Aug 3, 2020 Market Update

Aug 3, 2020 Market Update

Good morning.

At this writing, the futures for the Dow, the S&P, and the Nasdaq are all showing that color we all love: Green. And as Kermit the Frog reminded us back in 1970, “It’s not that easy bein’ green ….”

It’s sure as heck not easy being green in 2020—not after one of the biggest plunges in stock-market history.

But that’s exactly what we are … Green! Big Time!

Right now, in our Aggressive Growth Portfolios, we are so green that we’re beating the S&P in a very big way: The S&P is up 1.25%. But we are up 18.70%, net of all fees and expenses.

So we hope this makes your day.

As we’ve said before, if you are in one of our blended accounts with fixed income, your results will differ.

So rest easy. We’ve got your back. Pay attention to real things … your family … your friends … your community. We’ll pay attention to your wealth.

Best regards to all,

Jack​

Aug 3, 2020 Market Update

Friends and Clients, I’ll be brief. All is well with our managed accounts

Friends and Clients,

I’ll be brief. All is well with our managed accounts. Through July 15, the RFS pure aggressive growth model is up 15.98% for the year, while the S&P 500 index is down 0.13%. Essentially, we are beating the index by 16%. We hope you are pleased with that performance. As always, keep in mind that if you are invested in one of our models that blends with fixed income, your results will differ.

I have been getting a lot of phone calls and emails asking, “Jack, are we going to have another market crash? Should we just get out now?” I don’t think so. Not yet, anyway. We could have another 10 to 30% market sell-off between now and the election, and we are prepared for that. We take offensive positions when our indicators point in that direction. And when they point down, we don’t hesitate to play defense. In fact, our defensive strategy includes some offense because we take on short positions that profit handsomely in down markets. You all know firsthand what we did in March, when we established SPXS positions that produced positive gains as the market crashed.

The recent market rebound has been directly tied to improving economic numbers, and the perception that the CV-19 crisis is getting better. Unfortunately, the Johns Hopkins statistics (available for free everyday in the New York Times) do show a spike in Corona cases in the U.S. and throughout the world. Just yesterday, for example, new Corona cases in the U.S. totaled 77,217. Further spikes could negatively impact the market. We watch these stats daily.

I am “optimistically cautious,” and on full alert at the same time. The current political and racial discourse is destroying our country and our families, and we are in the middle of a very nasty Presidential election cycle. But at the end of the day, there is more good news than bad. Otherwise, the markets wouldn’t be going up.

As you have all heard me say on many occasions, “The only truth is supply and demand. Everything else is someone’s opinion.” There are well over 100 news commentators a day on all the major channels, all with an opinion. They don’t matter. Rule # 1 in technical analysis: the only truth is the “price.” 

Here’s my personal opinion: I hope the market does crash. We will make a fortune with our defensive shorting strategy, and a lot of ignorant investors will finally get the message, one more time: “buy and hold” is an academic, institutionalized falsehood, fabricated and promoted by the . . . for want of a better term, I’ll make one up …. “broker-dealer/mutual fund industrial complex.”

We’ve got your back. The RFS Team is doing, and will continue to do, a great job protecting your money.

Like most of you, I am working from home. Awfully quiet around here. Don’t hesitate to give me a call on my cell phone at 240-401-2355.

And, if you’re so inclined, you can always add funds to those we manage.

With kind regards,

Jack

 

John F. Reutemann, Jr., CLU, CFP®
Founder and CEO
Financial and Wealth Advisor
2273 Research Blvd., Suite 101
Rockville, MD 20850-3264
Phone: 301-294-7500
Fax: 301-294-7504
john.reutemann@rfsadvisors.com
www.rfsadvisors.com 

Check out our latest Weekly Market Recap

 Investment advice offered through Research Financial Strategies, a registered investment advisor.  Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC, headquartered at 18 Corporate Woods Blvd., Albany, NY  12211.  Purshe Kaplan Sterling Investments and Research Financial Strategies are not affiliated companies.

