Daily Gains Letter

Why Investors Should Prepare for a Rebound This Spring

By for Daily Gains Letter |

Should Investors Rebalance Their Portfolios for the Spring ThawThe winter storm that recently tore across the northeastern United States will, no doubt, take the blame for the continuing weak economic news and data that have been coming out of Wall Street.  Having been the economic scapegoat since December, there’s no reason to change tactics.

But the raft of ongoing disappointing economic news and data suggests there’s more to the nation’s weak economic news than cold weather. After all, it’s not as if the U.S. economy had been red-hot and then suddenly hit a brick wall in December. If there’s one thing the U.S. economy has been—it’s consistently weak.

For example, while the S&P 500 and other stock indices have been enjoying prolonged bull runs, the U.S. economy has been stalling.  Since the magical bull market began in 2008, the U.S. unemployment numbers have remained stubbornly high and the underemployment numbers eye-wateringly high. At the same time, wages are stagnant and, not surprisingly, retail sales have disappointed. More and more Americans are saddled with out-of-control debt and a record 20% of American households (one in five) were on food stamps in 2013.

Speaking of 2013, while the S&P 500 notched up a 30% annual gain, each quarter, an increasingly larger percentage of companies revised their earnings guidance lower. Saving the best for last, during the fourth quarter of 2013, a record 88% of S&P 500 companies that provided preannouncements issued negative earnings guidance.

But 2014 didn’t start out that well, either. For the first quarter of 2014 so far, 80% of the S&P 500 companies that have issued guidance revised their earnings lower; this compares to the 78% of the S&P 500 brands that did so in the first quarter of 2013.

From my perspective, the winter weather cannot be the sole reason for all that ails America and Wall Street. After all, the weather hasn’t been bad for the last number of years. But I’m in the minority.

Still, when you consider how keen investors are to blame the weather for long-entrenched weak economic news and data and still send the stock indices higher—it’s quite possible that they’ll embrace the warmer spring weather, continue to overlook the weak economic news and data, and send the stock indices even higher.

As a result, investors may want to prepare for a rebound as we head into spring, especially if you think seasonal temperatures in the second quarter will help the economy catch up on its so-called postponed activity.

If the winter weather is to blame for disappointing economic news in retail and core durable goods data, consumer-related equities, like consumer staples and automakers, could rebound this spring on even a sliver of positive economic news.

Keep in mind, positive economic news and growth was pretty spotty in the years leading up to this winter, so it’s quite possible there’s more to the current weakness than the bad weather. If so, investors might want to consider looking at either gold mining stocks or exchange-traded funds (ETFs) that track either gold or gold mining companies.

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