WASHINGTON, March 13, 2018: Tuesday morning, stocks initially advanced smartly. The reason why? Headlines strongly speculated that CNBC contributor Larry Kudlow will get the nomination to replace Gary Cohn as President Trump’s Chief Economic Advisor. (Probably.)
But as we passed the noon hour on the East Coast, stocks declined. Why? After hailing the Kudlow rumor, headlines hyped Trump’s firing of now-former Secretary of State Rex Tillerson. Making matters even more interesting for #NeverTrumpers, CNBC/NBC also reports
“Steve Goldstein, Rex Tillerson’s top spokesman at the State Department, was fired Tuesday for contradicting the official administration account of Tillerson’s firing…”
All three widely followed stock market averages have declined from 0.3 to 0.75 percent. Perhaps most surprisingly, the tech-heavy NASDAQ tanked the hardest today. That average has helped to at least keep stocks in the game since the bull market’s February defenestration.
Kudlow vs. Tillerson; or, if it bleeds, it leads
Today’s traders and investors now know that fundamental and technical analysis have become pointless in this market. Stocks soar or plunge daily, sometimes hourly, based on real or fake news headlines. Today, Kudlow bulls got Trumped by Tillerson bears. Careful analysis of earnings projections, business trajectories and stock patterns no longer seem to matter.
That’s because the headlines, fake or real, now drive the machines. In turn, machine algorithms increasingly control the fate of stocks, bonds, sectors and averages. Charts, earnings and P&Ls used to provide us with useful guidelines for finding stocks that might make us money. Now, more and more investors get whipsawed daily by scare headlines suspiciously geared toward helping out the bears. Perhaps no better example exists right now than Tuesday’s Kudlow vs. Tillerson, bull vs. bear headline battle.
It’s a weird world.
Current investment strategy
In these uncertain markets, our general investment strategy currently involves carefully paring positions likely to get hit by the current batch of negative headlines.
To us, that means lightening up on European stocks that might get affected by eventual tariffs. For example, we’ve dumped half of our small position in hedged Euro-stock ETF HEDJ. Oils and real estate investment trusts (REITs) remain dicey as well due to oversupply and interest rates.
Banks and techs remain a hold right now. But industrials that regularly rely on purchases of aluminum and steel, like autos and some appliance makers, look like sells. If the trade war that CNBC eagerly anticipates actually break out, these stocks will get slaughtered. Accordingly, we’ve cut back slightly on our position in engine-maker Cummins (symbol: CMI).
Techs and major financial institutions mostly remain holds. But few remain outright buys, as they’ve overbought right now.
Utilities might temporarily come back into favor as defensive holds. Indeed, we picked up shares of high-yielding but oft-troubled First Energy (FE) Monday. But if 10-year treasury yields pass 3 percent any time soon, utilities will swoon once again.
Nearing the Tuesday market close
As we approach 3 p.m. EDT, the NASDAQ still looks sick. But both the Dow and the S&P are attempting a recovery. But remember Monday, when stocks were hit by heavy artillery right at the closing bell? We no longer trust Mr. Market not to arbitrarily screw us these days.
Slowly raising cash is probably the way for investors to go right now. Market averages got badly damaged in the recent double-bottom plunge. Often, stocks require one to three months’ work to regain equilibrium. So, in the meantime, we need to tread carefully.
We’ll update this article after today’s closing bell.