New Fed Chairman Kevin Warsh talked a good game about fighting inflation.
He promised discipline. He projected confidence. He sounded like a man prepared to do whatever it took to restore the Federal Reserve’s credibility.
Then came his first policy meeting.
When it was time to act, Warsh left interest rates exactly where they were.
The bond market wasted no time delivering its verdict.
Instead of falling, long-term bond yields rose following his press conference and now sit at their highest levels since 2007, nearly 20 years ago. The 30-year bond now yields 5.1%… and doesn’t look to be dropping any time soon.
That’s not the reaction you’d expect if investors believed inflation was under control.
It’s the opposite.
Bond traders are signaling that inflation may stay elevated for much longer than the Fed would like to admit. And if they’re right, the era of steadily falling bond yields that lasted for decades could be over.
Are we in a bona fide bond bear market?
Maybe.
My Green Zone Power Ratings aren’t designed to predict bond prices. They measure the investability of stocks, not fixed income.
But the system can still tell us something important…
Think of gold as the “anti-bond.”
You buy bonds when you trust that future interest payments will preserve your purchasing power. You buy gold when you start questioning that assumption.
That shift is already showing up in my ratings.
Several major gold miners have consistently rated as “Bullish” over the past year, including Newmont Corporation (NEM), which I recommended in Green Zone Fortunes late last year. We’re up a modest 7%, but if recent moves in gold prices are any indication, the shares may be on the cusp of a major move higher.
Just one week ago, I wrote:
Gold prices are down about 20% from their recent highs, due mostly to the belief that the Federal Reserve will keep interest rates elevated for longer.
That may be, of course, but let’s not forget why. Inflation isn’t slowing down.
By some measures, it’s actually accelerating, and the Fed is terrified that it will become endemic.
Gold is historically a strong inflation hedge. It’s also a currency hedge and a broader crisis hedge. Given that the federal debt has just surpassed $40 trillion, it may be only a matter of time before we see a real dollar crisis.
If that’s the case, you’ll want to make sure you own at least a little gold… and maybe a few gold miners to boot.
Gold has already climbed about 3% since then.
But if we do indeed have a broader crisis of confidence in the dollar or the bond market, we could easily see hundreds of percent in gains.
Meanwhile, we’re continuing to see major churn in the stock market. Wall Street is cooling toward the AI trade for now, choosing instead to rotate into previously unloved corners of the market.
It remains to be seen whether this is a blip or the early signs of a bigger move. But we’re definitely seeing the rotation playing out in my system as well.
So, let’s dig deeper.
It’s Thursday, which means we’ll be looking at stocks that recently crossed into “Bullish” territory by earning a Green Zone Power Rating of 60 or higher.
Let’s start with the newest additions from the S&P 500 Index.
S&P 500 New Bulls
I ran my usual screen for S&P 500 companies that popped up as “Bullish” this week, and this is what I came up with:
Leading the pack this week is Honeywell (HON), a leader in industrial automation and defense tech.
I’m not remotely surprised to see an automation leader top the list. In fact, I dedicated my July issue of Green Zone Fortunes to robotics and automation and recommended one of my favorite under-the-radar picks to play this megatrend.
Automation isn’t just a productivity booster to add a few cents per share to the S&P 500’s quarterly earnings.
Without it, our economy stalls out and dies. So, believe me when I tell you that automation and robotics are among the most powerful megatrends of our lifetimes.
They are the next phase of the AI revolution and where the proverbial rubber meets the road.
Continuing the theme of the past several weeks, we see several financials popping up on the New Bulls list. U.S. Bancorp (USB) and insurers MetLife (MET) and Aflac (AFL) all saw significant jumps in their Green Zone Power Ratings.
The list also has a distinctive “old economy” feel to it. Freight railway operators Union Pacific (UNP) and CSX Corp (CSX) both made the cut. This suggests that, whatever happens in the new digital AI economy, there are still opportunities moving “stuff” from point A to point B.
New Bulls Outside the S&P 500
Let’s cast the net a little wider and look at the newly “Bullish” stocks outside of the S&P 500. I ran a screen for the top 20 stocks with the largest score increases over the past month, and this is what popped up:
We see some of the same trends at work here. It’s a collection of financials, including Bank of Hawaii (BOH), River City Bank (RCBC), Japan Post Insurance (JPNPY) and mostly old-economy industrial companies.
One stock that looks interesting as a potential turnaround play is Boston Beer (SAM), the maker of Sam Adams and the unofficial pioneer of the craft beer movement.
SAM shares have gotten hammered over the past several years, as Americans have become more health-conscious and drink less alcohol. The shares now trade at prices first seen in 2013.
SAM rates particularly strongly on its value and quality factors. It rates poorly on momentum, as you might expect given its decline over the past several years. But shares have been inching higher over the past two months. It may be too soon to call a bottom, but if shares continue to trend higher, they might warrant a deeper dive.
To good profits,
Adam O’Dell
Editor, What My System Says Today
