Global equity markets are “climbing a wall of worry”, in spite of uncertainty about the potential exit by Greece from the Eurozone and geopolitical events in the Ukraine, in the Middle-East and in Latin America.
Quantitative easing by the European Central Bank and the Bank of Japan can lead to inflation of financial assets in 2015
Low interest rates and much reduced energy costs have started to fuel a new boom in consumer spending in the U. S.
The best growth strategy this year may be to diversify between market-leading sectors and emerging investment areas (source: FidelitySignal.com)
Broad market indexes, such as the S&P 500, the Dow Industrial Average and the Nasdaq, are making higher highs again after a treacherously volatile two-month period starting in early December. The good news is that investors have not shied away from risk-on investments, which is very bullish.
The FidelitySignal Aggressive Growth model portfolio can provide an example of how an aggressive asset allocation strategy can work in the current market environment. The asset allocation mix of the portfolio consists of five Fidelity mutual funds. The funds represent investments in both leading sectors and emerging investment areas:
On January 22nd, the European Central Bank announced the start of its Quantitative Easing (QE) program that will involve a larger than expected 60 billion Euro asset purchase per month. The Fidelity Europe Fund (FIEUX) responded with a rally, but it has not yet cleared the resistance level (see blue line on the chart):
At the same time, the Euro continued to drop against the dollar, which explains why European stocks are less attractive in U.S. Dollar terms:
The picture is completely different if we look at European equities in Euro terms. This chart shows a very bullish break out:
Well, it finally happened. The Fed announced today that it will start reducing its Quantitative Easing (QE3) program by tapering the bond purchases from $85 to $75 billion a month, starting in January 2014. The Fed also reassured investors that it will keep interest rates low for the foreseeable future.
The stock market reacted positively: the Fidelity Spartan 500 Index Fund made a new all-time high today and almost all equity funds closed up. The notable exception is the gold mining sector that continues its bear market.
The announcement pushed the yield on the 10–year treasuries higher, which in turn caused the Fidelity Spartan Long-Term Treasury Bond Fund (FLBIX) to go lower. We would continue to avoid investing in FLBIX until this long-term trend reverses.
The Fidelity Select Gold Fund (FSAGX, last change: 8.62%) was the largest-gaining Fidelity fund in the market rally that followed the Fed’s decision about not dialing back on the QE3 asset purchase program. The chart pattern of higher lows confirm that gold stocks are no longer in a bear market.