The Dow hit a new high above 33,000 for the first time on Wednesday and continued climbing higher today. The reason behind yesterday’s rally was the Federal Open Market Committee (FOMC) statement and Fed Chair Jerome Powell’s press conference.
First, the Fed stated it would maintain short-term borrowing rates near zero through 2023. The committee also said it would maintain its asset purchase program that allows central banks to buy at least $120 billion of bonds per month.
“Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak,” the Fed noted.
Fed officials also see the economy roaring back, and expect it will grow faster than they did in December, with a median estimate of 6.5% GDP growth in 2021, up from 4.2% in December. Unemployment should also decrease to 4.5% by the end of the year, up from the group’s February estimate of 6.2%.
After the FOMC meeting, Fed Chairman Jerome Powell said he wouldn’t consider changing rates or monthly bond purchase levels until inflation is consistently above 2% and the labor market improves.
One of the reasons the Fed and Powell’s comments were so well received is they finally acknowledged there’s inflation out there. Before, the Fed would dismiss it or say it was transitory.
But they raised their inflation target to 2.4% this year, up from the December estimate of 1.8%.
Interestingly, the yield on the 10-year U.S. Treasury spiked this morning above 1.7%, and the 30-year Treasury bond rose above 2.5% even though the Fed said it will keep rates near zero and continue its bond purchasing program.
The NASDAQ and S&P 500 dipped on the news as the rising yield on the 10-year Treasury bond is still spooking investors. And of course, the media likes to tell people that as bond yields go up, it is going to prick the bubble of technology and growth stocks.
But I want to assure you that the growth stocks I recommend with superior fundamentals are not likely to be impacted by higher Treasury bond yields. In the short term, you could see some volatility. Long-term, there is no correlation at all.
According to the folks at Bespoke, the last time the 10-year and 30-year Treasury yields both traded at new highs was in October 2018. But Bespoke also found that Treasury yields trend lower over the following year and the S&P 500 trends up. This situation has occurred 15 times since 1980, and only once out of those 15 times has the S&P 500 not traded higher in the following six and 12 months.
Sadly, many of the “talking heads” in the media tend to “react” rather than check historical correlations.
Instead of reacting to news headlines, I choose my fundamentally superior stocks based on their rising sales and earnings. And sales and earnings for my fundamentally superior stocks are accelerating. In fact, all my Platinum Growth Club Model Portfolio stocks boast at least double-digit annual earnings and sales growth.
There’s also a lot of talk that a value shift is underway. That is also not true. We tend to have these temporary value surges for six to eight weeks and then they taper off. This value rally might last a little longer because of a steeper yield curve and higher energy prices, but the truth of the matter is value investing hasn’t worked since 2009.
What I see taking shape is what is known as a mean reversion market. That’s where money starts to move around and lift all boats.
The folks at Bespoke noted that since September 2, 2020, the bottom 50 stocks with the lowest market cap in the S&P 500 are up 62.87%, while the top 50 stocks are up 6.32%. This trend helps explain why some of the big tech names haven’t been doing as well lately. Personally, I believe this is a healthy rotation because it’s starting to lift other corners of the market.
So I want to reiterate — higher interest rates have a long-term effect on fundamentally superior growth stocks.
And I fully anticipate this strength to continue, as these stocks are well-positioned to benefit from quarter-end window dressing. This is when institutional investors and ETF managers shore up their portfolios, making them “pretty” for their clients before the end of the quarter. To do this, they’ll scoop up top-performing, fundamentally superior stocks, which, in turn, creates forced buying pressure under the best stocks.
In addition, the analyst community tends to revise their earnings estimates for the first quarter in late March and early April as the first-quarter earnings announcement season begins in mid-April.
So, now is a great time to join me here at Platinum Growth Club so your portfolio is “locked and loaded.”
You see, I have more than 100 stocks across all my services to choose from, and as a Platinum Growth Club subscriber, you have full access to each and every one.
Of course, you don’t have to invest in all 100+ stocks. If you’d rather start small, I’ve got you covered there, too. My Platinum Growth Club service comes with my exclusive Model Portfolio. I handpick all of my Model Portfolio recommendations from my different stock services – Growth Investor, Breakthrough Stocks and Accelerated Profits – so you can rest assured that you’re always invested in the crème de la crème.
If you decide to join today, not only will you have instant access to all my recommendations, but you’ll be just in time to replay my exclusive Platinum Growth Club Live Chat Event, which took place on Monday. I covered my current market outlook and the fourth-quarter earnings season.
I also reviewed the market on the anniversary of the coronavirus lockdowns, what Wall Street is worrying about right now (and whether you should be worried, too) and gave updates on several Platinum Growth Club Model Portfolio stocks. Click here for access to the Live Chat Event recording and transcript.
The Editor (Louis Navellier) hereby discloses that as of the date of this email, the Editor (Louis Navellier), directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below: