The following is an excerpt from the Stocks Under $10 Weekly Roundup originally sent to Stocks Under $10 subscribers on Dec. 23. Click here to learn more about this dynamic portfolio managed by David Peltier.
Stocks ticked lower this week on light volume, ahead of the Christmas holiday. As a reminder, the U.S. markets will be closed on Monday. We did not make any trades in the model portfolio this week.
The only real suspense in the market this week was if the Dow Jones Industrial Average would break through 20,000. It's important to note that this is an arbitrary level, especially in a price-weighted index with just a handful of members.
Even so, the rally in the U.S. stocks since the election is a sign of just how disconnected stock prices have become from other asset classes and the underlying economy. Many household names, including several holdings in the model portfolio, are up more than 20% year-to-date. However, in several areas of the economy it does not feel like the growth prospects and outlook for 2017 are at all-time highs.
The FOMC raised interest rates earlier this month and Fed funds futures are pricing in another increase by June 2017. Moving further out the curve, the yield on the benchmark, 10-year U.S. Treasury note has increased to 2.53%, from just 1.6% at the end of September.
With that in mind, we believe that it will be difficult for stocks to repeat the strong performance in 2017 that we've experienced this year. We're positioned for this in the model portfolio by having an above-average cash position of 40%. We also have the room to add new names, either from the Bullpen or otherwise, should buying opportunities emerge in the near term.
Looking ahead to next week, we expect that trading volume will remain light, but volatility could increase in individual names, as traders make year-end moves for tax and window-dressing purposes.
On the economic front, it will be relatively quiet next week. We'll get a look at multiple regional economic readings, in addition to looks into the state of the housing market.