To be clear, I don’t care what he said. Instead of hanging on the Fed Chair's words, I prefer to focus on the markets. I find it more enjoyable.
But, boy, did markets respond!
The most striking aspect of yesterday’s reaction was highlighted by the relative strength of growth stocks.
Check out the overlay chart of the US T-Bond ETF $TLT and the ARK Innovation ETF $ARKK: These charts tend to move tick-for-tick, as long-duration assets benefit from the same market environment.
Excluding price action itself, relative strength has to be the most underappreciated indicator.
It's impossible to outperform if you own assets exhibiting relative weakness.
If a stock is underperforming, there's a reason why. It's not until months after the fact do investors discover the "fundamental" drivers anchoring that stock.
The same can be said for when a stock is outperforming.
Look at it like holding a beach ball underwater. You can feel the pressure on your arms, and when that pressure is released, the ball explodes into the air.
Think about the selling pressure in the market: When the selling pressure alleviates, the stocks showing relative strength tend to be the first ones that shoot higher.
These principles are universal across every market.
