On Wednesday we got a look at minutes of the last Fed meeting and there were no real surprises this month. They will continue to taper their bond purchases and, barring any shocks or surprises, end the program in October as projected. More importantly from an investor point of view the Central Bank indicated that it is going to be very slow in removing stimulus entirely and interest rates will stay low for an extended period of time. The first two sentences of the minutes give what I think is a pretty accurate view of what is going on in the U.S. economy right. The Fed release said “Information received since the Federal Open Market Committee met in April indicates that growth in economic activity has rebounded in recent months. Labor market indicators generally showed further improvement.”
Despite what the doom and gloom crowd might want us to believe things are getting better in the U.S. economy. Research firm Retail Metrics reported Wednesday morning that they see same stores sales in the U.S. rising by 4.9%. That will be the largest monthly gain since January of 2013 according to the firm They point to falling unemployment, rising store traffic and the rise in the stock market as factors contributing to the loosening of consumer purse strings in the June. Redbook Research also had positive information about retail sales pointing out in their release that same store sales were up 3.8% from a year ago and the last week of June was particularly strong with a 6% year-over-year gain in sales.
Another reason for the rally yesterday also came from Fed remarks on interest rates. The biggest fear among many traders has been that the Fed acts too quickly in raising rates after the bond buying program comes to an end. The minutes calmed those fears somewhat when they said that the Fed “currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
Low interest rates are among the biggest reasons that I think the market advance will continue this year and probably into 2015. Among the other reasons is the weak dollar that favors U.S. multinational corporations. The dollar fell against the Euro and the Yen after the Fed minutes were released and that’s fantastic for the stock market. The weaker dollar should also boost many commodity-related stocks since most are traded in dollars and benefit from the continued slide in the greenback.
Since we know that a falling dollar is going to be a boon for companies that get a substantial portion of their revenues outside the United States it makes sense to own stocks that are buy rated and are making a bunch of money overseas right now.
Here are some strong buy rated stocks that get a significant portion of their revenues from outside the U.S.:
- Apple (AAPL)
- Schlumberger (SLB)
- Conoco Phillips (COP)
- Dow Chemical (DOW)
Here are are some buy rated stocks that should see tailwinds from a weaker dollar the rest of this year:
- QUALCOMM (QCOM)
- Merck (MRK)
- Intel (INTC)
- LyondellBasell Industries NV (LYB)
We have all the conditions we need in place for a fantastic earnings season. The best of the best stocks that are rated buy or strong buy by Portfolio Grade should continue to lead the way higher so make sure you are using it to grade your portfolio on a regular basis to find the very best stocks and weed out the ones likely to underperform.