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If you’ve ever seen an ’80s movie, you know how it goes. The nervous kid walks into the cafeteria, darts his eyes around, and tries to figure out where to sit.
Does he grab a chair at the jock table? Does he choose the table with the rebellious teens? Or does he opt to sit with the nerds?
That scenario popped into my head this week after we learned the results of the latest Federal Reserve meeting. It might be just the thing to spark a "Revenge of the Nerds" move for select stocks.
I’ll explain in a minute. But first, let’s quickly recap the news: The Fed decided to punt … again … on raising interest rates. Instead, it kept rates in their current range of 0.25% to 0.5%.
But dissent within the Fed is mounting. Three separate regional Fed Presidents — Boston Fed President Eric Rosengren, Cleveland Fed President Loretta Mester, and Kansas City Fed President Esther George — all dissented at this meeting. They each preferred to raise rates by a quarter-point, rather than kick the can down the road.
Also noteworthy: Janet Yellen faced many more reporter questions about potential bubbles resulting from the Fed’s easy money policy. While she said she wasn’t concerned enough to take action yet (a mistake, in my view), she did call out commercial real estate as one of the biggest risks out there. That dovetails with what I’ve been saying for many, many months.
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| Fed keeps rates the same. What’s next? |
Now about those "Nerds." If you look at Wednesday’s market action, you see that boring, safe, yield-oriented stocks led the way. The Utilities Select Sector SPDR Fund (XLU) jumped more than 2% on the day, while the Financial Select Sector SPDR Fund (XLF) gained only 0.6%.
"Outcast" sectors that Wall Street doesn’t typically promote also ran wild. The VanEck Vectors Junior Gold Miners ETF (GDXJ) surged more than 7%, while the Technology Select Sector SPDR Fund (XLK) rose just 1.1%.
Even the CurrencyShares Japanese Yen Trust (FXY) — as contrarian and nerdy a pick as you could’ve found when I said to buy it in my Safe Money Report back in January — jumped 1.3%. That topped the gain in the SPDR S&P 500 ETF (SPY), unusual because currencies tend to fluctuate less than stocks.
Could this be a resumption of the trend we saw throughout late 2015 and the first half of 2016? That’s when Safe Yielders, "risk off" currencies, and other investments like gold led the pack, while financials and expansion-dependent stocks lagged.
The yield curve also flattened notably throughout last year and the first half of this year. Sure enough, that trend resumed in the wake of the Fed meeting.
The difference, or spread in yield between the 2-year Treasury Note and 10-year Treasury Note dropped sharply to 85 basis points (0.85 percentage points) yesterday from 96 points pre-Fed. That’s a negative for the core earnings power of banks, which had been market darlings in July and August.
My advice? If you’re going to invest in stocks, maybe it’s time to circle back to the names that have A) Already corrected B) Offer nice yields and C) Feature heightened stability and reduced economic sensitivity — exactly what you want in an uncertain economic environment.
As for gold, it’s a clear winner here if the trends seen on Wednesday continue to play out. So I really, really hope you join me a month from now for the New Orleans Investment Conference. It runs from October 26-29, and it’s one of the longest-running, most important gatherings focused on metals, mining shares, and the broad markets.
You won’t just get to hear from me. You’ll also have the chance to get actionable, valuable advice from the likes of James Grant, Marc Faber, Peter Schiff, Stephen Moore, Brien Lundin, and many others.
More details and registration information for the New Orleans Investment Conference can be found by clicking here. Or ring 800-648-8411 and mention that you’re calling as a subscriber to Money and Markets and/or Safe Money Report.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 26 comments }
I don’t no
I think the main news is going to be Oct 1st when the IMF announces that the Yuan will become a reserve currency. That should be very interesting!
When should we think about buying gold?
As I have written before, the direction of the market won’t change until investor psychology changes and that hasn’t happened yet. What will be the catalyst is really anybody’s guess and nothing than a guess. But FWIW, Einhorn (who got the subprime crisis right) said it won’t be auto loans and it won’t be student debt. He said that when Central Bankers lose credibility, that will be the snowflake that will trigger the avalanche. I would add to that the failure/bail out of DB (Deutsche Bank). Your warning about various sectors are well reasoned, but the big issue is as Einhorn said- credibility of Central Banksters.
Agreed. The psychology of the mass of investors rules the roost. And it might be nothing of significance that changes the mood to very negative (there does not have to be a ‘trigger’ event).
That being said, many of the banks ARE in trouble. DB has reportedly been unloading tons of dangerous derivatives….C has reportedly been buying them. You can evaluate whether that is a smart move.
With the Presidential election less than one and a half months away, the FRB is smart to not rock the boat the slightest bit to influence the outcome of the election, or get to being accused of influencing the outcome in anyway. If OPEC all of sudden is able to band together to jack oil prices way up again, and they no longer want to accept funny money, OPEC are the only ones that have the clout to demand strong money for their oil. Since when the fed gain the power to print money with abandon (for the rich only,) they don’t need the money from main-street savers, nor even coupon clipping rich folks, so that they are offering quarter percent or less for main-street savers, as it don’t need them. The US Government with huge amounts of debt needs to pay low interest rates to creditors. The banks like to pay low interest to their depositors. Once they can print money with abandon, they can ignore main-streeters, bank depositors, insurance companies, and other lenders, who clamor for higher interest earnings. They can even ignore OPEC and other oil producers, after the US now developed technologies to extract large amounts of frac/horizontal drilled oil and gas at ever decreasing costs. All of the large apartment buildings in my area had converted from oil to natural gas heating. New SUV’s are 50 percent more efficient than old SUV’s. The old cars are being phased out at least past the half way point. Of course, the oil interests are fighting hard to try to jack up oil prices. In the book “The Prize” (newer edition with an added chapter), in 1986 when oil prices free-fall below $6 per barrel after the US down-sized it’s cars, and implemented computer-controlled engines, Vice-President Bush had to go to Arabia to reform a disintegrated OPEC to jack back up the price of oil, which was great for oil producers, and which probably contributed to the 2008 Great Recession.
