Stocks ricocheted higher on Monday, reversing a good part of recent losses, as investors reassessed their fears over the possibility that the Fed might start unwinding its super-bullish monetary policy in a meeting on Wednesday.
The big-cap indices rose 0.6%, but this time it was the small-caps that strutted higher with the most confidence, pushing the Russell 2000 up 1.2%.
My view remains that the Fed will not start to taper its asset purchasing until at least January of next year and most likely not until March. A Wall Street Journal poll of 46 economists showed that only a quarter of respondents expect an announcement about the start of tapering this week, a third in late January and just over a third in March.
The survey also revealed that 39% expect the Fed to end its bond purchases completely by the third quarter of next year; 34% in the fourth quarter of 2014 and 19% in early 2015. That’s a split decision to be sure. My own guess is Q4 2014. As long as inflation remains low, there is no rush.
Every utterance from outgoing chairman Ben Bernanke and his replacement, Janet Yellen, has suggested that the Fed is in no hurry to move onto a policy of interest-rate normalization.
The Fed wants to make absolutely sure that the economy and markets are ready for higher interest rates, and are deathly afraid that a premature end to the program could derail two years of good work. As a result, I recommend that you take every instance of a dip based on taper anxiety disorder to take on more risk in equities, at least through year-end.
One of my newest recommendations that should soar regardless of the Fed’s policy is Avianca Holdings (AVH), which is the holding company of Avianca Airline. AVH operates 140 planes flying into 100 cities from Madrid to Buenos Aires and has told investors that it plans to invest as much as $5 billion to further expand and upgrade its fleet over the next half decade.
AVH has already borrowed a few pages out of the playbook of JetBlue (JBLU) and Southwest Airlines (LUV) in the United States by providing low-cost flying while still offering frills such as complimentary meals and individual entertainment screens — even in economy class.
Shares jumped as much as 2.5% Monday as buyers continue to come in on solid volume but entries at current levels around $14.60 are still attractive. This is a unique brand in a fast-growing part of the world, and I’m looking for big things. I have a near-term initial target of $16.50 for AVH, but I also suggest a stop-loss at $13.90, good after 11 a.m. ET only.
Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow Jon Markman at Google+.