Finally Using That Arcane Knowledge 

On Thursday, I told readers of my Bullseye Stock Trader service that this market was going through its own “et gloriamur in tribulationibus.” That description prompted some good feedback, so I thought I’d share it with you. 

Now, I knew that at some point in my career I would be able to employ my arcane knowledge of dead languages. And given the past couple of weeks we’ve had in markets, I cogitated that this was as good a time as any to put that knowledge to use. 

So, for those of you who didn’t misspend their youths burrowed in the bowels of the UCLA research library the way I did, the Latin phrase “et gloriamur in tribulationibus” translates to “trials and tribulations.” And if there is one phrase that encapsulates markets in this nascent year, this is certainly the one. 

Consider that since the calendar rolled into 2022, stocks in the Nasdaq Composite have tumbled some 13.4%. That is a real correction, and that correction has largely been fueled by the full-throttle selling in big-cap, high-growth, high-valuation tech stocks. 

In this week’s issue of my e-letter, “The Deep Woods,” I went into some detail about why this is happening, and I recommend you check that out for the full context. But the bottom line here is that the exodus from growth stocks/sectors this year is because those high-growth stocks also are high price-to-earnings (P/E) stocks. And as interest rates rise, a headwind will begin to be created on economic growth. And as growth potentially slows, it hits the highest P/E stocks hardest, because these companies are priced for perfection — and perfection doesn’t include slowing growth.

Now, the anticipatory nature of markets (remember, equity markets basically are a futuristic pricing machine) appears to be spot on, because we now know that the Federal Reserve will almost certainly begin raising rates at the March Federal Open Market Committee (FOMC) meeting. We know this because Wednesday’s FOMC January meeting statement and subsequent press conference from Federal Reserve Chairman Jerome Powell told us so. 

Interestingly, the initial market reaction to the FOMC statement was dovish, and that helped stocks rally sharply in the afternoon. But then Powell took to the podium and, right from the outset, delivered the hawkish thoughts that he expected a rate hike in March and, more importantly, that he expected the pace of rate hikes to be faster this time than they were during the 2015-2018 cycle.

Well, markets didn’t care to swallow that jagged little pill, and the smart money interpreted Powell’s signal to mean that there is a real possibility of a 50-basis-point hike in March, and that caused the 10s-2s spread (the yield curve) to fall, which weighed heavily on stocks. 

So, there you have it, the trials and tribulations of the 2022 equity markets in microcosm, and over one trading session. A move to bid stocks higher on hopes the Fed won’t come on too strong with rate hikes, then a run for the exits on the growing possibility of even more aggressive rate hikes by the central bank. 

And given the current status of a market that’s undergoing what I call “Fed indigestion,” one of the best places to ride out the nausea is in the stalwart, dividend-paying, dividend-growing stocks of the sort we own in the Income Multipliers Portfolio. 

Another way to take advantage of what this market gives us is via stocks and ETFs in the Tactical Trends Portfolio (TTP), as these assets were selected largely for their own fundamental and technical soundness, and not just to ride the broader wave in stocks higher. And despite the recent pullback in markets, the TTP continues to deliver very strong upside. 

So, if you are looking for ways to ride out the et gloriamur in tribulationibus of this market, then the holdings in the Income Multipliers and the TTP are two great ways to do so.