A lot has happened in the past two weeks and it has definitely been a bumpy ride for the S&P 500 (SPY). Just when it seemed like warmer-than-expected data points were pushing us toward a 50-bps rate hike, we saw two banks unexpectedly implode in the same week. Now the Federal Reserve has two big problems… Read on to learn what we can do about it.
(Please enjoy this updated version of my weekly commentary that was originally published on March 14, 2023 from the POWR Growth newsletter).
For anyone who’s been ignoring the news the past few days – because that’s how you’ll be remembering the story – Silicon Valley Bank collapsed, causing panic throughout the market as everyone wondered if it was a There will be an industry-wide problem.
The panic continued on Monday, when many learned that government regulators had shut down another major bank (Signature Bank) over the weekend.
And while we didn’t see any more bank collapses yesterday, we did see trading halt in nearly two dozen banks.
SVB and Signature Bank were respectively the second and third largest bank failures in US history. So, even if this isn’t a systemic problem within the entire bank industry, it’s still a big deal.
Especially if you’re Fed Chair Jerome Powell.
You see, Pavel is in a bit of a pickle now. Today’s CPI numbers put inflation at 6%, which is still well above the Fed’s chosen 2% target level.
For more than the past year, the Fed has used interest rate hikes as its weapon of choice to reduce inflation. But rising rates are the culprit behind the sudden collapse of SVB.
By the end of this week, fighting inflation is no longer the Fed’s sole focus… it also needs to consider overall financial stability and debt conditions.
A pause in rate hikes would be best to help stabilize the banks…but as the February CPI report reminded us this morning, inflation isn’t going away anytime soon, which means rates will continue to rise A compelling case to keep.
As can be seen for the chart below of the S&P 500 (SPY), stocks are now trading below their 200-day moving averages, which is a sign of bullish and bearish action during the Fed’s recent rate-hike program. There has been a consistent pattern for
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 and 22, and it will likely be the next big market mover.
The pause would be good for the banks but bad for the fight against inflation. A 50 bps hike would be good for the fight against inflation but bad for banks.
I hope they split the difference and we end up with a 25-bps hike, which won’t do much for inflation and will put banks in an even more difficult position. So, kind 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 operates on a unique charter. Our objective is to find and own the best growth stocks with the help of POWR rating system. This is a great strategy, and has been profitable for many years. It is a great part of a well balanced portfolio.
However, it does not offer much flexibility in times of market uncertainty. Our best defense against a bear market or recession would be to (1) maintain a large amount of cash and (2) try to find growth stocks that will outperform in a difficult environment.
We have other services in our arsenal that are built for versatility. If you’re looking for such a thing, I suggest checking out Tim Biggam’s POWR options, which can profit from both market volatility using puts and calls.
There’s also Reitmeister Total Return, which seeks to generate positive returns no matter market conditions using US stocks, as well as ETFs tracking gold, bonds, inverse performance… 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 those same tools.
This is not a white flag of surrender.
But I want to make sure we’re all on the same page about what this strategy can and cannot do. And right now, due to adverse market conditions, we are trading with one hand behind our back.
I know; We are closing a substantial portion of our portfolio today. It was not by design or necessarily intended. This is what I do by watching the news, looking at the fundamental outlook of each stock, and watching the price action.
It’s interesting that this coincides remarkably closely with two of our hedge functions — getting in the most cash and finding the outperformers in a tough environment.
Regardless of what we’re up against, I’m always on the lookout for growth stocks to add to my portfolio, and am actually starting to look for a new pick right now.
Assuming my research doesn’t reveal any major headwinds, we should be able to put some of our cash to good use over the next 24 hours.
What To Do Next?
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And yes, it continues to outperform by a wide margin even in these volatile markets.
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Chief Growth Strategist, StockNews
Editor, POWR Growth Newsletter
Shares of SPY were trading down $6.12 (-1.56%) on Wednesday afternoon at $385.61 per share. Year-to-date, SPY has gained 0.83%, compared to a 0.83% gain in the benchmark S&P 500 Index during the same period.
About the author: Meredith Margrave
Meredith Margrave is a well-known financial expert and market commentator for over two decades. She is currently the editor of the POWR Growth and POWR Stocks under $10 newsletters. Learn more about Meredith’s background, including links to her most recent articles.
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