It's often said that March "comes in like a lion and leaves like a lamb." March is the advent of change (i.e., warmer weather and baseball), and change would be especially good this year on Wall Street, as what investors don't need is more of February.
After all, February brought the rebirth of volatility to markets. Not just to the downside, and not just in exchange traded products that were levered or traded inversely to the Volatility Index (VIX).
One market session often behaved very differently from the next during February -- in fact, individual sessions often had split personalities. Morning trading was frequently different than what would happen in the afternoon, and overnight futures trading was often little more than gambling.
All told, the Dow industrials gave up 4.4% on the month, while the broader S&P 500 lost a little less than 4%. The Nasdaq Composite led the league, only surrendering some 1.8% thanks to tech's above-average performance. On top of that, oil pedaled backwards to the tune of more than 5% as the U.S. dollar actually worked its way higher.
Why did markets finally rattle their collective cage over the past month? In my view, it all started with a misleading hourly wage number that printed as part of the Bureau of Labor Statistics' January jobs report.
The hourly rate did go higher, sparking inflation fears, but markets completely missed the fact that hours worked went lower -- so much so that average weekly pay went lower despite higher hourly wages. Ever hear of somebody making less money and then voluntarily increasing their demand for goods and services? Me neither.
Still, many in the Federal Reserve and the financial industry have ramped up their inflation expectations, which has put upward pressure on U.S. Treasury yields. It's also boosted many market watchers' expectations for 2018 Fed rate hikes to four from a previously forecast three.
My Favorite Techs
What stocks do I like for March? Well, tech has been the pony that I rode in on, particularly the semiconductors.
Here are several hot picks.
Lam Research and Applied Materials
Action Alerts Plus holding Nvidia (NVDA - Get Report) is a best-in-class company. However, that doesn't mean that I won't take some of my Nvidia stake off at times -- or, conversely, really pile in at other points.
My Latest Moves
In addition to the names above, here are some new longs that I've either recently initiated, expanded or pulled back on:
You'd think watching business TV that all of those "talking heads" only have winners -- but trust me, folks, many probably make it a point to just talk about their winners. I don't know about the other kids on the block, but I certainly have some losers on my book.
The challenge there is being disciplined enough to manage lousy positions until they don't hurt your feelings any more. Then you can make a sentient decision on what to do next.
But while there's always a place for dollar cost averaging in investing, I see using that to lower your net cost basis on losing stocks as extremely dangerous. Instead, I prefer to whittle my cost basis down by raising revenue by selling puts and calls whenever the premiums are big enough to enhance my risk/reward ratio. I find that method both simple and effective.
Watch Our Trading Strategies Roundtable
Join Jim Cramer, Stephen Guilfoyle, Cannacord Genuity's Tony Dwyer, OppenheimerFunds' Brian Levitt and Jeff Marks of our Action Alerts PLUS club for investors live at 11 a.m. ET on Wednesday as they discuss where to put your money in March.
Click here for details.