End-of-Summer Market Update

Dear Friend,

Speed bump, stop sign, or red light? That’s the question many of us are asking.

Let me explain. After cruising for the past five months, the markets screeched to a halt on September 3, the Dow dropping over 800 points, and the Nasdaq plunging nearly 5%.¹ All told, it was one of the worst trading days for stocks since the pandemic-driven panic of March. The volatility continued the next day, albeit at lower levels.

So, what does it mean? Was Thursday’s selloff just a short-term blip—the equivalent of hitting a speed bump? Or was it the beginning of a market correction? If so, how long of a correction? Are we merely coming to a stop sign, or will we hit a red light?

Unfortunately, market signals are never as easy to interpret as road signs. But as we start winding down this bewildering year, investors will be gripping their steering wheels ever more tightly. That’s because they’re all trying to determine whether the markets will end the year on cruise control…or in full reverse.

Whenever you drive to a destination, it’s always good to familiarize yourself with the road beforehand. So, as this crazy summer draws to a close, let’s look at the different scenarios we could experience over the next few months.

As a heads up, we’re going to cover a lot of ground in this message. I believe my most important responsibility is to keep you not only informed about what’s going on in the markets but also prepared for what may come in the future. In this message, I will try to do both. Let’s dive in.

Speed Bumps

Between April and May, all three major US stock indexes—the Dow, the S&P 500, and the NASDAQ—climbed for five consecutive months. The S&P 500, for example, rose 60% over that period.²

Every so often, though, the markets experience a dramatic one- or two-day selloff. When those selloffs come during the middle of a major rally, like the one we’ve been experiencing, investors wonder whether it’s the beginning of a market correction. (A correction, remember, is when the markets fall at least 10% from their recent highs.)

Market corrections are relatively common. On average, we’ll see one at least once every 1 to 2 years.³ But more often, these selloffs are not the beginning of anything at all. They are simply speed bumps, and while they may seem random, there are usually underlying reasons for them.

For example, let’s take what happened on September 3 and assume it’s only a speed bump. Why did it happen? A closer look at which stocks fell may provide some answers. Specifically, tech stocks, including big names like Apple and Facebook, were the ones that suffered the most—just as those same stocks have largely fueled the markets rally. (More on this in a moment.) There are a few possible reasons for this. One is that many investors may simply have been cashing out of tech stocks to realize their gains. Another reason is that, because prices for tech stocks have risen so high, many traders may feel there’s simply no justification for plowing more money into them. When that happens, traders and short-term investors often move their money into other sectors they feel are undervalued.

In other words, the shudder that went through the markets is like the one you feel when changing gears in an old car. If that’s the case, the selloff was likely just a speed bump. A short pause for investors to take a breath before the markets resume their climb.

Here’s another reason why many selloffs are just speed bumps: The Federal Reserve. After the country went into lockdown, the Federal Reserve did many things to prop up the economy.⁴ First, it lowered interest rates to historic lows. This was to lower the cost of borrowing on mortgages, auto loans, home equity loans, and others—a key step to keep the economy moving. Second, the Fed launched a massive bond-buying program. This is another way to keep interest rates low. The Fed has also been lending money to securities firms, banks, major employers, and some small businesses using a variety of means.

These are all familiar tactics for anyone who was paying attention during the Great Recession. Then, as now, the Fed’s actions indirectly propelled the stock market. That’s because lower interest rates prompt increased spending, which in turn causes stock prices to rise. And, perhaps more importantly, the Fed’s massive increase in the money supply juices the stock market. After all, that new money wants a home, it wants a return. It looks at bonds and says, No, no return there. And so it rushes into the US stock market.

As long as the Fed keeps its stimulus programs in place, stocks will continue to be one of the most attractive places for people to put their money. And since the economy remains on very shaky ground, it’s unlikely the Fed will pull back any time soon. “Don’t fight the Fed,” investors are often counseled. Thanks in large part to the Federal Reserve, the stock market continues to be the shortest, surest road for investors to travel. That’s why many selloffs are nothing more than speed bumps.

