It was the day after the big Fed announcement and more money
came running into the markets, despite the recent big run we've
already seen. Traders tend to get jumpy whenever a rally appears to
be getting away from them.
Look no further than the move we have seen in a stock like
Cliffs Natural Resources (
CLF
), which is up from $34 just ten days ago, to the current $45 plus
price level. Financials also continue to gain some Wall Street
support as we saw further upgrades in names like SunTrust Banks (
STI
) and MetLife (
MET
). Speaking of insurers, one wonders how they will attempt to pay
the guaranteed rate of returns promised through vehicles like
annuities. The downside of continued low interest rates must be
putting the folks running insurer portfolios in quite a state these
days.
Elsewhere, new dividend payer Western Digital (
WDC
) followed its main competitor Seagate Technology (
STX
) in warning about the company's revenue outlook. Lastly, a
cautious note out of a Wall Street analyst had shares of Cracker
Barrel (
CBRL
) in the red heading into the company's earnings release next
week.
When Will the Federal Reserve Stop Intervening in the
Markets?
This is the biggest question I get asked after Fed days like we
saw yesterday. The answer to this query might be pretty obvious. My
guess is the Fed will let off the gas the moment the stock market
stops reacting positively to announcements of further
accommodation. Then and only then will Bernanke & co. pivot and
try another quick fix.
It's very easy for me to temper my excitement since our focus
tends to remain on company fundamentals. We enjoy seeing the price
gains for stocks we like, but would prefer getting back to the
regular rhythm of how markets are supposed to work (sans the
steroid-like effect of money printing).
Just today we got the CPI (Consumer Price Index) number showing
inflation being fairly non-existent. Once again, we shake our heads
at this number, as reality tells a very different story. You have
to love the ex-food and ex-energy costs totals - not only have food
and gas prices continued to rise, but these are two of the very
biggest regular expenses that everyday people face.
Still, it certainly doesn't pay to fight the trend and sit on
the sidelines watching the buying power of your savings
deteriorate. Regardless of the market environment, investors should
stay the course of building wealth by putting money to work
regularly in income-producing assets. That's the only way to stay
ahead of the inflation monster lurking wherever our spending is
needed.
Another area of concern for me is how well the job market can
possibly pick up if we see commodities spike the way they have
been. Don't look now, but we are back to the $100 a barrel for oil
again. We all know rising commodity costs are detrimental to most
businesses. These higher prices either need to be passed on to
consumers or eaten by the businesses themselves. If companies
choose to eat the costs, they'll need to run leaner operations,
which means less hiring, more firing, and keeping salaries on a
tight leash.
There will, of course, be winners and losers from the fallout of
the latest Fed decision. Stay tuned, and we'll keep you focused on
how you can avoid being on the wrong side of the equation.
A Look to Next Week and a Weekend Preview
Looking ahead to next week, third quarter earnings will continue
to be very light, but we will get results from companies such as
Conagra Foods (
CAG
), Oracle Corp (
ORCL
), and Cracker Barrel (
CBRL
). The focus will also continue to be on the economic data as well
as the latest Wall Street analyst calls.
Be sure to visit our complete recommended list of the
Best Dividend Stocks
, as well as a detailed explanation of
our ratings system here
.