Market performance continues to favor the bulls, as cyclical sectors lead the market higher.
In the past week, some of the leading sectors include steel producers, coal miners, copper miners and shipping. This is in addition to recently strong performance from automotive shares, as well as new highs in biotechnology and solar stocks.
A rise in cyclical shares indicates investors are turning bullish on the global economy, and much of that optimism came from better than expected Chinese economic data at the start of the week. This has prompted Chinese shares to perform strongly as well of late.
There's reason not to get too excited about China's growth though. It appears the Chinese have gone back to revving up the debt engines in order to push growth higher and that will eventually lead to a major crisis. China could have used a solid recession back in 2008 to clean out the system, but instead they have piled bad debt upon bad debt. While much of that debt went to build infrastructure and housing which can be liquidated to repay debt, it also means the economy suffers from overcapacity. When China's downturn comes the domestic economy will be hit by a major deflationary crisis.
For the time being, however, stronger Chinese growth is helping to push up resource prices and that will eventually filter into the U.S. economy. Domestic sectors such as autos are also showing strength in the stock market, painting an overall bullish forecast. Data was strong as we began the week and nothing derailed the overall trend.
Improving data will push the Fed towards starting the taper this month. The announcement shouldn't be shocking in either direction, and after a couple days of volatility, we should see current trends continue into the autumn.
In contrast to stocks, bonds may not benefit from a stronger economy and a taper. Ten-year Treasury rates may break 3 percent and continue higher. Sectors such as housing and real estate remain at risk for serious breakdowns should rates increase.
Finally, we are very pleased to report on our long-term performance. Since we began covering No Transaction Fee Funds in the Fidelity Independent Adviser in 2001, our models have significantly outperformed the S&P 500.
Here is how our focus on long-term performance compares to the market:
NTF Sector Portfolio: +107%
NTF Growth Portfolio: +89%
NTF Growth & Income Portfolio: +116%
NTF Tax Efficient: +115%
S&P 500: +57%
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.