Warning: Don’t Fall for The Interest-Rate Head Fake
Dear Wall Street Daily Reader,
Did you buy the dip?
As I wrote recently, when the markets were selling off on unfounded fears of rising Treasury yields…
“Focus on the data, not the fear mongering in the headlines. The dreaded treasury/dividend yield death-cross is bupkus! The longer-term market fundamentals remain decidedly bullish (surging earnings, pent up economic demand, accommodative central bank policies around the world, and the list goes on).”
Fast-forward a trading day or two, and stocks are back to surging for precisely those reasons.
Or as chief U.S. equity strategist at Goldman Sachs, David Kostin, told clients yesterday, “Investors ask whether the level of rates is becoming a threat to equity valuations. Our answer is an emphatic ‘no.’”
Preach it, brother!
Here are a few more details, and more importantly, the next portfolio moves you should be making…
Pro Tip: Consensus Moves Slow
First things first — yes, I made the right and bold call. But it’s not because my crystal ball is better than everyone else’s.
I don’t even have a crystal ball!
The reason I could be so emphatic in my beliefs is simple: I recognize that changes in consensus happen slowly — even when the evidence is hiding in plain sight.
For instance, did the economy all of a sudden change last weekend?
The pent up demand I underscored has been building for months.
But now, as consumer-centric companies like Target Corporation (TGT) report a blowout quarterly earnings growth of 66%, it’s become too obvious to ignore.
To my point, though, this is the third consecutive quarter Target booked more than $1 billion in profits. In other words, the demand is not a surprise.
By the same token, did central banks hold emergency meetings over the weekend and unleash additional accommodative policies?
No again. They’ve been consistently implementing such practices ever since the pandemic began.
If you go down the list of positive market drivers right now, you’ll find the same thing. Evidence has been hiding in plain sight for months, if not quarters. The consensus is simply waking up to the realities.
Two Fresh Confirmatory Data Points
What we did get last weekend is two fresh data points — data points that serve to confirm the bullish case for equities.
The first was approval for another Covid-19 vaccine. The second was the House of Representatives’ approval for another $1.9 trillion stimulus package.
Put those two together and it’s a recipe for even more robust economic growth: extra cash flooding the economy at the same time pandemic restrictions ease, allowing pent-up consumer demand to be unleashed full-force.
Is it any wonder then that all 11 sectors in the S&P 500 index rallied?
But such across-the-board strength won’t last indefinitely. Some sectors are bound to benefit more, others far less.
So right now, we want to position our portfolios to overweight the sectors destined for continued outperformance.
With that in mind, in an upcoming issue, I’m going to share my three favorite sectors to play the economic resurgence…
And I’ll also share one wildly popular work-from-home stock that I believe is a ticking time bomb.
Ahead of the tape,
Editor and Founder, Trend Trader Daily