INVESTMENT MARKET & ECONOMIC COMMENTARY — June 24, 2015

 

INVESTMENT MARKET & ECONOMIC COMMENTARY
by Crista Huff

June 24, 2015

After months of sideways trading, the major U.S. stock market indices are turning bullish.

To the casual observer, the NASDAQ composite index has been trading sideways since February. But in fact, it’s been slowly ratcheting higher all year; climbing to new highs again last week. The NASDAQ is the most bullish of the three major U.S. market indices. If you’re a risk-tolerant stock investor, you should own NASDAQ stocks right now!

The S&P 500 index has been acting similarly to the NASDAQ this year; although its upward climb has been slower, and it has not yet broken past recent upside price resistance. The chart appears moderately bullish. S&P investors will likely see additional gains in the coming weeks, barring any unexpected stock market correction.

The Dow Jones Industrial Average has shown the least progress in 2015 of the three major market indices. It’s been stuck in its current, steady trading range since mid-February. Granted, its recent movement is a little more bullish than neutral, but I definitely expect it to lag the other indices during the next bull run.

As for industries which are likely to lead the market during the next run-up, I’m seeing an overall bullishness in the stocks of financial companies (mutual funds, investment firms), travel & leisure companies (especially cruise ship travel), and the housing/building industries (home builders, building materials). Your growth portfolio should absolutely include financial stocks this year. And hold onto those housing & building stocks that we’ve been talking about all year! They’re still delivering capital gains!

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At the June Federal Open Market Committee (FOMC) meeting, policymakers set forth a multi-year, long-term plan for interest rate hikes. One or two rate increases will happen this year, likely in September or the fourth quarter.

Full-year 2015 GDP growth expectations were revised downward to 1.8-2.0%

An upward-revised unemployment rate of 5.2-5.3% is projected for 2015. (Keep in mind the widespread belief that unemployment numbers have been kept artificially low for quite a few years, to reflect well upon the current President’s administration. However, these numbers don’t include many millions of unemployed and under-employed Americans.)

Core inflation is projected to rise from about 1.3% in 2015 to 2.0% in 2017; in tandem with an expected Fed Funds Rate increase from 0.25% today, to a median consensus estimate of 2.875% in 2017. This means that your household expenses will increase, but also that you’ll finally earn a little more interest at the bank, and on new fixed-income investments.

On the flip side, rising rates will increase the interest rates you’re paying on debt, such as on credit cards, and adjustable-rate home loans.

And on the downside, rising interest rates mean that fixed income products are competing with stocks for your invested capital. With less money flowing into the stock market, annual stock returns are likely to be more moderate. It becomes critical, then, for you to be positioned in the stocks with the best chances of delivering capital gains!

I can’t help but shake my head at the current political administration. They came into office, and immediately began artificially lowering interest rates via quantitative easing (QE). That created an easy-money stock market, because there was simply no money to be made in fixed-income.  Now they’re getting ready to leave office, and prepping interest rates to consistently rise.

The big debate at the June FOMC meeting was whether to do just one, or two, rate hikes per year, in 2015 & 2016. This tells me that the Fed is prepared to aggressively re-allow interest rates to climb, just in time to blame corresponding stock market difficulty and rising inflation on the next President.

I don’t like the shenanigans, but none of that changes my stock-investing strategy. I’ll continue to point you toward stocks with excellent numbers and charts.

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Please note that I added a new category to the Goodfellow LLC stock rating system: speculative. This category includes stocks which meet all the normal fundamental and technical requirements of Goodfellow LLC-recommended stocks (unless otherwise noted), but there is very little analyst coverage and/or news available on the companies. The lack of analyst coverage leads to large potential variances in earnings per share (EPS) projections vs. the subsequently-reported numbers. And those variances can whipsaw stock prices.

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Goodfellow LLC is a subscription-based stock market website. Stock portfolio investors pay an annual fee to read my articles, which help them profitably navigate the U.S. stock markets, with the goal of outperforming the U.S. stock market indices.

I use a combination of strict fundamental and technical criteria to choose the stocks that receive buy ratings from Goodfellow LLC. Each facet of my investment criteria serves to lower the risk associated with stock investing. My investment strategy works — year in and year out.

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outperformed the market averages by margins of 50-100% and more!

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Send questions and comments to research@goodfellowllc.com.

Happy investing!

 

Crista Huff

President

Goodfellow LLC

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