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Back in the 1980s, a popular Wendy’s commercial featured a soon-to-be-famous elderly lady peering at a small piece of hamburger perched on a huge bun. She then asked:

Where’s the beef?1

 In the March 11, 1984, Democratic debate, Walter Mondale used the line as a knockout blow to fellow candidate Gary Hart.2 Watch the commercial here. Watch the debate segment here.

Today we can ask a similar question:

Where’s the cheddar?

 With the huge market sell-off in March and April, we know that those who sold stashed a massive amount of cheddar or moolah. Unless they used it in the ensuing rally, it’s still there, somewhere, just sitting.

A little research reveals that a gigantic amount of bread (bigger perhaps than the bun holding the burger shamed in the Wendy’s commercial) is … to mix our metaphors … parked on the sidelines. Sitting. Waiting. Waiting for what?

On June 22, Jesse Pound wrote an article for CNBC. The article’s title pretty much summed up its contents: “There’s nearly $5 trillion parked in money markets as many investors are still afraid of stocks.”3 As pointed out by Mr. Pound, more than $4 trillion flooded into money markets as investors sold anything not nailed down. Money market assets peaked during the week of May 13, setting an all-time record of $4.672 trillion. Recent outflows, he said, still leave 90% of that amount waiting on the sidelines.4

Mr. Pound cites Ryan Detrick, a market strategist at LPL Financial, who noted that “after the 45% bounce, give or take, in the S&P, we haven’t seen really the big part of the retail crowd come back in. … It kind of shows again that a lot of people are really still on the sidelines.”5

Mr. Detrick revealed even more staggering numbers in a recent Tweet:
$15.4 trillion cash in bank accounts right now, a new record.

Recently up 15% the previous 3 months, another record.

Combined with the record of nearly $5 trillion in money markets and safe to say there’s a lot of cash on the sidelines.6

Another Stash of Cash

Another trillion dwells in orphaned retirement accounts. And this amount is likely to grow because of the massive loss of jobs in the recent virus crisis.

Many companies set up 401(k) plans for their employees. The employee contributes to the plan by way of paycheck deductions. In some plans, the employer contributes a certain percentage of the employee’s wages. Over time, these plans can grow significantly, the gains free from tax until the employee starts withdrawing funds upon retirement.

There’s a slight problem. As employees change jobs, they often forget about 401(k) plans with their previous employers. As reported by Mitch Tuchman in a June 2020 MarketWatch article:

Over a recent 10-year period as many as 25 million people in workplace plans changed jobs and left behind a 401(k) plan. Millions more have left behind more than one, according to a GAO study.7

Millions of people who lost their jobs during the pandemic will one day find new jobs, most likely with different companies. Yet their old 401(k)’s with the previous employers might just sit there, with no one paying any attention to any strategy of investment.

Mr. Tuchman offers some sound advice: roll those old 401(k) accounts into an IRA account. That way, you—or your financial advisor—can make rational decisions about staying in the market, getting out of the market, or getting back in the market when the drop appears over. Beware, Mr. Tuchman advised, and make certain you complete a true rollover:

Make sure you request a rollover, not a distribution. If you take money out of your 401(k) plan you will be liable for taxes and, possibly, penalties for early withdrawal. Once the money is transferred you can begin to choose new investments in your IRA that better fit your current age, risk tolerance and retirement goals.8

Fear of Fear Itself

It looks as if fear accounts for this vast amount of wealth sitting on the sidelines. If I get back in the market, I think, it’ll no doubt crash. After all, I say to myself, look at the massive unemployment around me. How can the market possibly go up, I wonder?

Millions of sidelined investors asked those questions as the stock market recovered most of its pandemic losses. Granted, more convulsions loom just over the horizon. But it makes little sense to sit there and watch potential gains pass you by.

Protecting Against Crashes: Our 1-2-3 Approach

At RFS, we protect our managed accounts against the ravishes of stock market crashes.

First, we watch your account, every minute of every day.
Second, we use technical analysis and active management to decide when to deploy your funds … and when to pull them back into cash.
Third, we use trailing stops to guard against crashes.

