Ok so if you’re not caught up with our approach to the market right now, I encourage you to read both “We’re Buying Bonds” and “Selling Emerging Markets” from this weekend.

Today I want to talk about the non-randomness of markets. I think the Russell2000 Small-cap Index is a great example to walk through. For one, it helps you understand the way we look at markets, but selfishly it’s also great because it reiterates a lot of principles that I want to continue to focus on moving forward. Writing helps. Everyone wins.  [Read more…]

This long weekend we had more time to take a step back and think about the things that are currently going on in the market. A big theme that stuck with us was the strength in stocks in the Utilities sector. The question was/is whether this strength in higher dividend paying stocks is evidence that rates are about to fall? Or is there such an overwhelming amount of strength in the stock market, that Utilities are just included in the rally?

Both are acceptable answers and theories, I’d argue. You can find more on that conversation here.

But sometimes I think we just need to pay attention to what’s right in front of us, which in this case is Utilities stocks going higher. So why don’t we just buy utility stocks and not worry about the bond market for a hot minute? The most bullish thing a stock can do is go up. And that’s exactly what’s happening here.

The advantage in this case, I believe, is two-fold. If this indeed is a sign that rates are about to collapse, that would be good for Utility stocks. If this is just an overwhelming amount of buying pressure for stocks in general, that would be good for Utility stocks. If the stock market goes into a correction, lower beta & higher yielding stocks would hold up better on a relative basis than other stocks and sectors. Again, that would be good for Utility stocks. Do you see the common theme here?

This is what the Utilities Sector looks like right now: Just breaking out and on its way to 73 for $XLU:

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