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.
|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,