Fed Chair Janet Yellen's day in the limelight came and went Wednesday, but her presence over the market will be lingering around like cigar smoke this summer.
Although Yellen said a lot of things, she technically didn't say anything of relevance. Well, let me rephrase: When a Fed chair speaks, it's relevant for investors to pay attention. It's that Yellen didn't say anything that would want make investors want to undertake wholesale shifts in their asset allocation. The only thing, perhaps, that she said of importance was her sympathy for the plight of savers. Maybe go out today and get that CD at the local bank you have been eyeing for the past year. Rate increases are coming.
However, beneath the grabby headlines, Yellen reinforced a couple lines in the sand:
- You must compare new data to the prior month. If it's improving, start slowly adjusting your expectations for rate hikes.
- Yes, the economy is gaining steam. Trust that it is, even as FedEx (FDX) drops a mother lode of ugly news.
- Don't expect 50-basis-point hikes by the Yellen Fed once the tightening campaign begins. Of course, inflation readings will dictate that.
- Don't expect a rate increase at every single meeting in 2016.
So, taken on their word that yes they are data dependent, the Fed's musings shed a spotlight on these three key areas of the market.
1. Railroads, Truckers
If you believe the Fed, then the selloff in railroad and trucking stocks are a buying opportunity into the end of the year. Yellen believes the economy is poised to accelerate this summer. Exports should get a boost from a weakening dollar. Consumer confidence will perk up, and support further improvement in retail sales from what has been received lately. And fuel prices are likely to remain under control, barring a nasty hurricane season.
Dow Jones Transportation Average
Source: Yahoo! Finance
2. IPO Market
In the next two days, Brazilian steakhouse Fogo De Chao (FOGO) and wearable tech company Fitbit (FIT) go public. I can smell the froth. In fact, Panera Bread (PNRA) CEO Ron Shaich told me earlier in the week the restaurant IPO market is "frothy."
Nonetheless, the IPO market has been hot this year. And if the market believes Yellen is truly data dependent and could orchestrate a successful exit from ultra-accommodative policy, companies will continue to file to go public. According to Renaissance Capital, 78 companies have gone public in the U.S. this year, down 37% from this time last year, but just one IPO shy of 2013's 222 IPOs.
The 2015 average IPO performance is near its highest point, averaging 22% from the offer price, including a 7% return available to retail investors after the first day close.
Renaissance IPO ETF
Source: Yahoo! Finance
3. The U.S. Dollar
The way things are shaping up, multinationals from PepsiCo (PE) to Tupperware (TUP) could be poised to positively surprise markets with their second-quarter earnings. That would be a result of lowered expectations of the sell-side coming off first-quarter earnings calls, mostly on the fear of a stronger dollar.
If Yellen is to be trusted, the dollar will continue to weaken at least until the release of the Fed minutes. Note the dollar weakened on Wednesday following the FOMC statement and Yellen press conference. Dollar weakness equals possible earnings surprises. Remember that equation.
U.S. Dollar Index