Stocks surged last week with the S&P 500 up 2.1% on the week and at a 4 month high. While the week showed significant weakness midway, Friday served as an exclamation point, confirming a technical breakout.  The S&P’s surge was broad-based with consumer discretionary stocks advancing 2.9% and small caps adding 3%.

The FOMC announced that they will leave the Fed funds rate unchanged and they anticipate economic activity to require current low rates for an extended period of time. Of course, low rates and extremely low inflation will continue to produce low yields for fixed income investors. Low rates will also postpone the day of reckoning which awaits bond investors who are not prepared for inflation, higher interest rates or deflation.

Market sentiment continues to improve as productivity gains generate higher profits for big companies. This is likely to continue as corporations remain hesitant to re-hire employees who were displaced during the recession.

Market data have improved significantly this month, with last week showing technicians a strong break higher in the range-bound trading pattern of the last year. HFI Wealth Management’s “Advance & Protect” investment strategy allows us to make adjustments to a client’s portfolio strategy (within the limitations set forth by the agreed investment policy) to increase or reduce exposure to various asset classes based on technical research performed by our research vendors. Our clients are aware that earlier this year we reduced exposure to stocks, particularly Emerging Markets, US Large Cap Growth and Small Caps. With positive market momentum confirmed this month and particularly last week, we will begin to reintroduce these equity asset classes.

HOW THE RICH SPEND THEIR MONEY may have a big impact on the pace of our economic recovery. Consider this, the top 5% of Americans by income account for 37% of all consumer outlays, according to an August 5 Wall Street Journal article that was based on data from Moody’s Analytics. At the other end of the spectrum, the bottom 80% by income account for 39.5% of all consumer outlays. So much for the 80/20 rule!

The share of spending by the top 5% has grown over the years, too. Back in the third quarter of 1990, the top 5% accounted for 25% of consumer outlays versus the 37% today, according to the Journal article.

In a 2005 research report, analysts at Citigroup coined the phrase “Plutonomy” to describe countries that exhibit significant income and wealth inequality. Plutonomies also are disproportionately dependent on the spending habits of the wealthy. According to that 2005 report, Citigroup classified the U.S., U.K., Canada, and Australia as Plutonomies.

So, if you want to know where the economy is heading—follow the money!