September 27, 2006: The Federal Reserves discount rate increased from 3.75% to 4.00% with the latest rate hike. The rationale for hiking rates is soaring inflationary expectations driven by a supply-side economic shock. The economic shock is mainly due to gas and oil shortages and tariffs.
U.S. and global bond yields are rising. This is caused by our growing government debt and higher financing costs. Even with higher bond yields, the stock market has stayed steady. The solid underlying economy and earnings explain this resilience.
In spite of a generally strong economy, weekly forecasts show a significant decline in week-to-week national economic activity. It falls from -0.08 to -0.6. Similarly, the Richmond manufacturing index drops from 4 to 2, while the KC Fed manufacturing index drops from 17 to 9. Also, durable goods orders fall from 1.10% to -0.30%. All of this corresponds to an increase in 1-year inflationary expectations from 4.0% to 4.6% and significant declines in consumer sentiment and expectations.
Some earnings driven stocks you may be interested include: GCO, HCSG, LKNCY, MTCH, NUTX, PGY, QNST, RELY, THC, TPC, TRVG, VG, and VNCE. Dividend growth stocks to take a look at include: BMA, CIB, WES, NCG, SBLK, WPC, ECO, BBCP, HRB, HTHT, ILPT, MCHB, SHIP, and VCISY. ETFs that are best to buy now include: SPYM, QQQM, IAUM, SCHD, VXUS, and BND. As always, good investing!
