August 27, 5:00 pm EST
The momentum is building for a big run for markets and the economy into the year end. And there are a ton of opportunities.
We have the Dow, which has massively lagged performance of the Nasdaq throughout this post-correction recovery. And even as the S&P 500 has regained new record highs, the Dow remained about 900 points from the January highs. That gap is quickly closing. This makes blue-chip stocks a buy.
Commodities are in the early stages of a bull market, but have been stalled by trade uncertainty and a stronger dollar. Both have now cleared. Trump is winning on trade. And he now appears to have successfully influenced a turning point in the dollar. Both are fuel for commodities prices that have every fundamental reason to be soaring (including a hot economy and a big infrastructure spend coming). This makes commodities stocks a buy.
On the interest rate front, as we discussed Friday, the Fed Chair’s recent comments indicate that the current level of rates could be appropriate, given they don’t see risk of inflation accelerating over their target nor do they see an elevated risk that the economy may overheat. That has turned the tide in the dollar (lower). And it may actually be the catalyst to steepen the yield curve, as the interest rate market starts pricing OUT the risk of overtightening on the economy. Remember, the skittish crowd has been pointing to the flattening yield curve as an indicator that recession is brewing for the economy. A steepening yield curve would take that debate off the table, and would be very good for financial stocks.
And the calming on trade and rates make emerging market stocks very interesting. Remember, when the news hit that China would make concessions on trade, we looked at this chart in Chinese stocks and said the bottom is probably in. Chinese stocks are up 5% already, and have a lot of room to run.
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