This stock market is no fun!

We entered the “not so cool” part of a bull market. This is because after such quick and sharp gains we are now seeing a lot of pullbacks, sector rotation and overall volatility.

Unfortunately, I expect that to be on the menu next year, in line with normal year three bull market performance. That’s because once the easy gains are made from a bounce off a bear market bottom… investors need to think a little harder about what to buy next, as the S&P 500 (SPY) typically trades near zero.

I’m glad you know it’s coming…it’s easier to digest and easier to set a course for market gains by picking the best stocks. All of this and more will be discussed in today’s Reitmeister Total Return commentary.

Market prospects

At most levels, economic reports came in as expected. There was a soft landing of growth rates between +1-2% of GDP, and inflation readings continued to fall.

Then on Friday, government employment came in about as expected, with 142,000 new jobs. What was striking about the report was a stronger-than-expected 0.4% month-over-month increase in average hourly earnings (also known as wages). This sticky form of inflation is still too sticky, with the year-over-year level rising from 3.6% to 3.8%.

Yes, rising wage inflation is NOT what the Fed wants to see at this point. Bond investors still expect a 100% chance of a rate cut at the next Fed meeting on September 18^tbut the odds have clearly shifted towards a smaller cut of 25 basis points instead of 50.

I agree that the still-burning embers of wage inflation will make the Fed more cautious and cut less at its next meeting. The more intriguing question is the pace of cuts that will occur. Undoubtedly, the upcoming inflation reports will have a lot to do with it, including:

CPI 9/11

9/12 PPI

27/09/2017

10/4 Employment situation in the public sector (with particular emphasis on the component of average hourly earnings).

Price Action and Trading Plan

Moving Averages: 50 days (yellow) @ 5.505 > 100 days (orange) @ 5.388 > 200 days (red) @ 5.157

August saw a pretty brutal correction with a break below the 50 and 100 days… but still the 200 days were never really in danger. I think the same is true this time around because I just don’t see a catalyst for it to go that low.

On the other hand, Mr. Market can do whatever he wants…whenever he wants, with no rhyme or reason. So this could happen right under the heading of “things happen.”

What is more interesting is the rotation below the surface. Let’s start with the 1-year performance picture by sector:

It’s a very bullish picture with technology, finance and industry racing ahead. But now let’s look at the last 3 months:

It’s a very defensive rotation, with Utilities, Consumer Defensive, and Healthcare being the top performers. The other top 2 groups, Real Estate and Financials, are doing well, as falling interest rates are very beneficial for both groups.

In addition, the most Risk On and economically sensitive groups are being left behind. Namely Energy, Basic Materials, Consumer Cyclical and yes, Technology.

I’m not saying this indicates a trend change and get ready for another bear market. Just a difficult transition to Risk Off groups.

I expect that the more dovish the Fed is after the September 18 meeting, the more the economy will adjust, the more GDP and earnings will grow, the more likely people will return to these more risk-averse industry groups.

One note is that valuations matter at this stage of the bull market. So investors will likely be much more selective about what they buy in the future.

I suspect it will be a combination of healthy earnings growth and reasonable valuations. Exactly the kind of stock that emerges from our analysis of POWR Ratings 118 fundamental factors.

The key to what happens next lies on September 18th^t Fed meeting. Until then, I wouldn’t worry too much about market noise and volatility. Those stocks that fall the most during pullbacks will also rebound the most during the next bull run.

Like a bull rider, you have to hold on tight and not get thrown off.

What to do next?

Discover my current portfolio of 11 stocks that are outperforming our exclusive POWR ratings model. (Nearly 4x better than the S&P 500 since 1999).

All of these carefully selected picks are based on my 44 years of investing experience watching bull markets… bear markets… and everything in between.

And right now this wallet is beating the market hands down.

If you want to learn more or see my 11 current stock recommendations, click the link below to get started now.

Steve Reitmeister’s Trading Plan and 11 Best Stocks >

We wish you investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO of StockNews.com and Editor of Reitmeister Total Return

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SPY shares fell $0.29 (-0.05%) in after-hours trading on Tuesday. Year to date, SPY has gained 16.19%, compared with a % gain for the benchmark S&P 500 index in the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity.” In addition to being the CEO of the company, he also shares 40 years of investment experience with the Reitmeister Total Return Portfolio. Learn more about Reity’s history, plus get links to his latest articles and stock picks. More…

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