A lot has happened in the last two weeks and it has certainly been a bumpy road for the S&P 500 (SPY). Just when a higher than expected data point seemed to push us towards a 50 bps rate hike, in a week he had two banks suddenly appear to have gone bust. Now the Federal Reserve has two big problems with him… read on to find out what we can do about it.
(Enjoy this updated version of my weekly commentary, originally published on March 14th.thfrom 2023 POWR Growth Newsletter).
For those of you who have been ignoring this news for the last few days, it’s the only way you missed the story – Silicon Valley Banks collapsed and everyone wondered if it was an industry-wide problem. The thought caused the entire market to panic.
The panic continued on Monday, when many learned that government regulators closed a second major bank, Signature Bank, over the weekend.
No banks were seen to fail yesterday, but close to 20 banks were confirmed to have stopped trading.
SVB and Signature Bank were the second and third largest bank failures, respectively, in US history. So it’s a big problem, if not a banking industry-wide systemic problem.
Especially if Fed Chairman Jerome Powell.
As you can see, Powell is in a bit of a pinch right now. Inflation stands at his 6% in today’s consumer price index, still well above his 2% target level chosen by the Fed.
Over the past year or more, the Fed has chosen rate hikes as a weapon to contain inflation. However, rising interest rates are the cause of his SVB’s sudden collapse.
Fighting inflation is no longer the Fed’s sole focus as of this weekend. Overall financial stability and lending terms should also be considered.
Pausing rate hikes would be great for stabilizing banks…but as the February CPI report pointed out this morning, inflation won’t go away anytime soon.
As you can see in the chart below for the S&P 500 (spy), the stock is currently trading below its 200-day moving average, which has been a consistent framework for bullish and bearish action throughout the Fed’s recent program of rate hikes.
What should I do… what should I do…
Personally, I’m glad I didn’t put myself in his shoes.
The next Federal Reserve Board meeting is scheduled for March 21 and 22, and that could be the next big market move.
Suspensions are good for banks, but bad for fighting inflation. A 50 basis point rate hike is good for fighting inflation, but bad for banks.
I expect them to split the difference and end up with a 25 bps rate hike, which won’t do much for inflation and will put banks in even more trouble. So the worst of both worlds.
In that regard, I would like to take a step back so that I can take a step forward.
POWR Growth operates under a specific charter. Our aim is to find and own the best growth stocks with the help of the POWR rating system. This is an excellent strategy and has been profitable for many years. A great piece of balanced portfolio.
However, there is not much flexibility during times of market uncertainty. The best hedges against a bear market or recession are (1) holding a lot of cash and (2) trying to find growth stocks that outperform in a tough environment.
Our arsenal has other services built for versatility.I recommend checking out Tim Biggam’s if that’s what you’re looking for POWR optionputs and calls can be used to profit from both the ups and downs of the market.
there is also light meister total return, seeks to generate positive returns using U.S. equities regardless of market conditions. And there are no limits: gold, bonds, ETFs that track the performance of the opposite.
Now, I’m not saying it’s impossible to make money in this market without access to the 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 can’t do.
Conclusion
I know; I will be closing the majority of my portfolio today. It wasn’t by design, nor was it necessarily intended. Looking at the news, looking at the fundamental outlook for each stock, looking at price action, this is exactly what I see.
It’s interesting that this aligns so closely with our two hedging actions: moving to majority cash and finding outperformers in a tough environment.
Despite what we face, I am always on the lookout for growth stocks to add to my portfolio and have really just started looking for new picks.
Assuming no major headwinds in my research, you should be able to put some of your cash to good use in the next 24 hours.
what next?
See my top stocks for today’s market within POWR Growth Portfolio.
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And yes, it continues to outperform significantly in these turbulent markets.
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all the best!
Margrave Meredith
StockNews Chief Growth Strategist
POWR Growth Newsletter Editor
SPY shares traded at $385.61 per share on Wednesday afternoon, down $6.12 (-1.56%). Year-to-date, SPY is up 0.83% on him, while the benchmark S&P 500 index gained 10% over the same period.
About the Author: Meredith Margrave
Meredith Margrave has been a prominent financial expert and market commentator for the past 20 years. she is currently Growth of POWR and POWR Stocks Under $10 Newsletter. Learn more about Meredith’s background, with links to her latest articles.
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