Dear Fed, Give Us the Drugs! We Don’t Care About Feeling Better
“But I don’t WANT to feel better yet!”
That’s what my son told me the other day after fighting off a cold.
I couldn’t figure it out at first. He had been so droopy for the last few days and I was really happy to see him getting his energy back.
But Caleb wasn’t happy. He said he still wanted to be sick.
And then it dawned on me!
He loved the berry flavor of the medicine he had been taking. And he was willing to feel sick if that meant he could get more of the medicine he had grown to love.
Talk about a twisted perspective!
Ironically, today’s investors have a similar view when it comes to the medicine the Fed can offer our economy. And today, we’re going to find out whether the Fed is willing to pour another dose of medicine or not.
Let’s take a look at this twisted situation and how we can profit from the Fed’s upcoming shift.
Faking a Cold to Get the Cough Syrup
If you’ve been following the market for the past few weeks, you know it’s been a bumpy ride.
During the entire month of May, stocks traded steadily lower, leading to more investor concerns.
There were several issues at stake. First, trade talks with China essentially broke down leading to a new batch of tariffs on Chinese imports.
Then, there was a flash trade skirmish with Mexico where Trump threatened to levy new tariffs unless Mexico worked harder to stem the tide of illegal immigration. Fortunately, this issue was quickly resolved.
And on top of trade disputes, investors also faced a handful of weaker than expected economic reports. Manufacturing pulled back in certain regions of the country, and the number of jobs created during the month of May was less than expected.
These issues led to a full-fledged cry for help from investors. They wanted the Fed to “do something” and to do it “NOW!”
Of course, if you take a step back and look at the situation a little more carefully, things are not nearly as bad as you might think.
The economy is still adding tens of thousands (if not hundreds of thousands) of jobs each month. Corporate profits are still growing. And consumers are confident about their jobs and are willingly spending extra money.
So the economy’s “cold” appears to be nothing more than a raspy throat or maybe an isolated sniffle.
But investors started treating it like a case of pneumonia!
The widespread fear that drove the market lower in May has apparently tugged at the heartstrings of Fed members. Over the past few weeks, these members have made carefully choreographed appearances, stating publicly that the Fed is ready to act to help support the economy and keep things moving in the right direction.
In other words, despite the fact that our economy is still very healthy, the Fed is ready to pour a dose of berry-flavored medicine. And the spoiled kid investors are getting exactly what they’ve been whining for.
Later today, the Fed will conclude its June meeting and release its statement on interest rates.
And while very few people expect a rate cut today, Fed Chairman Jerome Powell will almost certainly tip his hand and tell us that interest rate cuts are on the way.
How to Play this Change of Heart
The Fed’s shift to cutting interest rates is a lot like a parent relenting when a toddler throws a temper tantrum.
It may not be the healthiest decision for the long-term, but it sure does make things easier right now!
And for now, markets are trading sharply higher as investors cheer the anticipated cut in interest rates.
As you know, we always take a balanced approach to markets here at The Daily Edge. That means we don’t recommend jumping into and out of stocks wildly. And you should always be diversified into different investment opportunities including dividend stocks, growth stocks, bonds, precious metals and even real estate.
But there are times when it makes sense to overweight certain areas of your balanced investment portfolio to take advantage of shifts in the market.
And today, you should be looking at two key areas to overweight.
First, I’m excited to see growing strength in international blue chip dividend stocks.
These companies are benefiting from lower interest rates which have caused the dollar to pull back and made international companies more competitive.
It also helps that with lower interest rates, more income investors will be moving cash out of low-yielding savings accounts and putting that money into large cap dividend stocks. This wave of investment capital should push big dividend stocks higher for the rest of the year.
Second, it’s time to put more capital into gold and other precious metal opportunities.
With lower interest rates, the value of the U.S. dollar will naturally fall. And that’s already pushing the price of gold higher.
Today, gold is near $1,350 per ounce. But the last time the Fed was in the process of cutting interest rates, gold soared to over $2,000 per ounce!
We could be in for a move that takes gold back to these levels or even higher. So now is a great time to put some extra capital into gold so you profit from gold’s breakout.
Keep in mind, there will be a lot of volatility, differing opinions, and cross currents when the Fed releases its statement today. But the overall force of lower interest rates, higher gold prices, and investors flooding into dividend stocks will give you an excellent opportunity to grow your profits in the market this year.
Here’s to growing and protecting your wealth!