Stop Signs

Of course, sometimes a selloff is more than just a speed bump. Sometimes, it’s like a neon light flashing: STOP SIGN AHEAD.

When this happens, Wall Street-types like to call it a market correction—a decline of 10% or more from a recent high. There are many reasons why corrections occur. One thing many corrections have in common, though, is they come after months of major market growth. When prices rise extremely high, extremely fast, it’s as if the markets have “overheated” and need to cool off.

It wouldn’t be a surprise if that’s what we’re seeing right now. Again, the S&P 500 rose 60% between March 23 (its most recent low) and September 2 (its most recent high).² In that same period, the tech-heavy NASDAQ rose roughly 75%!⁵ Those are staggering numbers. One could argue we’re overdue for a correction.

Speaking of tech-heavy, let’s talk about technology stocks for a moment. When the markets plummeted in March, these stocks were one of the few safe havens around—and they’ve also been the best performers since then. That’s no surprise. At a time when most Americans were largely confined to their homes, it was our technology—from our iPhones to Zoom, from Google to Netflix—that kept the economy going. But remember how I said the S&P rose 60%? Peek under the hood and you’ll see those numbers were driven by two sectors: technology stocks and consumer discretionary stocks. (Think Nike, McDonald’s, Home Depot, etc.) Other sectors either performed much lower or are still in the red. So when we say the markets have recovered well, what we’re really saying is that the top sectors have performed enough to make up for those still struggling.

It’s one of the many reasons the stock market simply isn’t a reliable barometer for the overall economy.

What does this have to do with a market correction? A lot, actually. It’s all thanks to these two terms: capitalization and weighting. Remember, the S&P 500 is an index, not the actual stock market itself. It’s essentially a collection of the five hundred largest companies listed on U.S. stock exchanges, which is where stocks are traded. More specifically, the S&P is a capitalization-weighted index. Without getting too technical, that means the largest companies make up the largest percentage of the index. For example, Amazon, Apple, Microsoft, Facebook, and Google—just five companies—make up 20% of the index!⁶

Look at that list of companies again. Notice anything about it? Yep, you guessed it: four of them are tech companies. In fact, if we break down the S&P 500 by sector, you’d notice that technology dominates the S&P 500. Actually, let’s do that right now.⁷

As you can see, the S&P 500 is currently overweighted to technology stocks, to the tune of 27.4%. So if tech stocks were to endure any type of prolonged selloff, that would have a major impact on the S&P 500 as a whole—and could well lead to an overall market correction.

Red Lights

Some market corrections last only a few days or weeks. When that happens, it’s like coming to a stop sign. A brief pause, and then we continue our journey.

But some corrections last longer than that. According to one report, the average correction lasts around four months. When that happens, it’s more like hitting one of those annoyingly-long red lights, just as you’re heading home and the sun is in your eyes. The kind that makes you think, “What does the universe have against me today?”

Before I go on, note that I’m not predicting that is what’s happening here. I don’t try to predict the future—that’s a game for fortune-tellers. Instead, I try to prepare for the future. And to be frank, it’s possible we could see a longer correction in the not-to-distant future. That’s because the future contains a lot of question marks, any of which could prompt the markets to pull back.

For starters, there’s the economy. While the markets enjoyed a V-shaped recovery after March, the overall economy has not. Things are improving, but still a long way from healthy. For example, the U.S. added 1.4 million jobs in August alone…but it’s still down 11.5 million jobs since the pandemic began.⁸ In other words, things are much less bad than before—but they’re still historically bad. The markets have hummed along despite all this, but at some point, it’s possible the economic reality could drag stock prices down.

At the same time, we’re seeing renewed Trade War fears with China. We’re also only two months away from a bitter presidential election. Historically, the markets don’t really care who sits in the White House, so there’s no reason you should let the election impact your financial thinking. (I’ll have more information on this in the coming weeks.) But in the runup to the election, we can certainly anticipate more volatility as people worry about who will win and what it means.

And of course, there’s COVID-19. We’re all sick of hearing about it, but it’s still a fact of life and will continue to be so for some time. Should cases surge in tandem with the upcoming flu season, the markets may retract into their shell.

