A lot has happened in the last two weeks and it has certainly been a bumpy ride for the S&P 500 (SPY). Just when it looked like higher-than-expected data points were pushing us toward a 50 basis point rate hike, we saw two banks collapse seemingly out of nowhere in one week. Now the Federal Reserve has two big problems… Read on to find out what we can do about it.
(Enjoy this updated version of my weekly commentary originally published March 14e2023 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, sending the whole market into a panic as everyone wondered if this would be an industry wide problem .
That panic continued on Monday, when many learned government regulators had shut down a second major bank (Signature Bank) over the weekend.
And while we didn’t see any more banks go under yesterday, we did see close to two dozen banks stop trading.
SVB and Signature Bank were the second and third largest bank failures in US history, respectively. So even if it doesn’t turn out to be a systemic problem across the entire banking industry, it’s still a big problem.
Especially if you’re Fed Chairman Jerome Powell.
You see, Powell is in a bit of trouble right now. Today’s CPI numbers estimate inflation at 6%, which is still well above the Fed’s chosen target level of 2%.
For the past year plus, the Fed has used rate hikes as its weapon of choice to curb inflation. But rising rates are the culprit behind the sudden collapse of the SVB.
As of this weekend, fighting inflation is no longer the Fed’s sole focus… it must also consider overall financial stability and credit conditions.
A pause in rate hikes would be best to help stabilize banks… but as the February CPI report reminded us this morning, inflation isn’t dying out any time soon, meaning there is a good case for continuing to raise rates.
As shown in the chart below of the S&P 500 (SPY), stocks are now trading back below the 200-day moving average, which has been a consistent framework for bullish and bearish action during the Fed’s recent rate hike program.
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 that will likely be the next major market mover.
A pause would be good for the banks, but bad for the fight against inflation. An increase of 50 basis points would be good for the fight against inflation, but bad for the banks.
I expect they’ll split the difference and we’ll end up with a 25 basis point increase, which wouldn’t add much to inflation and put banks in an even tighter position. So kind of the worst of both worlds.
In that respect, I want to take a step back so that we can take a step forward.
POWR Growth operates according to a specific charter. Our goal is to find and own the best growth stocks, using the POWR Ratings system. That’s 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 protection against a bear market or recession is (1) holding a large amount of cash and (2) trying to find growth stocks that outperform in a tough environment.
There are other services in our arsenal that are built for versatility. If that’s something you’re looking for, I recommend checking out Tim Biggam’s POWR optionswho can profit from both ups and downs in the market using puts and calls.
There is also Reitmeister Total Returnthat aims to deliver positive returns regardless of market conditions using US stocks and ETFs that track gold, bonds, reverse performance… sky’s the limit.
Now I’m not saying 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 aligned on what this strategy can and can’t do. And right now, due to adverse market conditions, we are trading with one hand behind our backs.
Conclusion
I know; we are closing a large portion of our portfolio today. That was not on purpose or even intended. It’s exactly what I see when I watch the news, look at each stock’s fundamental outlook, and look at the price action.
Interestingly, this ties in remarkably closely with our two hedging moves: switching to majority cash and finding the outperformers in a tough environment.
Despite what we’re up against, I’m always looking for growth stocks to add to our portfolio, and I’m actually just starting to look for a new pick.
Assuming my research doesn’t reveal any major headwinds, we could use some of our money in the next 24 hours.
What to do now?
Check out my top stocks for the current market in the POWR Growth Portfolio.
This exclusive portfolio takes most of the new picks from our proven “Top 10 Growth Stocks” strategy, which has delivered excellent results average annual return of +46.85%.
And yes, it continues to outperform even in these rough markets.
If you would like to see the current portfolio of growth stocks and be notified of our next timely trades, please consider starting a 30-day trial by clicking the link below.
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All the best!
Meredith Margrave
Chief Growth Strategist, StockNews
Editor, POWR Growth Newsletter
SPY shares traded at $385.61 per share Wednesday afternoon, down $6.12 (-1.56%). Year-to-date, SPY has gained 0.83% versus a percentage increase of the benchmark S&P 500 index over the same period.
About the author: Meredith Margrave
Meredith Margrave has been a well-known financial expert and market commentator for the past two decades. She is currently the editor of the POWR growth And POWR shares under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.
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