| Trader's Sense This is Jim Lowell, Editor-in-Chief of the Fidelity Sector Investor, with your regularly scheduled Hotline, Thursday, April 30, 2020. There are no new trades recommended in any of my tactical model portfolios. Trade Schedule Trades may occur every 31 days. If new trades are triggered, the next trades will be announced and executed on Thursday, May 14. The Markets For the year through April 29, the S&P 500 is down 8.4%, the NASDAQ is down 0.4%, and the 80% S&P 500 / 20% EAFE index is down 10.2%. Our Portfolios Over the same time period, my Tactical Alpha portfolio is down 5.5%, my Tactical ETF-Only S&P 500 portfolio is down 3.7%, and my Tactical Global Market Masters portfolio is down 12.6%. Sector Watch The top sector performers so far this week are Select Consumer Finance (up 16.0%), Select Banking (up 15.6%) and Select Energy Service (up 14.1%). The bottom performers are Select Pharmaceuticals (down 0.9%), Select Health Care (down 0.2%) and Select Biotechnology, which is flat. For FSI‘s tactical portfolio holdings, the top movers so far this week are Select Chemicals (up 7.8%), Select Gold (up 1.0%) and MSCI Utilities ETF (up 1.0%). The bottom movers are iShares Gold Trust ETF (down 0.4%), Select Health Care (down 0.2%), and Total Bond ETF (down 0.2%). Market Watch Hope for Gilead’s antiviral drug mixed with Fed Chair Powell talking up infinite stimulus aided the markets this week. Add re-opening dreams before re-opening realties set in, and you have the stuff that the multi-week global rally has been made of and is banking on. Result: There’s a trader’s sense that the worst is behind us, and getting back to normal may be less tricky than the consensus thinks. So, trader-wise, hope is like a fear fire extinguisher; let’s hope it remains so. But I think investors are right to be more cautious than optimistic. I know I am. Why? Hope is not an investment plan nor discipline. And any proposed and best laid plans are subject to revisions that could cause more market drama or dramatic revisions, which could be even more unnerving in the near term. Relatively good news: As I noted last week, this week, we didn’t have to rely on hope alone; the preponderance of earnings and more relevant (i.e., timely) economic data are delivering a view of a different world at hand and ahead—a world fraught with existential, economic and market risk… A greenhouse where long-term investment opportunities are sown. To be clear, the data we’re getting does not provide forward looking clarity… But it is the beginning of putting the frame around the picture of how bad things are and may yet get. What we got: Consumer confidence (April), FOMC two-day meeting with their interest rate announcement and Chair Powell’s press conference. We also got personal income-spending-savings (March). The sum of those parts: We downshifted from a slow growth economy to a no growth economy with Q1 GDP (thanks to March’s swoon) coming in at negative 4.8% compared to Q4’s read of a positive 2.1%—the biggest decline since 2008… And Q2 is likely to be much worse—down 30%-40%. Tomorrow’s slate: Chicago purchasing managers index (April), manufacturing purchasing managers index and ISM reports (April), construction spending (March) and car sales (April). Next week: Factory orders (March), manufacturing purchasing managers index (April), ISM service sector (April), ADP jobs (April), jobless claims (May), nonfarm payrolls jobs report (April), unemployment rate (April) and average hourly earnings (April). In terms of our economy, here’s a thought: No matter who wins in November, we can all win if the economy gets back on track—and the best rail to run on for years to come would be a massive infrastructure rollout. Of course, a “new deal” on health care and even the food chain together with more equitable access to technological advancements are necessary inroads… Part and parcel of being a 21st not a 20th century economy… But unlike Back to the Future where you don’t need roads, we desperately need roads, bridges, water, sewer and energy upgrades… From our biggest cities to our smallest hamlets. On that note, of all the reading I do over the weekend, this one stood out to me: Out of pandemic crisis, what could a new New Deal look like? Here and now: Tentative, small-scale re-openings are only just being considered (and trialed in a few counties, states and countries). Markets have rallied significantly off the bottom on the hope that these re-openings will be successful—and FSI‘s tactical portfolios have participated in that rally to a significant degree with significantly less risk. Since the risk of a recurrence of the virus in these early-opening locations is real, and not fully appreciated by the markets, FSI’s current defensive stance, as well as diversification, will make you well-positioned to emerge from this event not unscathed but stronger rather than relying on hope. During dramatic times like these, it’s reassuring to follow a straightforward, emotionless, data-driven strategy like FSI. Meantime, do know that I am fully cognizant that we don’t need to wait for all counties in one state, or all states to re-open—or all countries overseas to re-open—but I’d need to see how some of the most meaningful state and country economies fare as they attempt to re-open. Some big unknowns: - Antiviral drug driving mortality rates lower
- Re-opening not triggering the need to re-close
- Second wave
- Fall return
- Current virus morphing to the extent it thwarts all prior proposed solutions
- Fear of supply chain disruptions leading to even greater disruptions in supply chain
- Unemployment and economic contraction protracting into and through third and/or fourth quarter
- How consumers and businesses behave in “COVID world” in 2020, 2021 and beyond
Yes, the Fed stimulus and global stimulus provide a safety net underneath the global economies… But the fact that they are issuing more, not less stimulus, suggests we have more than a way to go in ensuring the net is wide and strong enough… Lasting enough, progressive enough to stimulate a return to economic progress rather than retreat. Meantime, the pattern of buying on optimism and hope and selling on disappointment and fear remains the dominant momentum trend. To the extent that the spread of the virus and the mortality rate don’t accelerate, slow progress toward greater market stability can be had. However, until a vaccine is secured, no market is immune to a dramatic downturn. Until next Thursday, or if the Dow moves 10% in either direction, this is Jim Lowell thanking you for your membership, and helping you secure your financial future. Sincerely, 
Jim Lowell | 
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