Even with the selloff these last few weeks, the HCM-BuyLine® is still very strong, and any pullback should be bought. Large value is staging a comeback. After a year and a half of very poor performance, they are finally picking up steam. In HCM Dividend Sector Plus we have added to our value holdings over the last few weeks and will continue to do so.
Bonds are falling and falling hard with interest rates starting to be talked about again. Fed Chief Powell’s statements are causing some heartburn for bond holders, mainly concerning inflation. The chart below showing TLT, the 20-year treasury, is dropping and does not look very close to finding support. This is another positive for equity investors. We should start to see some liquidation of bonds and a rotation into stocks, which is one of the reasons value equities are starting to move higher.
More specifically, we see 7 positive supports for stocks in the near-term:
1. Washington is moving forward with passing a large fiscal relief package, and Treasury Sec. Yellen has made a forceful case for it. Whether you agree with the amount or not, that’s a lot of money being pushed out the door.
2. The Fed has been vocal in its policy stance (last week’s minutes affirmed) and the Fed is patient.
3. The US economy is re-opening and economic momentum is strong — so strong; JPMorgan’s Chief Economist, Bruce Kasman, says that the US V-shape recovery will soon surpass China.
4. There remains a substantial perception gap between policymakers/media and COVID-19 realized data, and a closing of this gap is positive for risk assets.
5. Millennials are steadily allocating assets toward equities, and the surge in retail brokerage account openings is evidence of this. This is very encouraging and the more younger investors get involved, the better. They get to fully understands taxes, regulations, a strong or weak economy, and how decisions being made by politicians affect their livelihoods.
6. Bonds are becoming less attractive total return vehicles as inflationary expectations are increasing, boosting the attractiveness of equities. See the chart of TLT
7. VIX is steadily declining, periods of declining volatility historically lead to big equity gains, particularly for cyclicals.