In short, it’s certainly possible that we see a market correction over the next few months. But whether we do or not, it’s important to remember that corrections are inevitable and temporary. Corrections can even create opportunities for the future, as they open the door for investors to pick good companies at lower prices.

So what do we do now?

Remember: We can’t predict the future. But we can prepare for it. The fact is, we’re on a road we’ve never been on before—as investors and as a country. In real life, whenever we drive on an unfamiliar road, we drive cautiously, keeping our eye out for hazards. The same is true with investing. Speed bumps are only an annoyance when we go over them too fast. Stop signs and red lights are only dangerous when we speed past them. That’s why we use technical analysis to determine which way the markets are trending. By doing that, we can spot these road blocks ahead of time and slow down (or pull off to the side of the road) accordingly.

Unlike buy-and-hold investors, we don’t need to fear the occasional bout of market volatility. Because we follow set rules for when to enter and exit the markets, we don’t mind stopping occasionally. We are prepared to play defense or even move to cash at any time. That’s what helped us when the markets crashed in March. It’s what will help us moving forward.

Should a downturn happen, your portfolio is prepared. Now we just need to prepare ourselves mentally and emotionally in case there are stop signs and red lights ahead. And if it turns out to be a speed bump? That’s fine, too. We were already driving the speed limit.

As always, my team and I will keep a close eye on the road ahead. In the meantime, enjoy the end of your summer. Please feel free to contact me if you ever have any questions or concerns. I am delighted to be of service in any way I can.

Sincerely,

Jack Reutemann, Jr. CLU, CFP®

SOURCES
1 “Dow and Nasdaq plummet in the worst day since June,” CNN Business, September 3, 2020. https://www.cnn.com/2020/09/03/investing/nasdaq-selloff-stock-market-today/index.html
2 “S&P 500 Historical Prices,” The Wall Street Journal, https://www.wsj.com/market-data/quotes/index/SPX/historical-prices
3 “Here’s how long stock market corrections last,” CNBC, February 27, 2020. https://www.cnbc.com/2020/02/27/heres-howlong-stock-market-corrections-last-and-how-bad-they-can-get.html
4 “What’s the Fed doing in response to the COVID-19 crisis?” Brookings, July 17, 2020. https://www.brookings.edu/research/fed-response-to-covid19/
5 “Nasdaq historical prices,” The Wall Street Journal, https://www.wsj.com/market-data/quotes/index/COMP/historical-prices
6 “5 companies now make up 20% of the S&P 500,” Markets Insider, April 27, 2020. https://markets.businessinsider.com/news/stocks/sp500-concentration-large-cap-bad-sign-future-returns-effect-market-2020-4- 1029133505#
7 “U.S. Stock Market Sector Weightings,” Siblis Research, June 30, 2020. https://siblisresearch.com/data/sp-500-sectorweightings/
8 “U.S. adds 1.4 million jobs in August,” CNN Business, September 4, 2020. https://www.cnn.com/2020/09/04/economy/jobsreport-august-2020/index.html​​

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​

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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Where Trillions Dwell

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.

1 https://www.youtube.com/watch?v=VnCajZth-24.
2 https://www.youtube.com/watch?v=pjw8m7GmIa4
3 https://www.cnbc.com/2020/06/22/theres-nearly-5-trillion-parked-in-money-markets-as-many-investors-are-still-afraid-of-stocks.html 
4 https://www.cnbc.com/2020/06/22/theres-nearly-5-trillion-parked-in-money-markets-as-many-investors-are-still-afraid-of-stocks.html
5 https://www.cnbc.com/2020/06/22/theres-nearly-5-trillion-parked-in-money-markets-as-many-investors-are-still-afraid-of-stocks.html
6 https://twitter.com/RyanDetrick/status/1275122147745320961
7 Beware the vultures coming for your old 401(k) money, MarketWatch, June 17, 2020, by Mitch buchman, https://www.marketwatch.com/story/beware-the-vultures-coming-for-your-old-401-k-money-11592320876. 

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.

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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