14 Reasons To Like U.S. Equities Right Now

01/19/17 09:04AM EST

14 Reasons To Like U.S. Equities Right Now - bulls

 
The U.S. economy is growing. Inflation is accelerating. And the Fed may raise rates faster than expected. These trends suggest investors should buy sectors like Energy (XLE) and Financials (XLF). Here's why.

Check out yesterday's manufacturing sector data (Industrial Production) and inflation reading (Consumer Price Index, CPI):

  • Industrial Production: As you can see in the Chart of the Day below, Industrial Production registered its first positive reading in 15 months yesterday, or +0.5% year-over-year growth. That snapped the longest streak of negative growth ever outside of protracted U.S. recessions. 
  • U.S. CPI: Headline Inflation accelerated for a 5th consecutive month, taking consumer price growth to its highest level in 32-months (since May 2014) at +2.1% in December.  This effectively ended 30 straight months of inflation readings that were stubbornly below the Fed’s 2% target.

14 Reasons To Like U.S. Equities Right Now - IP CoD

14 Accelerating Economic Indicators

#Economy #GDP #Growth

Add these to the laundry list of economic indicators that are now realizing positive year-over-year growth:

  • Consumer Confidence
  • Business Confidence
  • Wage Growth
  • ISM Manufacturing
  • ISM Services
  • Industrial Production
  • Capacity Utilization
  • Durable Goods (ex-Defense & Aircraft)
  • Auto Sales
  • Retail Sales
  • Revolving Credit Growth
  • Disposable Personal Income Growth
  • CPI
  • PPI

(***Don't take our word for it. Click here, here and here for a bit of background reading on U.S. growth accelerating)

An Investing Wildcard: The Fed

#Yellen #Fed #Inflation 

Expect the Fed to raise interest rates a whole lot faster than was initially projected. “As of last month, I and most of my colleagues were expecting to increase our federal funds rate target a few times a year until the end of 2019,” Fed chair Janet Yellen said yesterday.

The Fed isn't (yet) aware how quickly things might escalate. According to our proprietary inflation forecasting model, year-over-year inflation could hit as high as three, even four, percent in the first quarter of 2017, as previously beaten-down commodities comes back and push prices higher.

“That’s going to be really nasty for the Fed to deal with,” says Hedgeye CEO Keith McCullough in a HedgeyeTV video presentation yesterday. “That’s why the Fed, for the first time, isn’t hawkish enough. They should be talking about a lot more rate hikes.”

https://youtu.be/8ObaHa1BigE

Bottom Line: What to Buy

$XLE $XLF

As the Fed falls behind the curve and the U.S. economy heats up, prepare your portfolio for growth and inflation accelerating. Buy Energy (XLE) and Financials (XLF) sectors on pullbacks. Both benefit from this trend. 

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