Whatâ??s driving markets right now? Simply put: The Fed.
We know that because, during Tuesdayâ??s Humphrey Hawkins testimony, new Federal Reserve Chairman Jerome Powell served up the first surprise of his nascent reign at the central bank by making some â??hawkishâ?ť comments about the future of interest rate hikes.
The remarks took the major equity averages down hard, with the S&P 500 tumbling about 1.3% after Powellâ??s comments.
So, what did Powell say that made equity investors nervous enough to sell stocks, and bond traders worried enough to send the 10-year Treasury spiking above 2.90%?
During the Q&A period of his Congressional testimony, Powell said that his personal outlook on the economy had strengthened since December, and that the Federal Open Market Committee (FOMC) will â??reevaluateâ?ť the projections for rate hikes in March.
Of course, the FOMC â??reevaluatesâ?ť its projections at every meeting, but clearly, the Fed Chair understood the connotations of his comments (at least, I hope he did!).
According to my friend who also happens to be one of the smartest macro analysts on Wall Street, Tom Essaye of the Sevens ReportÂ (a publication I highly recommend):
â??This market is still trying to determine how to view future Fed policy, and that process will create volatility. Yesterdayâ??s market reversal and subsequent sell-off is just part of this process, as the market adjusts to a new era of a rising inflation and a not-perma-dovish Fed.â?ť
Essaye went on to tell me, â??Beyond the short term, though, nothing in Powellâ??s remarks constituted a bearish gamechanger, as his outlook on the economy remained strong, which is equity positive. Also, inflation appears to be rising, which is equity positive at least in the early stages. Finally, interest rates rose but not too badly (the 10 year didnâ??t hit a new high). So, despite the short-term weakness (and keep in mind stocks were overbought leading up to Tuesday) the medium/longer-term outlook for stocks remains positive.â?ť
I agree with Tom here on the medium/longer-term outlook for equities, as the tailwinds he mentioned continue to blow in a bullish direction.
However, this market now faces an inflection point, as many investors have been lulled to sleep by the past decade of near-zero interest rates and ultra-accommodating Fed policy. And the current setup here means that whether fast or slow, bond yields (i.e. long-term interest rates) are rising. That means you need to put strategies in place to benefit from this inevitable trend.
Those strategies can be found in my Successful Investing advisory service. In fact, my readers have already been rotating away from interest-rate-sensitive sectors and into sectors likely to benefit from economic reflation and rising interest rates.
To find out how weâ??re doing that, including specific portfolio recommendations for both growth and income investors, I invite you to check out my Successful InvestingÂ advisory service, today!
P.S.Â I’m going to be at the Las Vegas MoneyShow, May 14-16, 2018, giving two presentations. My first talk, “Listening to the Music of the Markets,” is going to be on May 16 at 8 a.m.Â My second talk, “Invest Like a Renaissance Man,” will also be that day but in the afternoon at 2:15 p.m. I look forward to seeing you there! For more details,Â click here.
On Pleasing Profoundly
â??The more one pleases generally, the less one pleases profoundly.â?ť
— Stendhal, â??Loveâ?ť
The French novelistâ??s 1830 masterpiece, â??Le Rouge et le Noir,â?ť or in English, â??The Red and the Black,â?ť is a must-read for any true Renaissance Man. Yet the above quote is from his novel â??Love,â?ť another great work that scholars say reveals the authorâ??s own experience of unrequited passion. The lesson here is that if you try to make everyone love you through your actions, you arenâ??t likely to find those who truly love who and what you are. A modern, and far less literary, way of putting it is that you canâ??t please everyone, so youâ??ve got to please yourself. In doing so, you just might please another profoundly.
Wisdom about money, investing and life can be found anywhere. If you have a good quote youâ??d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.