Investing during this next part of the bull market
In case you missed it, both the Dow and the S&P500 each set new all-time highs on Friday. I think you could say that the lack of widespread media coverage again reinforced that “everyone” is not all-in to the markets. To me, that’s yet another indication that we’re likely not close to any ultimate tops just yet.
And the Fed said…
Last Wednesday, when the Fed released its notes, Wall Street and the global investing world took out their electronic microscopes to determine what it all really meant. Here’s the short version.
Where Miz Yellen had previously said there would be a “considerable time” between the ending of quantitative easing (QE) and the time when the Fed would start raising interest rates, she now amended that to say any moves would be “data dependent”. Other than saying that QE would be ending in October, that was pretty much it.
However, by effectively saying that they still haven’t decided when rates are actually going to go higher, the Fed set off a series of events that led to the new stock index highs, with bond and commodity prices dropping.
See, stock traders are thinking that cool, rates aren’t going up – so that continues to support the case for good stock valuations, relative to bonds. Therefore, the opportunity for price appreciation over the relative near-term seems pretty good. I’m a buyer.
The bond traders said it looks like the (low rate) party is going to end after all…”sooner than expected.” (Since NO ONE knows when the Fed will raise rates – even the Feds themselves – I have a hard time with the whole “sooner/later than expected’ references about rates.) So, they did some selling.
Commodity prices are tied to the dollar. As the dollar strengthens, aka, interest rates rising relative to other countries, this tends to push these prices down, as has been most noticeable with gold. Those commodity and metals traders have been doing some serious selling lately.
If you’re a long-term investor, this stuff all can simply be filed under interesting tidbits. Be on guard against letting your emotions get in the way of your strategy as you’re exposed to periods of unusually high volatility.
Portfolio guidelines
Since I don’t personally know each of my readers, I want to say that these are general guidelines for you to consider. My intention is simply to provide you an overview of areas I think will benefit you on a total return basis going forward.
As I mentioned, with the fact that the Fed has said yes, rates will be going up, those with bond heavy portfolios and/or those with a lot of so-called bond equivalents, such as utility shares, need to really examine their holdings closely. The main reason being that rising interest rates can have a very bad effect on the share prices of such holdings.
So, here’s how I’m seeing the world of US investing, right now…
One major consideration of a strong dollar is great for importers, as their costs of goods can drop as the dollar rises. Many companies in the cyclical sector – those tied to how well the overall economy is doing – should do well.
With business spending plans continuing to rise across the country, those in the Industrial and certainly Tech sector should benefit. I would focus more on the bigger names now instead of the small-cap firms. The latter tend to do best at the start of a market recovery.
Rising interest rates and rising numbers of aging people should also work to the benefit of the better Financial and Healthcare sector firms.
Investing in REITs in the US (real estate investment trusts) has been an out-of-the-park deal since 2009. However, while I’m very much in the “real estate market is at the relatively early stages of recovery” camp – so, perhaps appliances, home furnishings and even tool companies could be good areas for investment – I think the shares of many of these REITs are well over-valued. I would suggest you look for high-quality fund that invests in the global real estate market.
Summary
Both consumer and manufacturer’s inflation rates are currently very low. Interest rates are as well and will likely to continue as such. US corporate earnings are at record levels and look well-positioned to continue too. Makes for a pretty nice overall investing picture, in my opinion.
And if you’re still worried that you’re too late to start investing, please consider the wise words of market strategist, Dr. Ed Yardeni:
“Bull markets don’t die from old age. They are killed by recessions. Recession scenarios are not compelling right now.”
Not even close…
Cheers!
Mike
509-747-3323
Securities and Investment Advisory Services offered through KMS Financial Services, Inc.
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Past performance is not indicative of future returns.
Investing in securities of any type involves certain risks, including potential loss of principal. Investment return and principal value in a bond and/or securities portfolio will fluctuate so that investments, when sold or redeemed, may be worth more, or less, than the original investment.
Investing in sectors may involve a greater degree of risk than investments with broader diversification. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Investing in emerging markets can accentuate these risks.
