RalphCole_032_web_ by Ralph Cole, CFA Senior Vice President of Research

If the hearings yesterday on Capitol Hill are any indication, Janet Yellen should have smooth sailing to her confirmation as our next Federal Reserve Chairman. She was clear and concise in her answers, and conveyed a clear understanding of the job at hand. She gave the capital markets confidence that there would be no unsettling changes to current policy, while comforting legislators' concerns by stating the Federal Reserve’s oversight of banks would become a higher priority during her tenure. After reading her testimony, we believe that further improvement in employment will lead to tapering sometime in the first quarter of next year.

Not So Fast My Friend

A contrite President Obama stood in front of reporters yesterday and admitted that the administration had fumbled the roll out of “Obamacare” (the Affordable Care Act). Because of ongoing website problems individuals have found it nearly impossible to sign up for coverage online. In response, the administration has relaxed some deadlines, which will simply delay the implementation of the Affordable Care Act. As such, we are maintaining our current strategy for the healthcare sector, which focuses on companies that benefit from an increased volume in healthcare services, because with more people covered by insurance, more services will be used.

Tiny Bubbles?

As of this writing, the S&P 500 index and S&P earnings stand at all-time highs. When Janet Yellen was asked during her testimony about bubbles in the stock market, she asserted that on most valuation metrics, the stock market is far from bubble territory. That said, the zero interest rate policy that the Fed is currently maintaining may ultimately cause a bubble. The last two recessions were caused by the dot-com bubble and the real estate bubble. As investors, it is important that we keep a vigilant watch for the next potential bubble… At this point we don’t see one on the horizon.

Takeaways for the week

  • Janet Yellen will almost certainly be confirmed as the first female Federal Reserve Chair
  • While stocks continue to set new highs, valuations remain reasonable