I grew up listening to classic country songs on the radio.

One of my favorite has to be Kenny Rogers’ song, “The Gambler.” In fact, it’s been on my mind recently. It includes a lot of lessons for the current market environment.

The well-known chorus is a great summary of how to deploy the lessons we learn in the market…

“You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealin’s done”

The first challenge to this simple piece of advice is figuring out the right time to deploy the lesson. For example, if I hold at the wrong time, I could compound a loss. But if I sell too early, I risk missing out on a much bigger reward later. Therefore, the biggest question most investors have is knowing when to hold ‘em, and when to fold ‘em.

After a major stock market decline, most people wish they had sold before the crash. They resolve to be more risk averse in the future and become more sensitive to signs of weakness. That creates a tendency to jump at shadows.

The challenge with being more cautious – due to a recent traumatic experience like a pandemic – is that there’s always going to be a range of reasons to stop investors from taking action. Most importantly, that mindset deters us from holding on during mild dips.

The time to give the benefit of the doubt to investments is following large drawdowns. That’s because of the influx of massive monetary and fiscal supports introduced to combat the decline.

Those factors don’t provide support immediately, but they ensure that the worst of the selling is not repeated.

Therefore, the time to become wary of big declines is not immediately after the last one, but when the monetary and fiscal supports have been removed and everyone has forgotten about the trauma of the crash.

The lesson to learn today – over a year later from a major decline – is that recoveries tend to persist.

We saw this after the Global Financial Crisis, when the market crashed in 2008 and everyone was still worried about another big negative surprise for years to come.

Now, a year after the start of the pandemic, the big surprise is being told that we might live with masks forever.

I completely understand that a virus is not a balance sheet, and it might mutate in some dangerous unforeseen way. Surprises do happen. However, what we have today is clear evidence that the technology used to make vaccines can be harnessed to save the day.

Regardless of how you feel about vaccines, they’re being used as the rationale to open back up.

Hundreds of millions of people have already been vaccinated and many more will be over the course of the next year.

However, it will still be a while before the economy gets back to normal. In that time, there’s going to be a lot of money printed and massive efforts to get everyone back to work.

That’s why I remain committed to this reflation trade. A reflation trade is simply betting on assets that will benefit from a strengthening economy.

We remain in the foothills of a major economic recovery, and that favors the sectors left behind during the pandemic – like industrials and materials.

The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is known for its blue-chip stocks that have raised their dividends for at least 25 consecutive years. These companies are leveraged to global growth and have long histories of rewarding investors.

That also means they’re the primary companies that will benefit from the global reopening.

Most people think of this group as a reflection of consumer stocks, like Coca-Cola, Target, and Walmart. But the ETF also includes classic industrials and materials stocks like Nucor, Roper Tech, and Albemarle just to name a few.

Take a look at this chart…

NOBL bounced last week following a similar-sized reaction to those over the last year. So, this is a good time to think about taking a position if you are looking to “hold ‘em till the dealing’s done.”

All the best,

Eoin Treacy
Co-Editor, Market Minute

P.S. Last week in my video series, I went over quite a few topics such as the trend in volatility, a potential breakout for Google, growth in Chinese companies, and how carbon credits are linked to inflation.

For my next presentation, tune in on Friday to hear my musings about what’s been going on in the markets this week.

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