The Federal Open Market Committee (FOMC) of the Federal Reserve is keeping short-term borrowing interest rates near zero and will carry on its $120 billion monthly minimum bond purchasing program.
In minutes released Wednesday from the committee’s March 16-17 meetings, the Fed said it would maintain its rate of asset purchases and keep interest rates low until they believe the economy no longer needs the support.
“Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then.”
The committee also raised its median GDP growth forecast for 2021 to an eye-popping 6.5%, up from 4.2% in December. It also said the unemployment rate could fall to 4.5% by the end of the year, while inflation could rise to 2.2%, which is just higher than the Fed’s overall inflation goal of 2%.
The market responded positively to the news, with the S&P 500 hitting a new record high Wednesday and again this morning, while the tech-centric NASDAQ Composite rose as well.
The truth of the matter is as the cumulative U.S. budget deficit climbs above $30 trillion in the upcoming months, it forces the Fed and the Treasury Department to strive to keep key interest rates low. So, I do not expect that the Fed will ever significantly raise key interest rates for the rest of my lifetime.
So, with interest rates at ultralow levels for the foreseeable future, and the Dow Jones Industrial Average and S&P 500 still yielding more than the 10-year Treasury yield (1.62%) at 2.26% and 1.69%, respectively, the stock market remains the best game in town.
Why the Velocity of Money Matters
Now, one factor I’ve kept a close eye on in the current economic climate is the “velocity of money,” which is how fast money changes hands. If we all hoard our money, the velocity of money slows down and we destroy the economy, which is what the Covid-19 shutdowns did around much of the world. However, as we get out and about, the “velocity of money” naturally picks up and prosperity rises.
When income taxes are cut, the velocity of money rises, as the Trump administration demonstrated. When the Biden administration proposes infrastructure spending, that is also good for economic growth, provided it does not take too much money from companies and individuals that are spending and boosting the velocity of money.
We also tend to get out and about more as the weather improves, so it is hard to not be optimistic in spring as the flowers bloom and people start making plans for the summer. As a result, I am expecting U.S. GDP growth to remain strong.
Of course, April is also a historically strong month for stock performance.
As I discussed in Tuesday’s Market360 article, Bespoke pointed out that it didn’t matter if the S&P 500 was up or down year-to-date heading into the month of April, the S&P 500 has historically climbed steadily higher during the month. Since 1983, the S&P 500 has climbed an average 1.89% in April.
My own Breakthrough Stocks have oscillated with the NASDAQ market in recent weeks, but fortunately finished March on a strong note thanks to quarter-end window dressing and the 90-day mandatory realignment for most ETFs. This isn’t too surprising, given that they are fundamentally superior stocks.
This relative strength has continued in April and should continue during the first-quarter earnings season, which will kick off around mid-April. You see, my Breakthrough Stocks Buy List is estimated to post 186.9% annual sales growth and 256.6% annual earnings growth in the upcoming weeks.
This will represent “peak” sales and earnings momentum due to easy year-over-year comparisons. I should add that 2021 will be characterized by easy year-over-year comparisons across the board, but the pace of annual sales and earnings will decelerate a bit after the stunning first-quarter announcements.
Ahead of this Friday’s Breakthrough Stocks April Monthly Issue, I released a new buy recommendation on Tuesday with a strong track record of earnings and sales growth. I should add that even though it is a small-cap stock, it does pay out a quarterly dividend, too.
Then on Friday, I will reveal two more stock recommendations in my Monthly Issue. Analysts revised both of the company’s earnings forecasts higher in the past three months, so a third-straight quarterly earnings surprise is likely. In addition, I will release my latest Top 5 Stocks list. So, if you’re shoring up your portfolios this month, my Top 5 Stocks are great bets after my new additions to the Buy List.
Supercharge Your Portfolio for April
Now, if you want to jump in on these stocks early, I encourage you to check out my Platinum Growth Club. As a subscriber, you’ll have full access to my Breakthrough Stocks Buy List, and much, much more.
I have more than 100 stocks across all of my services (plus 18 LEAPS call options, or Long-term Equity Anticipation Securities in my Power Options trading service), and each and every one has strong earnings and sales growth. So, I look for my stocks to post wave-after-wave of positive earnings results in the first-quarter earnings season, which, in turn, should drop kick and drive my stocks higher.
Of course, you don’t have to invest in all 100+ stocks. If you’d rather start small, I’ve got you covered there, too. My Platinum Growth Club service comes with my exclusive Model Portfolio. I handpick all of my Model Portfolio recommendations from my different stock services – Growth Investor, Breakthrough Stocks and Accelerated Profits – so you can rest assured that you’re always invested in the crème de la crème.
On the date of publication, Louis Navellier did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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