Why I Like the Fed Move

 
I’ll cut right to the chase. I think small cap stocks have 15% upside in 2016. And that means we should have ample opportunities to make much more with rapid growth pure-play small caps.

Why am I so bullish when the market hasn’t done anything for a year?

Because for the first time in 9.5 years (since June 2006), the Fed raised interest rates. The scant quarter percentage point hike is likely to be just the beginning, as interest rates still remain historically low (the move is not expected to move long-term rates much in the near term, but will move short-term rates).

I like the move. While I don’t pretend to understand all the variables going into the decision, from 10,000 feet, it seems overdue. The U.S. economy is strong enough to handle it. Conditions that have validated rate increases in the past more-or-less exist today. And, perhaps more importantly, I think the market has wanted this since September. So it’s good to have one less question today than we had yesterday. The market doesn’t like uncertainty.

There are issues of diverging policy around the globe, and oil’s slide does raise eyebrows. But stepping back from all that, this small move signals that the Fed believes the financial system and economy are strong enough to handle all the money movement that will accompany a hiking cycle. A ton of non-interest bearing QE-related cash is now likely to seek yield. And I think a healthier economy will emerge when there are options for investors, besides just stocks that can generate returns.

Tyler Laundon is Chief Analyst of Cabot Small-Cap Confidential. To read subscriber reviews of Cabot Small-Cap Confidential, click here.

This is an excerpt from Cabot Small-Cap Confidential, which features little-known stocks with big potential. It offers a limited number of subscribers the opportunity to discover overlooked, low-priced stocks that have the potential to skyrocket. This advisory is best suited to experienced investors who embrace volatility.


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