Stocks started March with a roar, but the pessimists fear the month may go out with a whimper. Rising bond yields spooked investors last week, as inflation fears worsened. Stocks hover at record highs but volatility has spiked as Wall Street grows anxious that fiscal and monetary stimulus might overheat the economy. What’s more, the coronavirus pandemic is still with us.

Inflation probably won’t rise to alarming levels this year, but it will rise, nonetheless. You need to be proactive and take defensive measures now. One time-proven hedge is gold. Below, I’ll steer you toward our favorite “yellow metal” play. In the meantime, there’s still plenty of justification for the market rally.

During the first two months of the first quarter of 2021, analysts increased earnings estimates for companies in the S&P 500 for the quarter. The Q1 bottom-up earnings per share (EPS) estimate has increased by 5.0% (to $39.50 from $37.61) during this period.

“Bottom up” is an aggregation of the median EPS estimates for Q1 for all the companies in the index. The following chart shows how this increase compares to previous quarters:

The first quarter marked the second-highest increase in the bottom-up EPS estimate during the first two months of a quarter since FactSet began tracking this metric in Q2 2002, behind only the 5.7% increase during the first two months of Q1 2018.

Seven sectors posted an increase in their bottom-up EPS estimate for Q1 during the first two months of the quarter, led by energy (+86%). Cyclical sectors such as energy stand to benefit the most from the reopening of the economy. This rotation into economically sensitive, cyclical equities should continue for the rest of this year.

Positive news about COVID-19 vaccines and the ability of OPEC+ to maintain production cuts (without the usual cheating) are feeding bullish sentiment in the energy sector. This confluence of trends also is lifting the broader stock market, which often moves in tandem with the fortunes of the energy patch.

Despite economic damage from the pandemic, quarterly earnings results in the fourth quarter have consistently beaten expectations. The energy sector (+60.9%) is reporting the largest positive (aggregate) difference between actual earnings and estimated earnings.

Roller-coaster action…

Investors have been climbing the “wall of worry” as many fears (e.g., a double-dip recession) never materialize. Energy stocks in particular have been soaring, on the strength of rising crude oil prices.

For Q1 2021, analysts are projecting overall corporate earnings growth of 21.5% and revenue growth of 6.0%. For Q2 2021, analysts are projecting earnings growth of 49.7% and revenue growth of 16.1%.

The combination of improving earnings forecasts and retreating bond yields helped push U.S. stocks to new highs Monday. The Dow Jones Industrial Average jumped 603.14 points (+1.95%), the S&P 500 climbed 90.67 points (+2.38%), and the tech-heavy NASDAQ soared 396.48 points (+3.01%). The S&P 500 posted its best day since June. The small-cap focused Russell 2000 rose 74.82 points (+3.40%).

Monday’s rally reversed last week’s swoon, when rising bond yields pressured equities. In pre-market futures trading Tuesday, stocks were trending lower as inflation worries returned. Perhaps the adage for March will prove to be: in like a lion, out like a roller coaster.

Watch This Video: Rising Rates Rattle Wall Street

However, passage last Saturday of President Biden’s $1.9 trillion stimulus package has sustained the overall bullish mood. Curbing inflation fears are continuing reassurances from Federal Reserve Chair Jerome Powell that the U.S. central bank won’t raise interest rates, even if inflation temporarily spikes this year.

A small-cap rocket…

Ultra-dovish monetary policy will remain a tailwind for the markets, because interest rate hikes are still several years down the road. But it’s time to take out some portfolio insurance.

About 5%-10% of your portfolio should be in precious metals such as gold. I prefer the stocks of gold miners, because they can leverage operating leverage for exponential gains.

Looking for the best gold mining stock? Our investment team has found a small-cap “rocket stock” that’s poised to blast off. The time to invest in this gold mining play is now, before the rest of the investment herd catches on. Click here for details.

John Persinos is the editorial director of Investing Daily. To subscribe to John’s video channel, follow this link. Send comments and questions to: mailbag@investingdaily.com