Since the end of December the market has gone from the worst January in history, to the best recovery in history, to a “breakout” phase in many individual stocks.
After the market closed this past Wednesday, I commented to several colleagues that it was the best day in the market that I had seen so far this year.
But, it was not in every sector of the market. Instead it was in sectors of the market that are benefitting from this year’s unique economy.
The turnaround in the market has been stunning and jaw dropping. In the course of just twelve weeks we went from an almost-bear to a resumption of the seven year-plus bull.
This sudden turnaround in the market comes courtesy of the Fed. Instead of following through on their December rate hike with more rate hikes, they have turned dovish again, instead.
We have learned over and over and over again, that you cannot fight the fed. Many market doomsayers and gold-bugs have been calling for a plunging market, a shrinking dollar, and soaring inflation for the last seven years.
They have been wrong. They tried to fight the fed. It is not good to fight the fed.
I went bullish in my weekly newsletter back in March of 2009 and despite growing cautious several time along the way, I have been a bull ever since. The Fed has been my biggest reason to remain a bull.
With virtually no help from fiscal policy, the fed through its monetary policy, has managed to keep the economy growing at a very tepid pace.
In addition to this, companies despite slowing sales, have managed to continue to grow their earnings for the most part. They have done it by using cheap money to buy back shares, and by keeping their expenses on the lean side.
That wind at our back from the Fed finally came to a temporary end in December, but now the wind is pushing the market along once again.
The market rang in the new-year with a big, fat and nasty sell-off as it braced for a new monetary tightening cycle.
But as quickly as you can say “hawkish,” the Fed went dovish. If you blinked your eyes, you missed the sudden about-face by Ms. Yellen.
After a brief foray into bear market territory by the small-cap and Nasdaq indexes, they turned around just as quickly the FOMC did.
The beleaguered emerging markets, especially in South America, did a sudden and stunning reversal.
Commodities, after hitting new multi-year lows also did a dramatic reversal.
It appears that oil has finally put in a bottom.
It also appears that the four-year bear market in Gold has also finally come to an end. I have made my first buys in gold stocks in long, long, time.
Commodities have mostly been helped along by a reversal in the U.S. dollar. This too has been caused by a now dovish Fed. In fact, in my opinion, this reversal in the dollar, is now the major theme to build portfolios around in 2016.
Now let’s name some names where these dovish Fed driven breakouts are occurring.
Multinationals that had in the wind in their face last year, now finally have the wind at their back. Look at the major trend reversal in Caterpillar (CAT). The stock currently sports a dividend yield of almost 4.0%.
I don’t own Caterpillar, but I own Honeywell (HON) which is also benefitting from a falling dollar. The stock is hitting new all-time highs and it also pays a decent dividend.
Canadian Natural Resources (CNQ)is just one of the few energy stocks that I bought over the past several months. The Canadian market is also in comeback mode.
Agnico Eagle is one of my precious metals holdings.
Argentina (ARGT) is back in the world markets once again, and they have a new pro-business leader. I now have a very small position in ARGT.
I have not gone near a steel stock since the commodity boom ended back in 2008. I now own several. Nucor (NUE) is just one example.
And lots not forget that some of today’s premier technology related stocks are on the move once again. Amazon, has been of my largest positon for quite some time. It is up a whopping 150 points since its February low.
How long will this reversal last? As long as the Fed remains in the dovish camp, and that could be for quite some time. After all, much of the rest of the world is not only dovish, but it is now going negative!
The bull is now in its eighth year. It will come to an end at some point in time. Then we have to do something else. Inverse funds and cash will come in handy at that point in time, but we are not there yet.
In the meantime, the Fed has given us clear sailing for now, but stay tuned.
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