What to do now (and why you’ll want to)

Good morning!

Welcome back after what I hope was a happy thanksgiving here in the United States and a great weekend wherever this email finds you.

The markets are trying to make a rebound after Friday’s selloff. What happens next depends entirely on two things: 1) psychology and 2) vaccine news.

Here’s my playbook.

1 – Last Friday’s selloff is NOT a big deal in the scheme of things

Big selloffs are rarely as bad as they seem.

Last Friday’s shellacking was no exception. The S&P 500 fell just -2.3%, the 5th such decline in the 2-3% range this year. We have not yet experienced a decline of more than 3% in 2021 but experienced 16 declines of 3% or more in 2020 alone.

Let that sink in for a moment.

You’ll have to go all the way back to 2008 in the depths of the Global Financial Crisis to find a worse year when there were 23 such declines. And beyond that, you’d have to go all the way back to 1937 when there were 17 of ‘em.

The other thing to consider is that the average intra-year drawndown since 1928 is -16.3%. Yet, the maximum drawdown this year has been -5.2%. In other words, this year has been 68% less volatile than normal.

2 – Could there be more selling?

Absolutely.

Here’s the thing.

Everybody didn’t just decide to hit the “sell” button on Friday like many believe.

A few major prop shops and highly leveraged traders running big books – meaning tons of money - saw the news about omicron and ran into treasuries. Then algorithms took over and it became a race to the bottom made worse by holiday hours, thinly staffed trading floors and lower than average volumes.

Longer-term, there’s still plenty of fuel for a run higher which is why I’m going to be taking advantage of lower prices and encourage you to do the same thing.

3– What I am buying and why

I’ll be going after two of my favourite energies and financials this morning if I can get prices I like because they’re already winning. And, not surprisingly, I want to win some more.

Watch my take with Stuart Varney just ahead of the opening bell this morning. (Watch)

The stay-at-home trade is long gone and so is the re-opening play. What you’ll want to do is buy those companies that will keep us out and about. I’ll be sharing a specialized fund and an ideal choice in the December One Bar Ahead™ which drops Friday. (Click here if you’re interested)

4 – The ONE thing markets want to know

The virus doesn’t care how you or I feel or whether we agree or not about the risks, lethality, vaccines or a dozen other related subjects. The only thing that matters to financial markets right now is whether current vaccine technology is effective. If that’s the case, the markets will regain their footing. If not, they won’t. (Read)

Meanwhile, Pfizer has estimated that should a vaccine-escape variant emerge, they are able to develop any countermeasures in 6 weeks and start shipping in 100 days. (Read)

5 – Dorsey’s out, shares jump

Normally shares plummet when a much-loved CEO steps aside but TWTR shares have jumped 10% on news that Dorsey is reportedly stepping down as CEO. Perhaps he isn’t as “loved” as a lot of folks think because he hasn't monetized users into oblivion.

I’ve got mixed feelings because I thought he may have been the one social media CEO who could actually gave a rip about users. The market very clearly perceives he’s held Twitter back. Too early to tell if buying is a good idea. (Read more)

Bottom Line

People are leaving cable TV in droves because they’re tired of paying for channels they don't want just to get the few that they do. Anybody buying an index fund is doing the same thing.

Go a la carte (if you really want results).

Speaking of which, let’s MAKE it a great day.

You got this – I promise!


Keith :-)