Don't Stop Believin'

In 1981 the American rock band Journey released this song on it's seventh album "Escape". The title of the song emanated from the band's keyboardist, Jonathon Cain's struggle to make it in the music industry. His father would often remind him to never stop believing in himself. The song lyrics refer to a young couple from different backgrounds who break away from their roots to start a new life together in a different setting. The song is noted for it's piano intro, strong vocals from Steve Perry and powerful rock chorus. Many sports teams have adopted the song as an anthem for their struggle to win fans and championships. "Don't Stop Believin'" reached number 8 on Billboard's Mainstream Rock Chart and number 9 on Billboard Hot 100 Chart. It also was the number one paid digital download song released in the twentieth century. Even though I have focused on fixed income for the first half of 2023, I have never given-up on stocks. A review of my monthly brokerage statements reveals that stocks also haven't given-up on me. Many individual stocks yield in the neighborhood of 5% just like the fixed income part of my portfolio, but the similairity ends there. With stocks, there is the potential for capital gains, the dividends are tax advantaged, and any gains can be held indefinitely without tax consequences until sold. With the fixed income, taxes are due in the year interest is paid without any chance of deferral. Its important to keep track of the annual income and make tax payments quarterly to avoid a nasty suprise next year at tax time. I believe a balanced approach to investing in the current interest rate cycle is the best strategy because of the attractive rates available in Treasuries and CDs. Since the highest interest rates have been on the shortest end of the rate curve (inverted yield curve) there will soon be a lot of capital looking for a new home as maturities come due. Some of the treasuries, certificates and bonds will be reinvested in fixed but I believe some will also find its way into the market. Many analysts are calling for two additional one quarter point rate hikes by the fed this year, so the party isn't over for fixed income just yet. When the fed feels like inflation is under control and the economy needs a little stimulus, rates will be cut to avoid a deep recession. Once rates decline, more money will flood into stocks, giving the market the fuel it needs to resume its bull run. The important thing to remember is that stocks tend to react about 6 months before any actual event so buying early will allow you to enjoy the first leg of any new bull market. The S&P 500 index has performed reasonably well so far in 2023 and the NASDAQ has done even better with 14.5% and 30% respective returns. The back story to both indices is that the best returns were in a relative few stocks in the technology space with AI (artificial intelligence) offerings, like Nvidia, Microsoft, Facebook (Meta) and Taiwan Semi. When the money starts to flow again I believe the breadth of the market will improve, allowing the laggards in other sectors to benefit. Some of the areas I like are banks, industrials, home builders, energy exploration and production, and drillers. I recently bought an offshore driller after sitting out the stock for 20 yrs. My thought is that the largest and cheapest sources of oil lay under the seabed and it will be exploited. I am also looking for companies that can use AI to increase productivity and profits. I think banks and industrials could benefit from this technology. Interest rates will go up and down over time and it is wise to take advantage of the higher rates at this time. I see this spike in rates as a gift to those who are hungry for yield with little risk. I do not see buying short term CD's as a long term strategy for wealth creation, just a chance to earn a little on my idle cash. Stocks are the place to be in the long run for yield and appreciation. This year is half over already so it's time to develop a list and find your entry point. Don"t stop believing in stocks.