Like many of you I spent the past weekend celebrating our nation’s birthday, albeit somewhat conflicted over what amounts to declaring independence from my ancestors as I am of almost entirely British descent. I’d like to believe that my great-great-great grandparents would forgive me for reveling in their defeat, but I kind of doubt it.

Nobody likes to lose at anything, especially when it comes to investing. Even though the stock market is not a zero-sum game in absolute terms, we tend to think of it as one in relative terms. If we sell a stock for a gain that continues to go up after we no longer own it then we regret not holding on to it longer.

With the S&P500 Index and Dow Jones Industrial Average both flirting with historically unprecedented “round numbers” (2,000 and 17,000, respectively) the Nasdaq Composite has temporarily moved out of the spotlight as the primary indicator of the stock market’s current love affair with momentum. 

I suppose that’s a good thing, as quite frankly even I was becoming bored with listening to so many convoluted explanations as to why a company like Netflix (NSDQ: NFLX) can be worth 175 times earnings regardless of how many people actually watch “Orange is the New Black.” That didn’t stop Goldman Sachs from upgrading the stock from a ‘hold’ to a ‘buy’ last week, and pushing up its target price to $590.

This type of buying frenzy brings to mind the behavior of 3D Systems (NYSE: DDD) stock during the past  year, when it shot up from less than $50 last August to more than $90 by this January, only to drop back below $50 three months later.  Such is life for companies that pay no dividend and trade almost exclusively on the expectation of future profits. We prefer stocks that already pay a dividend and have a proven model for profitability, but we’re funny that way.

In the short run the stock market can be a self-fulfilling prophecy, moving whichever direction most people think it will. And right now a lot of people seem to believe that the economy will continue to grow at a moderate rate while interest rates remain historically low, paving the way for earnings growth in excess of inflation.

If that holds true then most stocks are fairly valued for the time being, which is why so much attention is paid to every word Federal Reserve Chairperson Janet Yellen utters in public. So far the market likes what it is hearing, but if we begin to see signs of “stagflation” – stagnant growth accompanied by rising inflation – then all bets are off.

The reality is that for better or worse the financial markets have become dependent on the perception of how resolute the Fed will be in maintaining its “LIRP” – low interest rate policy – if it no longer appears to be contributing to the key economic metrics that the Fed is monitoring to judge success of the program. If that happens, the Fed will be confronted by a dilemma almost as daunting as the one faced by our founding fathers 240 years ago; do we stick with what we know – even if we know it isn’t good for us in the long run – or do we endure pain in the short term to put us on a better path in the long term?

NASDAQ Composite Index:                                                                        

Friday, July 4 = 4,485.93                                                          

Year to Date = + 8.3%                                          

Trailing 7 Days = + 2.1%

Trailing 4 Weeks = + 4.2%

Portfolio Update

The first half of this year has been very good to our Investments Portfolio, so much so that we feel compelled to raise the Buy Limit and/or Stop Loss limits on several of our holdings, as follows:

Buy Limit on Apple (NSDQ: AAPL) raised to $95; Stop Loss raised to $75.

Buy Limit on CA Technologies (NSDQ: CA) raised to $36; Stop Loss raised to$25.

Buy Limit on Intel (NSDQ: INTC) raised to $30; Stop Loss raised to$25.

Buy Limit on Microsoft (NSDQ: MSFT) unchanged; Stop Loss raised to $34.

Buy Limit on Qualcomm (NSDQ: QCOM) raised to $85; Stop Loss raised to $62.

Buy Limit on Seagate Technology (NSDQ: STX) raised to $60; Stop Loss raised to $46.

Buy Limit on Western Digital (NSDQ: WDC) raised to $90; Stop Loss raised to $78.