Reality Is a Thing of the Past

Its amazing the difference a day makes.  Yesterday US Federal Reserve Chair, Dr. Janet Yellen addressed the Economic Club of New York.  In doing so she let the public, and the markets, peer into the mind of the world’s most powerful central bank.  And the public, and by extension the markets, liked what they heard.  Since Tuesday morning most markets have headed straight up.

Essentially Chair Yellen signaled that while employment growth and economic recovery in the United States was continuing to progress, the number of interest rate increases had reduced from an originally anticipated four quarter point bumps this year to two.  -- The continuation of an “easy money” environment is typically positive for equities.

So the message is clear that concerns regarding tight labor markets, fear of inflation, and other distortions in the capital markets are either gone or very much on the backburner.   So for now, risk assets, read equities, are being supported by the Fed.

What does this mean from an investor’s perspective?  As I pointed out in my earlier blog “Keep Calm… Its Going to be a Bumpy Ride”, “Don’t Fight the Fed” (Rule #16) and “The trend is your friend” (Rule #21).  Take advantage of that trend, increase your exposure to some quality equities in strong sectors and regions.   But also remember Rule #22: “Bulls make money. Bears make money. Pigs get slaughtered.”