A Word About Trailing Stops

A trailing stop is a type of stop-loss order that combines elements of both risk management and trade management. Trailing stops are also known as profit protecting stops because they help lock in profits on trades while also capping the amount that will be lost if the trade doesn’t work out.

Here’s how it works. When the price increases, it drags the trailing stop along with it. Then when the price finally stops rising, the new stop-loss price remains at the level it was dragged to, thus automatically protecting an investor’s downside, while locking in profits as the price reaches new highs.

A trailing stop-loss is a way to automatically protect yourself from an investment’s downside while locking in the upside.

For example, you buy Company XYZ for $10. You decide that you don’t want to lose more than 5% on your investment, but you want to be able to take advantage of any price increases. You also don’t want to have to constantly monitor your trades to lock in gains.

You set a trailing stop on XYZ that orders the position to automatically sell if the price dips more than 5% below the market price.

The benefits of the trailing stops are two-fold. First, if the stock moves against you, the trailing stop will trigger when XYZ hits $9.50, protecting you from further downside.

But if the stock goes up to $20, the trigger price for the trailing stop comes up along with it. At a price of $20, the trailing stop will only trigger a sale if the stock drops below $19. This helps you lock in most of the gains from the stock’s rally.

I Don’t Have Any Positions

When talking to your friends, you might say you don’t currently have any positions in the stock market.

But you do.

Your position is cash. And it forms a part of a gigantic ocean of liquidity that will one day seek and find a home. The home it finds is most likely to be the U.S. stock market. The wise approach is to have some of your wealth in cash, some in bonds, and some in stocks. Your risk tolerance will govern the percentages for each type of investment. But you really ought to have some positions other than a 100% position in cash.

Give Us a Call

Call Jack at (301) 294-7500, and we can start figuring out a sensible plan designed just for you.

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In honor of Memorial Day, we’d like to tell you a story about a man named Ben Salomon.

Ben Salomon was a dentist. He went to school, got his degree, and started his own dental practice at the tender age of 23. The most trying ordeal he was ever supposed to encounter was a mouth full of cavities or a particularly tricky root canal. But when his country called, he answered – serving as the dental officer for the 105th Infantry Regiment of the U.S. Army.

The year was 1942.

Ben Salomon was a dentist, but he still had to train like a regular infantryman. He qualified as an expert with both rifle and pistol and was even declared the unit’s “best all-around soldier” by his commanding officer. Soon, he was promoted to the rank of captain. Two years later, he went into combat – specifically, to an island in the Pacific called Saipan.

Ben Salomon was a dentist. But during combat, a toothache was the furthest thing from most men’s minds. The Battle of Saipan was fierce, with the U.S. suffering over 13,000 casualties. So, with little dental work to do, Salomon volunteered to go to the front lines, to replace one of the surgeons who had been wounded.

It was July 7, two days before the battle would end. As the U.S. advanced across the island, the wounded began to pile up, and it wasn’t always possible to transport them back to the regiment’s main base. So, Salomon set up a tent barely fifty yards from the frontlines to serve as an immediate aid station. Just after dawn, approximately 4,000 Japanese soldiers launched one of the largest counterattacks of World War II. Within minutes, Salomon’s tent filled up with wounded soldiers, many of whom had to be physically carried in. Undaunted, Salomon got to work, trusting the line would hold and the enemy be repelled.

That was when he saw his first Japanese soldier.

Ben Salomon was a dentist. But when he saw the foe attacking the wounded men lying outside his tent, he remembered his training. He grabbed a gun, fired, and returned to his work. But then, two more enemy soldiers entered the tent. Salomon dealt with these, too – only for another four to emerge from beneath the tent walls. Shouting for help, Salomon rushed them head on. He defeated three on his own; one of his wounded comrades stopped the fourth.

But the front lines were punctured, and the bleeding couldn’t be stopped. The enemy was overrunning the foxholes, and the aid station was doomed. Realizing what was about to happen, Salomon ordered the wounded men to retreat, supporting and carrying each other as necessary. In the meantime, Salomon said, he would hold the enemy off.

The wounded soldiers staggered out the rear of the tent. Ben Salomon left by the front.

