Dividend Digest 263, August 13, 2014
The U.S. economy grew at a 4% annual rate in the second quarter, according to the government’s first stab at calculating the gross domestic product. The estimate for the first quarter of this year has been particularly volatile, and today the first quarter was revised upward to a decline of 2.1%.
Aside from the revisions, the numbers suggest that the economy is strong. People are taking jobs, but for less money, which is a concern for the Fed and Janet Yellen. The Fed over the past 8 years under Bernanke and President Obama ingeniously manipulated the markets and saved America’s economy. They lowered interest rates and forced investors to buy equities. Then they methodically brought the equity markets higher by over 70% creating enormous wealth.
Now the new Fed chief needs to devise a way to exit the equity markets without creating panic among investors. Treasury yields have quietly risen to 2.6%. If the Fed raises rates and yields can get to 4%, investors would be happy to exit the equity markets and seek guaranteed yields above the rate of inflation.
Use stops to protect profits. We would be cautious over the next few months as we feel the Fed will continue to taper and start to tighten. We had a phenomenal run in the markets. There is nothing wrong with taking profits.
Nick Curzio, FXC Newsletter, www.FXCnewsletter.com, August 2014