“to ‘influence the election”???????????????
rolling my eyeballs!l
several fed heads are hilary cronies -employees
The Bush’s money is from oil. His family was cozy with bin Laden’s family. It’s about keeping wealth and power.
`This market continues to push higher despite the continuuous negative propoganda coming from the Republican supporting black pools…. Much the same thing happened after FDR was elected…. Come November, if the Democrats keep the White House and take back Congress, the markets will go to the moon as Citizens United (Buy A Politician) is finally defeated and the majority of investors who believed the negative propoganda finally return to the markets after the orange, bombastic narrcisist dissapears from our daily TV screens…
This market is going down…..and it does not matter whether it is Trump or Clinton that gets elected.
The buy a politician will always be an option. Its available from either party.
Interesting view point, Eagle495. On the other hand those who supported Citizens United saw it as putting the rest of us on a leveled playing field with the Big Unions, who have been buying politicians since at least the 1920s.
What I see happening: (1) Hillary wins, the Fed does nothing, continuing the status quo.
The Donald wins, the Fed starts increasing interest rates to guarantee that there will be a “Trump” recession. Oh, the media will never call it the “Federal Reserve Recession”, which is what nearly all of them since 1918 have been.
Then again, if the Republicans gain the White House and increase their majorities, we might just see economic policies so sound that even the Fed can’t overcome them.
Frequently…..uh, RARELY, but on more than one or two occasions, has the electoral college put a corrupt politician in the White House as the POTUS, despite what the popular vote indicated. It could well be that our next president has already been decided, and now that fact is only left for our discovery.
I think it was Mark Twain who said “If voting really mattered, they wouldn’t let us do it!”
I, for one, cannot wait for FOUR YEARS of dull, boring conversation about the e-mail scandal, not to mention whatever else “they” can manage to cook up against her/them!
Regardless of who is president, there WILL come a reckoning day when all the nations’ credit cards are maxed out and all the requests for a new one have been denied!
Alternatively if the orange, bombastic narcissist wins he will either pull the football away from all the white Charlie Browns and go along with the policies that have ruined them or will actually go against corporate America’s plan to reduce America to a third world Nation. Double crossing his supporters will be cheered on Wall Street while rocking (or sinking) the boat will lead to market chaos.If he applies his know nothing approach to Foreign Policies the cheering will stop and everyone will take cover as the World implodes.
Eagle495 must be smoking something. If Republicans don’t take control of all 3 branches of government and restore some fiscal sanity, our stock market and monetary system will crash in the near future.
Republicans, fiscal sanity, please put the hookah down and get some fresh air. Fiscal sanity and the Republican Party parted company with the election of Reagan. The National Debt has increased 1950% since then. When George H W Bush, who coined the phased “Voodoo Economics” raised taxes to cover part of the Reagan deficit the Republicans turned on him. After Clinton raised taxes again the budget became balanced but George W Bush took that and destroyed it. Obama has taken the coward’s path and kept most of the Bush tax cuts and all of the boondoggle military spending. Trump will increase spending and cut taxes and the deficit will soar.
every move she makes
every step she takes
we’ll be watching her!
You listed Constellation Brands STZ as a household name to avoid with a D rating.
NO — STZ has a A+ rating from Weiss
is there anyone left on the planet who believes any of the central banks mumbo jumbo?
They’re a bunch of liars and charlatans.
Dream on Eagle 495
THE DEMOCRATS ARE LYING SCUMBAGS WHO CANT BE TRUSTED HILLERY CLINTON SHOULD BE IN PRISON FOR ALL HER MISDEEDS SHE IS A NATIONAL THREAT TO AMERICA HER LYING WAYS HER LIES TO CONGRESS THE FBI AND THE AMERICAN PEOPLE CANNOT BE TOLERATED EXCEPT by other democrats who turn a blind eye
Just read ur comment…really r u kidding? Who gives a flying f**k about emails?
All politicians prevaricate somewhat…but Donald Chump Drumpf LIES EVERY TIME HE SPEAKS…Putin is hoping he wins so we can have similiar authoritarian Police States!
Discourse is fun with u because u r a few sandwiches short of a picnic!
Try reasoning & thinking…it will calm u down & please lock up ur guns.
Have a nice day!
The fed is first and foremost trying to assist in enabling this administration’s disastrous fiscal and regulatory policy. History will hold them account and it will not be pleasant for any of us.
Thanks for the useful money and market information .
This information is applicable to us also in southern Africa
In Australia we have a poem by author John O’brien (1878- 1952) “Said Hanrahan”. —“We’ll all be rooned—– google this and read to the end to get the message.