| Are investors overthinking Fed policy? The financial press seems to obsess over every vague utterance from Fed Chair Jerome Powell. It's not possible to overthink Fed policy. Monetary policy explains the most important trends in the stock market. Sticking with recent history, the Fed gets credit for being aggressive in 2009 and heading off a repeat of the Great Depression. They also get blamed for being too accommodative and allowing assets like stocks and real estate to go too high over the past 10 years. The Fed has always been important to the stock market. Before the Fed existed, money supply explained many important market trends and crashes. Here's a simple example, before the Federal Reserve was created, panics were fairly common in the fall. Without a central bank, money supply moved across the country in response to demand. In the fall, demand was usually the greatest in the western states where farmers were bringing in crops. Cash was needed to pay for the crops and the cash was often used to pay off loans to banks which then shipped the cash back east. With physical cash in short supply in eastern cities, including New York where the stock exchange was located, panics were relatively common in the fall. There were other factors and that explains why there were panics in some years and not in others but there was a logical explanation for why panics and stock market selloffs occurred in the fall more often than in the spring. The Fed solved that problem, but regional demand for money was still causing problems as late as the 1930s. Now, we have a simple way to track monetary policy and, in some ways, it's almost like it was in the 1970s and early 1980s. I spend a lot of time talking to old traders and some describe waiting for the weekly money supply report. In the 1970s, the Fed was more secretive, and this report was the only insight into monetary policy. There weren't even statements after meetings like we have today. That report would often lead to big moves on Fridays. Money supply data is still released after the close every Thursday, but it's not widely followed anymore. The media can't spend time on things as boring as the weekly "Money Stock and Debt Measures - H.6 Release" so this doesn't get noticed. Getting back to your question, it's true, investors don't need to obsess over vague utterances from Powell and other members of the FOMC. But they should focus on the H.6 release and the H.4 release detailing the Fed's balance sheet. This is where we have the data about the money that drives stock prices. During this late stage of the economic cycle, what are the most appealing sectors now and why? I know many analysts are saying that we are in the late stages of the economic cycle. That assumes the cycle will die of old age. Unfortunately, we have no way of knowing where we are in the cycle. The cycle is old; right now we're enjoying the second-longest expansion on record. It's on the verge of becoming the longest. But it could keep going and it will keep going until it reverses. The data I look at don't show we are late stage. The best performing sectors in the stock market over the past six months are aggressive sectors. Normally we would look for defensive sectors to perform well in the late stages. Take a look at these two charts that I put together. 
Defensive sectors are among the worst performers. So the numbers say there is more room for upside in this stock market. As to which sectors are appealing, I like the ones that are delivering the best performance. That's software, hardware and semiconductor makers and retailers. This data changes all the time so when following sectors, it is important to look at performance at least once a month and ideally weekly. I have the perspective of a trader and believe it's important to buy stocks that go up and sell or buy puts on stocks that go down. Following the data can help us avoid catastrophic losses. I think investors with emotional views about the long term are the ones who can suffer devastating losses because they ignore trends in the data and make decisions on what they hope will happen. Editor's Note: As the above interview makes clear, hope is not an investing strategy. If you're looking for a time-proven, data-driven way to boost gains and lower risk, we've developed just the thing. This trading approach helps more than a thousand people each week pocket an extra $565…in less than seven minutes of "work." Then, the following Wednesday, they can collect another $565 in instant income once again. To be clear, that's just an average. Some weeks they make more, some weeks they make less, but over time, it works out to exactly $565.25. Want to learn the details of this investing secret? Click here for a free presentation. | 
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