed ETF is a basket of 12 commodities including energy, metals, grains, and so-called softs. Fund managers intend to be overweight in one or all when there is an uptrend and in cash for any commodity showing a downturn.

I personally prefer a more direct approach because I view commodities as an investment over time whereas this fund is marketed as an investment but strikes me as having more of a trading approach at moments in time.

But that’s just me.

Direxion does a nice job with its funds and my experience with ‘em over the years has been good. You can click here to learn more about the ETF if that’s of interest.

5 – Alexa: will you still do nothing for $5-10 a month?

Amazon introduced Alexa back in 2014.

Since then, it hasn’t amounted to much despite the fact that founder Jeff Bezos considered it a pet project because he wanted to develop a Star Trek-like computer device for home users.

We call her “she who shall remain nameless” in our household because, you know, Alexa is always listening even though Amazon says not so. But that’s neither here nor there.

What matters now from an investing perspective is that Alexa is falling behind competitors who are rolling out AI-driven chat enabled devices that can respond to vastly more sophisticated inquiries, more quickly, more accurately and more precisely.

Alexa isn’t tied to Prime either so there is that.

Now, Amazon is reportedly mulling over a $5-10 monthly charge for a sub-par service that’s already available for free. (Read)

Uh, yeah. 🤦‍♂️

Yet another challenge that could catch Amazon stockholders by surprise.