When they found his body two days later, Salomon was alone, clutching a machine gun. The bodies of ninety-eight enemy soldiers were in front of him. He had seventy-six bullet wounds and dozens of bayonet wounds, many of them suffered while he was still alive. While he was still fighting.

Ben Salomon was a dentist. He was also a warrior, a patriot, and a hero.

***

Fifty-nine years later, Ben Salomon was posthumously awarded the Medal of Honor. This often happens with those who have died in battle. Their names are preserved in records, but entire generations can pass before history gives them their due.

Despite receiving the Medal of Honor, and despite the incredible heroism he displayed, few people have heard of Ben Salomon before. That’s not a surprise. After all, over one million men and women have died serving our country. They were all heroes, yet most can’t be found in history books, documentaries, or even Wikipedia articles. In a sense, Ben Salomon is fortunate. The Medal of Honor is given to those who have “distinguished themselves by acts of valor.” But surely there are tens of thousands of people who never received such a medal even after their death – because their own acts of valor are lost to time.

We think this is one of the reasons we observe Memorial Day every year. Whenever we visit a cemetery, whenever we flip through a photo album or scrap book, whenever we comb through the stories of our friends, family members, and ancestors who made the ultimate sacrifice, we commemorate the Ben Salomons of the world. They weren’t superheroes like you see in movies, with magical powers or unworldly strength. They were teachers and taxi drivers, farmers and factory workers, students and scientists. They were dentists. Every Memorial Day, we ensure their memories, their deeds, and their sacrifices are never forgotten, and thus never in vain. We award them our own personal medals of honor – for deeds that mean so much to the world, and everything to us.

That’s why we observe Memorial Day. To ensure that, while people die, valor lives on forever.

On behalf of everyone at Research Financial Strategies, we wish you a safe and peaceful Memorial Day.

Special Market Update

Special Market Update

First, I want to thank everyone for all the calls and emails. We are all doing great, and I hope all of you are safe and healthy. At the same time, I am humbled and embarrassed, for 99% of my industry now floats in a sea of red ink. But we are having our best year ever, THANKS to YOU!!! Holy Cow, who else can say that?  In the last 60 days we have brought in over $30 million of new Assets Under Management, all from referrals. Thank YOU, AGAIN!!!

Now for the details:  Here’s the latest on our moves and strategy. Since the virus erupted and started to do major damage to the markets, we used 3x leveraged ETFs both to profit from declines (SPXS) and from advances (SPXL). According to our best indicators, we have emerged from the “crisis mode,” which required us to be fast and furious with purchasing SPXS (to play a market decline) and SPXL (to play a market advance). These ETFs enabled us to make split-second moves.

Now we are back to what we call “best relative strength” sector and subsector investment selections. Sometime today the following trades will show in your account: we replaced SPXL with five, 18%, selections (the 18% allocation is relative to a 100% growth model, so you will have to adjust accordingly): VGT, XLG, XLY, XBI, IJK.  Additional details are provided below. Our goal is to avoid the really sick parts of the economy/stock market that may never return to January, 2020 levels, or, in the best case, in 3 to 5 years: autos, airlines, auto rentals, aerospace manufacturing, hotels, cruise lines, retail, restaurants, theme parks, etc. These are now the most suffering parts of our economy: most will never come back.

We have therefore had to surgically separate the stock market by purchasing sector and subsector winners and thus avoiding the losers. This approach is not 100% accurate: for example XLY is a top “RS”, relative strength,  performer, but it has DISNEY in it. That’s where it belongs, and we can’t do anything about it. The mouse is struggling at best, on life support for at least another 18 months.

That’s all for now.  As always, feel free to call me. We are here for you!!!

Jack  Reutemann
240 401 2355

 

Only read this if you like to understand the details or are a stock market nerd like me!

