WASHINGTON. We’re back to that old familiar song lyric again: “What a difference a day makes.” We spent Monday, like most of last week, in an investor Slough of Despond. And it looked like Tuesday would turn into an instant replay of Monday’s horrifying downside action. But suddenly, word came from the Administration that those 10 percent September 1 tariff increases on China would delay – until December 1 – tariffs on most electronic gear for reasons of “national defense.” Bang! Wall Street blasted off in a head-spinning reversal scattering this month’s Bad News Bears. We watched most US stocks soar as a result.
For at least a day, anyway.
Talk about head-spinning reversals…
According to CNBC, here’s what set today’s ongoing rally off.
“The United States Trade Representative announced Tuesday certain products are being removed from the tariff list based on ‘health, safety, national security and other factors’ and will not face additional tariffs of 10%. Other tariffs will be delayed to Dec. 15 from Sep. 1 for certain articles, it said.”
That’s a pretty broad brush, indicating that President Trump has been hearing from some industry representatives. And has been watching the stock market tank as well. Today’s news took care of that decline. For the moment. Unrest in Hong Kong, the possibility of a Hard Brexit, and the latest surges in populism rocking both Italy and Argentina have also taken a toll on stocks. And events like these, or the fear therof, never help. Eternal vigilence advised.
The Dow Jones Industrial Average soared over 500 points on the plus side Tuesday morning, before settling down in the +400 point range as of 12:45 p.m. ET. That’s a 1.5 percent gain at the moment. The tech-heavy NASDAQ is up nearly 2 percent, reflecting the temporary tech exemption from new tariffs.”
The shares of China-dependent Apple (trading symbol: AAPL) are particularly happy at the moment. They’re currently headed for the stratosphere, trading at roughly $208 and change per share. That’s a current one-day gain of over 4 percent.
Even the much broader-based S&P 500 has gained 1.5 percent as we write this. No guarantee where Mr Market will end up by COB (4 p.m. ET) today. But, unless we get another 180 from Washington, stocks are likely to remain positive.
A new bull market phase?
We hesitate to call today’s reversal the beginning of another new short-term bull market. US stocks have remained in stasis since around tax day 2019 (April 15 or thereabouts.) Actually, “range-bound” is the term. Since then, stocks have experienced head-spinning reversal after head-spinning reversal. Popular issues soar over a few days to a few weeks. And then they change their collective minds and flip to the negative side in a hideous mass face-plant. As they’ve been doing recently.
A miserable time for Mr Market’s home gamers
This makes it awfully hard to invest, at least in US stocks. We defensively bailed out of a few issues we really liked Monday, a few for gains and a few for losses. For the most part, they’ve snapped back sharply Tuesday thus far. That leads to some regret on our part. But we’re not exactly in a hurry to climb back in.
Here’s where equal-weight sector index ETFs come in
In fact, if we change our minds – maybe tomorrow if this head-spinning reversal of fortunes hangs in there – we’ll likely do so by nipping into shares of equal-weight industrial sector index ETFs. These roughly track (if you choose well) the current hot sectors but save you from the more extreme moves of some hot stocks, like Apple for example.
In massive bull moves, these equal-weight ETFs don’t provide as much gain as individual US stocks. Or even as much as you’d get in cap-weighted index ETFs. (Which means that big companies in tech indexes, for example, like Apple or Microsoft, are a bigger percentage of the index.) On the other hand, when Mr Market is en route to investor hell, equal weight indexes go down a lot slower. And slower is better for mostly safety minded dudes like yours truly.
An equal-weight tech ETF
Example: I’ve been acquiring shares of Invesco’s S&P 500 Equal Weight Technology Index ETF (RYT) since early in 2018. Since these shares are exempt from commissions in my brokerage accounts, I can pick them up one or two at a time during sinking periods, when you can generally buy them at bargain-basement rates.
I just buy and hold, but don’t re-invest the dividends in the ETF. That’s because, given that this is a tech index, the techs in this ETF don’t generate very much in the way of dividends. Certainly not enough to materially increase my holdings in this expensive (per share) ETF. It’s currently priced today at $175 per share.
But simply holding on to this position, and increasing it every time it gets hit by a selling wave, I’m now up in the position by over 12 percent from the day I started building this holding. Aside from not reinvesting the paltry dividends, this is the way I prefer to invest. Problem is that for individual fast-moving stocks, particularly tech shares, timing and watchfulness are critical. And like nearly everyone else, I have other things to do.
Replacing stocks with ETFs and avoiding replacement of an ailing knee
So an equal-weight sector ETF like RYT is the answer. It gives you a similar ride to the one you get from individual techs. Except without most of the volatility. Which means that if things really are going South (as in 2008-2009) you can still likely get out with at least some of your profit intact.
Right now, I have to break off here and head for an appointment with a physical therapist. Yeah, I’m getting old, and my right knee went out on me a few weeks back. PT is helping, as I try to avoid, as long as possible, the old-people ritual of replacing joints with plastic. Which, of course, only means more (and more painful) PT.
That said, the PT is less painful than the last two weeks many of us have spent jousting with Mr Market. Here’s hoping that the perma-bulls are back on Wall Street after their extended summer vacations in the Hamptons. If investors stay happy like they are today, we could finally have a week of fun investing in US stocks.