Well, the S&P 500 cleared 3,000 points Wednesday morning. Stocks are traded at all-time highs. And it all came about due to some reaffirmation made by the Fed.
That’s not why I’m smiling though. To be honest, I’m not too concerned with the Fed’s decision — more on that in a bit. It’s all the same old back and forth that’s been going on for years now.
No, the reason I’m feeling good right now is all the green I’m seeing. There’s nothing like opening my screen and seeing every single position in my portfolio proudly in positive territory. And though it may seem to be aligned with the surge in the stock market, I pride myself on finding investment opportunities that are outside the mainstream in Peak Income. So, the stock market can surge, or it can crash, but that doesn’t necessarily impact the portfolio as much as directly investing in Wall Street’s flavor of the week.
The truth is, while I go into every position expecting to make money, the timing rarely works out perfectly. There’s almost always something in the portfolio that’s not quite firing on all cylinders. It’s just how things tend to go.
It helps, of course, that we’re disciplined. Remaining dedicated to a system, no matter how painful it can be at times, is worthwhile in the long run. And it helps that every stock in the portfolio was cheap when I first set eyes on them in Peak Income.
The Magic of Bond Yields
Beyond being cheap, there’s one other common theme among all of the positions. Since all of them get a substantial chunk of their total return from current income, they all have benefited from the recent drop in bond yields.
Currently, we’re in a nice sweet spot. The economy is slowing enough to cause bond yields to fall, but not slowing enough sufficiently spook investors out of income stocks.
Of course, these conditions won’t last forever. It will pay off handsomely to be prepared for the day when the market changes. Either long-term yields could start rising again, or we could have a proper bear market that shakes things up. I’m betting it will be the latter before the former.
But as the old saying goes, you have to make hay while the sun shines. And right now, the sun is shining on dividend-focused stocks .
All About the Fed
I don’t know about you, but I’m getting a little tired about everything in the financial press revolving around the Federal Reserve. I mean, enough is enough already. But that’s where we are.
Fed Chairman Jerome Powell dumped gasoline on the fire the other week when he suggested that rate cuts could be on the table. Rather than take the words of Powell and his colleagues at face value, which indicated two 0.25% cuts by the end of next year, Wall Street worked itself into a frenzy believing that Powell “really” meant by the end of this year. In fact, a 0.5% cut was right around the corner, maybe even as soon as next month!
When I first heard about this, I thought, That’s never going to happen. I chalked it up to a classic case of hearing what you wanted to hear; that Wall Street wanted to believe a rate cut was imminent so it priced it into the futures market and into stock prices. Powell clarified later that rate cuts probably wouldn’t be happening for a while. It was the equivalent of throwing a wet towel on the fire.
But now Powell is changing his case again.
On Wednesday, the Fed Chairman stated that the Fed would cut interest rates by the end of the two-day policy meeting, which ends on July 31. Naturally, the S&P 500 and the Nasdaq slipped into another frenzy, hitting record highs. As a result, the Fed doesn’t expect much good to come out the remainder of the year with continuing trade tensions, slow growth, and low inflation.
Honestly, I can’t keep up with the guy anymore…
Play to Win
Here’s the thing… If your investment strategy depends on handicapping the Fed’s next move, you’re doing it wrong.
Large banks and hedge fund have entire teams of people that do nothing but parse official Fed statements, random off the cuff comments by Fed personnel, and even subtle changes in the Chairman’s body language. If these people can’t predict the Fed’s moves with accuracy, how can you or me?
I’m competitive, but I only like playing games I actually have a chance of winning. And this isn’t one of them.
Instead, I like to buy high-yielding stocks and funds when they periodically go on sale. I don’t have to get the timing exactly right every time. When you’re getting paid 5% to 10% in cold, hard cash, it’s ok to be a little early. You get paid to wait .
That’s the kind of game I’m more than willing to play.