Don’t Make Any Major Portfolio Changes Until Mid-Week: Here’s Why

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Now, here’s what we wanted to talk about for this week:

If history is our guide, then last week’s volatility will likely reemerge this week, but it will also be setting up some of the best buying opportunities in retail and technology stocks than we have seen in two months.

The market survived more record inflation reports last week, with minimal losses. However, the S&P 500 was down -0.31% for the week, breaking a six-week bullish streak.

Should you worry? A little, but don’t forget that stocks are an “inflating asset,” so as long as earnings growth is positive (which it is), then the market is one of the best ways to profit from inflation erosion.

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So, let’s consider what to do: In our 20+ years in the market, the one thing we’ve learned is that a short break in a bull market is a good thing, not a bad one. Investors continually overprice short-term risks to the market and overeat.

Any selling this week is likely to be temporary, and we think investors will have a chance to buy back in at a discount once volatility calms down.

Considering all of these factors, we like the following stocks:

  • The Coca-Cola Co. (NYSE:KO): This is as steady-Eddie of a stock as you can get. Lows in the $52 to $53 range should be seen as entry points.
  • Adobe Inc. (NASDAQ:ADBE): If prices drop back to $640 or less, we like that for new entries. Investors perpetually undervalue ADBE’s dominant position in subscription software and services.
  • Microsoft Corp. (NASDAQ:MSFT): We doubt this one will pull back very far, but investors can take advantage of increased business spending and cloud computing by looking for entries under $330 per share.

Retail Sales

We don’t want to run the risk of confusing anecdotes for data, but I (John) had an interesting experience this weekend. Responsible for entertaining my two-year-old grandson on Saturday afternoon, I stopped by Target to do some grocery shopping and let him run wild in the toy aisle.

In between wrestling boxes of Legos and new He-Man toys out of his mouth, I noticed how crowded the store was. If my store was representative of the country, then this is a good thing.

The negative was how many shelves were still empty. It seems like shoppers are hitting the stores early, but are goods being shipped fast enough to meet demand? That is an important question we will be looking at this week.

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Tomorrow, the retail sales report will be released (which once again has a “core” number that is usually the one in the headlines). If there are shoppers but no goods, we may not be as far past the peak of the supply chain problems as we think.

For now, we are still optimistic. Anything over a 1% increase compared to last month would be a big win for the market and retail stocks. If that happens, we like the odds for Target Co. (NYSE:TGT) to break its all-time highs and head towards $280 a share.

Costco Wholesale Co. (NASDAQ:COST) also looks good for a breakout, but we are warier of Walmart Inc. (NYSE:WMT) and the deep discount retailers like Dollar General Co. (NYSE:DG) as they are less well-positioned to take advantage of higher cost / higher-margin electronics and home furnishings.

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We were right about our forecast for Berkshire Hathaway Inc. (NYSE:BRK-A, NYSE:BRK-B)’s earnings last week and it proves our point about avoiding the insurance sector for a while. The last few earnings reports for the quarter are trickling in this week and next, but this is still an important week.

  • The Home Depot Inc. (NYSE:HD) and Lowe’s Cos. Inc. (NYSE:LOW) will both be reporting on the 16th and 17th. Along with Walmart’s earnings and the retail sales report from the Census Bureau on the 16th, the home improvement stores will tell us a lot about consumer spending and home sales.
  • Ross Stores Inc. (NASDAQ:ROST) will also report on the 18th after the market closes, but the home improvement stores are a more important bellwether for consumer behavior.
  • Bitcoin has been doing very well lately, which is usually a plus for NVIDIA Co. (NASDAQ:NVDA). Earnings on the 17th after the market closes could be a useful gauge for tech stocks, but NVDA tends to be an outlier so we shouldn’t put too much weight on its data alone.

Social Media Tiffs, Conferences, and Potential Market Swings

A bizarre Twitter fight took place this past weekend between Elon Musk and Bernie Sanders, the independent senator from Vermont. At one point Elon threatened Sanders with “Want me to sell more stock, Bernie? Just say the word…”

It’s unclear to us why Elon selling stock in Tesla Inc. (NASDAQ:TSLA) would be a problem for Bernie. Yelling at an 80-year-old democratic socialist on Twitter that you are going to punch yourself in the face (financially speaking) unless he leaves you alone seems pointless, but it could be a problem for the market. As mentioned last week, volatility in TSLA’s stock is an issue for the major indexes because it is such a large component.

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Speaking of pointless statements, on Wednesday, no fewer than six voting members of the Fed’s board of governors will give speeches at various think tanks, roundtables, online discussions, and other I-can’t-believe-anyone-gets-paid-to-attend-these conferences.

These are usually non-events with very generic comments, but this time, there’s an even split between the more dovish (lower interest rates are good) and hawkish (inflation is bad and rates should go up) members sermonizing, and the stakes around interest rates and inflation are getting higher.

The odds that we hear stronger (or at least more specific) language from the governors on Wednesday is higher than normal and could trigger some wide swings in the market. Unless you have an urgent need to make some changes in your portfolio, it might make sense to wait until earnings, retail sales, and the flock of Fed governors are in the rear-view mirror on Thursday.

We’ll be back with you on Friday.


John Jagerson & Wade Hansen
Editors, Trading Opportunities

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