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A lowering Fed floats all boats.
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I took a look at my top three gainers this week in an effort to see where my gains came from; The Fed or stock fundamentals. Here are the stocks and their gains: GIL (Gildan Activewear) +20% All three stock/ETFs exceeded the S&P's 3.4% weekly gain. Prior to the Fed's announcement of a .50 cut in the Fed funds rate and a similar cut in the discount rate, Gildan had gained 10% on news of their acquisition of a sock manufacturer. On Friday GIL advanced another 10% for a weekly gain of 20%. Clearly the rate cut didn't hurt GIL, but the driver of their stock price increase was their acquisition, it's acretive effect on earnings, and the prospect of increased growth. If you'll recall, I added SLX and DBN to get some international exposure in the portfolio. Given that growth in Europe, Asia and parts of Latin America exceed U.S. growth rates I wanted to participate in that growth. While lower interest rates in the US won't hurt these sectors (in fact a lower dollar will help U.S. steel makers in SLX) its the global economy's growth trends that are primarily driving these stocks. I tend to focus on bottoms up analysis in choosing stocks and sectors. If all my stocks are boats in the mouth of a river, and the economy is the ocean, the Fed is the tide. If I buy good boats, they will float in most weather and rise and fall with most tides. But its the power and capabilities of an individual boat that will enable it to outperform in all conditions. | ||
