Is The White House Hurting Bullish Sentiment?
I’ve often written about the presidential cycle in the stock market. Many researchers have found that the stock market performs better in the latter half of a president’s term than in the first half. I believe the reason is the president is always positioning for reelection, or a transition to a member of his own party if it’s his second term.
I’ve noted the president usually comes into office and says, in effect, that no one told him how bad things were. This leads to market underperformance. In the second half of his term, the tone shifts as the president announces he has fixed everything.
This year, the administration is using the exact words I used to describe the cycle.
“What we’re inheriting from the Trump administration is so much worse than we could have imagined,” said Jeff Zients, the Biden administration’s COVID-19 czar.
Even President Biden said, “It’s also no secret that we have recently discovered, in the final days of the transition — and it wasn’t until the final days we got the kind of cooperation we needed — that once we arrived, the vaccine program is [in] worse shape than we anticipated or expected.”
This is concerning because the administration is setting a bearish tone with comments like that. This bull market is now being driven entirely by sentiment. Valuations are extreme and economic growth is slowing after the spectacular recovery seen in recent quarters. Additional stock market gains depend on a bullish outlook, and negative comments from the White House could dampen enthusiasm for stocks.
Why This Matters — And How I’m Trading
In fact, with all of the frenzy last week, we may have already seen the top. We should know in the next few weeks whether this is the start of a pullback or something deeper.
Either way, I remain conservative. I’m still making trades, but I’m focusing on defensive ones that will generate income while limiting our downside.
One example is with Altria Group, Inc. (NYSE: MO).
This is a name that has many characteristics of a defensive stock. After all, cigarettes and wine sales are predictable in any economic environment. In fact, the nature of this business, along with its 8.4% yield are bound to be attractive to a lot of income-minded investors.
Let’s take a look at the chart below, which shows MO along with my Income Trader Volatility (ITV) indicator in the bottom panel.
Action To Take
This indicator is on a “buy” signal. This tells me that not only is MO appealing for income investors, but it’s a timely trade. The recent consolidation in the stock indicates there is sufficient potential upside with a target above $46.
But rather than simply buy the stock and wait for the dividends to roll in. There’s nothing wrong with that, but we can use a strategy to earn even more income from the stock if we choose to hold it for the long-term.
I like to think of it as an “insurance” plan, however, because it allows us to get paid instantly. My subscribers and I have been trading this way for years, allowing us to pocket hundreds (or even thousands) of dollars with very little effort.
I think every investor who’s looking for income owes it to themselves to learn more about how this works. You can access it right here.