A lot has happened in the past two weeks, and it’s certainly been a bumpy ride for the S&P 500 (SPY). Just when it looked like hotter-than-expected data points were pushing us toward a 50bps rate hike, we saw two banks collapse seemingly unexpectedly in a single week. Now the Federal Reserve has two big problems on its hands… Read on to find out what we can do about it.
(Please enjoy this updated version of my weekly commentary originally published on March 14th2023 of the POWR Growth newsletter).
For anyone who has been ignoring the news for the past few days, because that’s the only way you would have missed this story, Silicon Valley Bank collapsed, causing panic throughout the market as everyone wondered if this it would be a problem for the entire industry. .
That panic continued on Monday, when many discovered that government regulators had shut down a second major bank (Signature Bank) over the weekend.
And while we didn’t see more banks go down yesterday, we did see trading halt at nearly two dozen banks.
SVB and Signature Bank were the second and third largest bank failures, respectively, in US history. So even if it doesn’t turn out to be a systemic problem within the entire banking industry, it’s still a big deal.
Especially if you’re Fed Chairman Jerome Powell.
You see, Powell is in a bit of a pickle right now. Current CPI figures put inflation at 6%, which is still well above the Fed’s chosen 2% target level.
Over the last year or so, the Fed has used interest rate hikes as a weapon of choice to reduce inflation. But rising rates are to blame for SVB’s sudden collapse.
As of this weekend, fighting inflation is no longer the Fed’s only focus… it must also consider global financial stability and lending conditions.
A pause in rate hikes would be better to help stabilize the banks…but as the February CPI report reminded us this morning, inflation is not dying out quickly, which means there is a compelling case for continuing to raise rates.
As you can see in the S&P 500 (SPY) chart below, the stock is now trading below its 200-day moving average, which has been a consistent framework for bullish and bearish action during the recent rally Fed rate
What to do… what to do…
Personally, I’m glad I’m not in his shoes.
The next Federal Reserve meeting is scheduled for March 21-22, and will likely be the next big market mover.
A break would be good for the banks but bad for the fight against inflation. A 50 bp increase would be good for the fight against inflation, but bad for the banks.
I hope they split the difference and we end up with a 25bp hike, which wouldn’t do much for inflation and put the banks in an even tighter spot. So, a bit of the worst of both worlds.
On that note, I want to take a step back so we can take a step forward.
POWR Growth works with a specific card. Our goal is to find and own the best growth stocks, with the help of the POWR ranking system. This is a great strategy and one that has been profitable for many years. It’s a great piece of a well-balanced portfolio.
However, it does not offer much flexibility in times of market uncertainty. Our best hedge against a bear market or recession will be to (1) hold a lot of cash and (2) try to find growth stocks improving in a difficult environment.
There are other services in our arsenal that are designed for versatility. If that’s what you’re looking for, I recommend checking out Tim Biggam POWR Optionswhich can benefit from both ups and downs in the market through puts and calls.
There are also Full Reitmeister performancewhich seeks to generate positive returns regardless of market conditions using US stocks as well as ETFs that track gold, bonds, inverse yield… the sky’s the limit.
Now, I’m not saying that it’s impossible for us to make a profit in this market without access to these same tools.
THIS IS NOT A WHITE FLAG OF SURRENDER.
But I want to make sure we’re all on the same page with what this strategy can and can’t do. And right now, due to unfavorable market conditions, we’re trading with one hand behind our backs.
I know; We are closing a large part of our portfolio today. This was not by design or necessarily by intention. It’s what I’m seeing by looking at the news, looking at the fundamental outlook for each stock, and looking at price action.
Interestingly, this aligns remarkably with our two hedging actions: moving to majority cash and finding the best in a difficult environment.
Despite what we face, I’m always looking for growth stocks to add to our portfolio, and in fact, I’ve just started looking for a new pick.
Assuming my research reveals no headwinds, we should be putting some of our cash to good use in the next 24 hours.
What to do next?
Check out my top stocks for the current market within the POWR Growth Portfolio.
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And yes, it continues to outperform by a wide margin even in these difficult and falling markets.
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All the best!
Chief Growth Strategist, StockNews
Publisher, POWR Growth Newsletter
Shares of SPY were trading at $385.61 per share late Wednesday, down $6.12 (-1.56%). Year to date, SPY has gained 0.83%, versus a % increase in the benchmark S&P 500 over the same period.
About the Author: Meredith Margrave
Meredith Margrave has been a prominent financial expert and market commentator for the past two decades. She is currently the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.
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