VGT, Analyst Report

VGT tracks a broad index of companies in the information technology sector which the company considers to be the following three areas; software, consulting, and hardware. As a result, this fund tracks some of the most crucial companies in the technology sector across a wide range of market cap levels. The fund focuses entirely on U.S. stocks, and is relatively top heavy; three securities make up 25% of the fund 54% of assets go to the top ten even though the fund holds over 425 securities in total. Investors should also note that this fund dedicates the majority of its assets to giant and large cap funds, meaning that it will be less volatile than some of the other products in the space that focus on relatively unproven companies and technologies. As a result, this fund will be more of a value play than one that presents strong growth opportunities. So while this is a decent fund for those looking to achieve broad exposure to the tech sector without the influence of semiconductors, most investors should look to broader fund which take into account all sectors of the technology industry instead for their portfolios.

XLG, Analyst Report

This ETF tracks the 50 largest securities, by market capitalization, in the Russell 3000 universe of U.S.-based equities. As a result, investors should think of this as a concentrated play on mega cap stocks in the American market. These securities are usually known as ‘Blue Chips’ and are some of the most famous and profitable companies in the country, including well known names such as ExxonMobil, Apple, IBM, and GE. The fund is probably one of the safest in the equity world as the companies on this list are very unlikely to go under unless there is an apocalyptic event in the economy. However, these securities are unlikely to grow very much either as they are already pretty large and have probably seen their quickest growing days in years past, but most do pay out solid dividends which should help to ease the pain of this realization. Overall, XLG is a decent choice for investors seeking broad mega cap exposure but most investors would probably be better served by investing in a broader fund that is a little more diversified.

XLY, Analyst Report

The ETF offers exposure to the consumer discretionary sector, making it an appealing option for investors looking to implement a sector rotation strategy or tilt exposure towards corners of the U.S. market that may perform well during a recovery. XLY offers impressive liquidity, cost efficiency, and depth of exposure, making it one of the best ETF options for playing the consumer discretionary sector.

XBI, Analyst Report

XBI is one of a handful of biotech ETFs available, offering exposure to a corner of the market that can perform well during periods of consolidation and is capable of big jumps in the event of major drug approvals. XBI focuses on a narrow sector of the health care sector, and as such is probably too precise for most investors seeking to construct a long-term portfolio. However, this ETF can be useful for those seeking to fine tune exposure or for those bullish on the sector over the long run. XBI focuses exclusively on American stocks, and primarily consists of mid cap and small cap securities. XBI’s portfolio is somewhat limited, though the equal-weighted methodology of the underlying index ensures that assets are balanced across all components. That feature can be particularly important in the biotech space, where specific companies are capable of turning in big gains over short periods of time.

IJK, Analyst Report

This ETF offers exposure to mid cap stocks that exhibit growth characteristics, making IJK a potentially useful tool for investors looking to fine tune their domestic equity exposure or implement a tilt towards a specific investment style.

TQQQ, we continue to hold this position, as it is a very efficient way to own 3X the QQQ: 
Analyst Report

This ETF offers exposure to one of the world’s most widely-followed equity benchmarks, the NASDAQ, and has become one of the most popular exchange-traded products. The significant average daily trading volumes reflect that QQQ is widely used as a trading vehicle, and less as a components of a balanced long-term strategy. Of course, this fund can certainly be useful as part of a buy-and-hold approach for investors looking to maintain a tilt towards the potentially volatile tech sector.

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Our Mission Is To Create And Preserve Client Wealth

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Investment advice offered through Research Financial Strategies, a registered investment advisor.

Special Market Update

Special Market Update from Jack Reutemann, Jr.

All,

We are still on a “technical buy” – meaning we are staying in the markets.  Please view the chart below.  Green is good, red is bad, and we have a 45 degree trend line in play.  Notice that today we have recovered the 50 day moving average, this is a good sign as it indicates a positive movement in the market. The farthest, right hand side green bar, crossing thru the thick Fuchsia line. Even though CV19 is still a major problem, and unemployment claims have gone up again this morning, many believe the worst may be behind us.  Everyone has an opinion.  Either way, the market is liking the prospects for a recovery, and partial state-by-state openings.  Also, unless the deal falls apart at the last minute, another $425 billion small business stimulus package should pass the House today, having already passed the Senate. 

I’m trying to not overload you with info, but just hit the high points.

As before, call me if you have any investment questions!!! ​

Jack 
240 401 2355

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