A Dovish Yellen and a Dovish Congress Drive Stocks Higher

Doug Fabian
Posted: Feb 14, 2014 12:01 AM
A Dovish Yellen and a Dovish Congress Drive Stocks Higher

On Tuesday, the equity markets enjoyed one of their best days of the year, with big buying in the broad market that sent the S&P 500 back above its 50-day moving average. The benchmark measure of the domestic equity market really started to take off around 11 a.m. EST.


Well, that’s when Fed Chairman Janet Yellen began answering questions about the labor market during her Congressional testimony. Comments by Yellen indicating she was “surprised” by the weakness in the December employment report, and that despite seeing some improvement in the labor market, things weren’t yet back to “normal,” were widely read as “dovish.” That comment means the Fed likely will keep its foot on the accelerator until the labor market improves substantively.

Perhaps more importantly, Yellen stressed “continuity” in Fed policy from the previous Bernanke-led Federal Reserve regime. That means she’ll continue to be dovish when it comes to monetary accommodation and rock-bottom interest rates.

The other “dovish” move helping lift markets on Tuesday was word that House Speaker John Boehner would bring a “clean” debt-ceiling extension bill to the House floor. That’s being done right now, and that will basically end the possibility of any debt-ceiling drama. Stocks definitely liked that news, as stocks like a “no drama” environment.

I guess Speaker Boehner’s dovish stance on a debt-ceiling fight is him picking his battles and getting ready for the midterm elections in November. Let’s just hope for the sake of the country that his strategy pays off.

As for stocks, the market definitely looks a lot healthier today than it did last week. However, that does not mean we are out of the selling woods just yet. I still think we can see a pullback here capable of retesting the February lows. Until we see the market reach escape velocity here, I’d advise a very cautious approach to equities.


A Miner for a Heart of Gold

Have you been watching gold lately? If so, then you already know that the value of the yellow metal is red hot right now.

Even hotter is the value of stocks in the gold and precious metals mining sector.

The chart here of the Market Vectors Gold Miners (GDX), an ETF that holds the biggest precious metals mining stocks, just breached its 200-day moving average, a very bullish sign for this formerly beaten-down market segment.

Right now in my Successful Investing advisory service, our subscribers are taking advantage of the latest run in gold and mining stocks.

If you’d like to find out how to ride the latest wave higher in this high-powered sector, then I invite you to check out Successful Investing today.


ETF Talk: Vanguard’s Low Fees Aid Your Returns

Exchange-traded funds (ETF) are great investment vehicles compared to the traditional mutual funds for three key reasons. The reasons are: transparency in timely reporting of the securities they hold; ease of buying and selling throughout a trading day just as with a stock, rather than reconciled at 6 or 7 p.m. like a mutual fund; and cost-effectiveness, since management fees for ETFs are typically much lower than for mutual funds.

The ETF provider which has done the most to emphasize this third advantage of cost-effectiveness is Vanguard.

Vanguard generally claims lower ETF expense ratios than its peers, aided by tapping tax-management strategies that normally are only used by conventional index funds. Additionally, Vanguard brokers will trade Vanguard ETFs commission-free.

Vanguard has a portfolio of 52 ETFs. The selection includes geographically focused ETFs, such as the FTSE Developed Markets ETF (VEA); sector ETFs, such as the Consumer Discretionary ETF (VCR); and niche investment ETFs, such as the Vanguard High Dividend Yield Index ETF (VYM), shown in the chart below.

Along with the rest of the stock market, VYM has experienced a correction during the first six weeks of 2014. However, its yield is an attractive 3.14%. The fund’s recent pullback may offer an attractive buying opportunity, if you think the fund can build upon its return of 30.27% last year.

In addition, your investments are only worth what you make after the fund management firm deducts for its fees. To that end, Vanguard lets you keep more of what you earn for yourself.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

Get Fiscally Fit in 2014 with Insurance and Annuities

For the past five weeks, we’ve outlined how you can get on the right path to become fiscally fit in 2014. This week, we have the sixth and final installment in our series. To wrap things up, I want you to conduct an overview of two of the most important elements in your overall financial picture -- insurance and annuities.

Insurance can take many forms, and the need for insurance is a very personal one. The most common reason to have a good life insurance policy in place is to replace lost income due to the death of a spouse, and to provide survivors with the financial stability necessary to not worry about fiscal issues.

For high-net-worth individuals, life insurance can be used to defer capital for retirement, and to help protect and grow that wealth for their dependents. As for annuities, they also can be very good financial instruments -- if they fit your overall financial goals.

The final task I want you to perform here is to do a complete review of all of your insurance products, including any annuities you may own. Ask yourself the following questions:

1) What policies do I have, and what’s the benefit amount in each policy?

2) Where are my policies, and am I dealing with more than two companies? If so, you may want to consolidate these.

3) Do I have sufficient insurance to take care of my dependents? Many people bought policies when they first were married. Now, you may have children, you may be making a lot more money than you used to, and you may have significant assets such as a home to protect.

4) What kind of premiums are you paying for your policies, and how much are you paying in annuity fees? The latter can be substantial, so if you are paying substantial annuity fees, it’s time to see if those fees can be reduced.

Performing an insurance and annuity review will give you a good idea of what you have, and where you stand. It also allows you to address any flaws in your overall financial plan.