Here we are, closing the book on 2021. Behind all the stress, the strain and the endless speculation, the year actually wasn’t so bad.

Several of my subscriber portfolios performed double their long-term average, if not better. Options in particular are roughly as hot as it gets.

The rest of my portfolios largely held the trend . . . which was bullish. It’s hard not to do well in a market environment that’s still a little woozy from the Fed’s free money programs.

After all, throughout all the anxiety and angst people peddled throughout the year, the S&P 500 rallied nearly 29%, roughly triple its long-term average. Let that sink in. Breathe deep.

Investors made a lot of money last year. But the past is dead. How should we feel about the future when the market remains priced for a zero-rate world and the Fed seems hellbent on tightening as fast as it can?

A Market Of Stocks

The question contains its own answer. Yes, the market as a whole looks overdue a steep correction here at 21X earnings. That’s precarious as well as unsustainable.

It doesn’t take much of a push to trigger the selling at this level. All Wall Street needs is a sudden shock or even a shudder . . . the Fed doesn’t even need to get involved.

Just look at the headlines that rocked the market in the past year. Many of them were transient in hindsight, but it doesn’t matter.

Interest rates were too high. Interest rates were too low. Inflation was out of control. Supply chains were breaking down. September tends to be a bad month. So does October. COVID remains a threat.

Here we are with the S&P 500 within sight of record territory. Shocks come and go but the bulls always find a way to climb the wall of worry sooner or later.

But that doesn’t mean any of us enjoy buying stocks at levels where it’s more likely that they’ll go down before they go up any farther. I wouldn’t buy a S&P 500 index fund right now.

Sure, the market as a whole can keep edging up, year after year. However, nobody is forcing us to buy the market as a whole.

Keep that in mind when anyone bemoans how overbought or overvalued “the market” is. I think the S&P 500 can eke out another 5-6% in the coming year, but my personal profit target is a whole lot higher.

Start with a sector view. People talk a lot about how insane technology multiples have gotten. They generally mean the companies that came of age in the dot-com era . . . giants like Amazon, Apple, Microsoft and Alphabet.

News flash: only Apple and Microsoft are formally classified as “technology” companies today and they don’t look all that bad. Alphabet and Meta (formerly Facebook) are “communications” stocks now.

And Amazon is lumped in with other retailers in the consumer discretionary sector. It’s a giant, accounting for about 20% of all market capitalization in that group. Tesla is another 20% and then everything else in the consumer world adds up to the remaining 60%, give or take a point.

When people tell you that consumer stocks are priced for utopia at 32X projected earnings, they’re really talking about Amazon (65X) and Tesla (120X) skewing the math through their sheer size and extreme valuations.

Factor them out and the sector as a whole looks extremely cheap relative to what looks like one of the best growth profiles in the economy right now. My math suggests that when you exclude Amazon and Tesla, consumer stocks will raise the bottom line faster than the technology sector . . . and even faster than Amazon itself.

Why Tesla?

If you want growth for its own sake, why buy Amazon at 65X earnings when you can get just about any other consumer stock at a deep relative discount? And forget about Tesla, for that matter.

The traditional rule of thumb is that a stock is attractive if its earnings growth rate is higher than its earnings multiple. Tesla would need to be expanding three times as fast to qualify.

Another way to express that is that Tesla wouldn’t be attractive under normal rules unless it plunges 65% from here. Everything holding it up is the reality distortion field around Elon Musk.

Maybe you like living in that orbit. That’s fine. But don’t tell me it’s about growth. It’s about charisma.

And the problem isn’t limited to Big Tech and its cousins. Nike is barely growing but is priced at 45X earnings. Skip it.

McDonalds is another big name that carries a premium. Frankly, the market as a whole is expanding its earnings faster than MCD and is about 20% cheaper on an earnings basis. Why buy MCD unless you can’t think of anything else?

There are 6,000 stocks out there. I always have names on my screen.

When none of them are compelling, we trade the options and keep money moving in the meantime. Week by week, month by month, year by year, that’s how we do it.

That’s what life on Wall Street is all about. But for now, take a break. We’ll meet up again in the new year.