I see the day traders on social media are spreading the hashtag #stockmarketcrash. They evidently think that this is the end of the world.
Maybe from their perspective, it is. But, all I see on Wall Street is a traffic jam of conflicting signals.
Let’s cut through that noise. Long-term interest rates at this level are not going to cripple the economy, especially with $1.9 trillion in stimulus on the table and the Fed committed to keeping the cash wheels turning.
Fed Chairman Jay Powell effectively said that yesterday. He sees no problem with the yield curve as it stands. If he did, you can bet he would do something about it.
And if Chairman Powell believes that the economy is making progress toward recovering from its pandemic shocks, that’s ultimately a great thing for investors.
Texas is opening up. The latest Labor Department numbers were relatively robust.
These are bullish signals. The only way they can be considered bearish is if you don’t have any faith in either the Fed or the U.S. economy.
And, if you’re in that group, I am not convinced that you should be in the stock market at all. This is a correction and a natural twist in the investment cycle. It’s not a crash.
A strong economy is strong for stocks. If the job numbers suggest that the economy is recovering to the point where the Fed can relax, stocks have a bright future.
We ultimately want the Fed to step back and let the market do its work. But if the numbers are bad, Jay Powell is not going to spontaneously decide he prefers interest rates at recovery-choking levels. In that scenario, the Fed is asleep, incompetent or both.
Many of us have an ambivalent relationship with the central banking establishment, but after decades on Wall Street, I can say with complete conviction that whether the Fed is your friend or not, there’s no point in fighting it.
The Fed Makes the Rules
Powell and company have the big guns. We can complain, we can wheedle and we can try to stay out of the way, but the way that they deploy their policy instruments determines the market reality.
They say they’re not going to raise short-term rates for years to come. What we’re seeing is an erosion of trust in their ability and insight. This is a crisis of confidence.
And that’s all right. Traders are allowed to vote with their wallets. It doesn’t change the market reality, which is that earnings growth is finally reviving and the economy as a whole seems to be bouncing back.
For some, the rebound rates aren’t fast enough or stocks are already too richly valued. Their expectations are too high. They’ll never be happy.
I, for one, am thrilled to see the S&P 500 making more money than it did a year ago. It isn’t a lot of growth, but the trend is finally positive again. The pandemic shock is receding.
Four months ago, we were still stuck in that pandemic world. Growth was negative as the economic environment continued to decline. And yet, the same people who are scorning stocks now hung onto them in the face of all those unflattering comparisons.
That’s not a coherent argument. Every real market crash needs a clear catalyst. In the absence of material and compelling bad news, it’s just another passing storm.
No Clear Sell Signal
What does this mean for us? We go to where the real growth is emerging. Hot money has recognized these themes: electric transportation, online sports and drone aviation.
The last few days haven’t been great for hot money because so many of those traders have been habituated to the pandemic mindset. They saw the real economy reviving and got nervous.
We know the real economy and the digital economy are too closely aligned to be completely antagonistic. Computers aren’t replacing people. A world where people can work and play in the open without fear of getting sick is not going to eliminate computers.
That’s the world our stocks are chasing. As the human economy recovers, they’ll ultimately cheer. I think a strong job market will ultimately be a good thing.
But, we can’t control other traders any more than we can fight the Fed. If the hot money hands want to run from strong numbers, that’s their problem.
All we need to do is maintain discipline and outlast everyone else’s irrational mood swings when they get in our way.
Right now, the irrational fear of the Fed cutting the recovery short has pushed a lot of ironclad stocks off of their record-breaking course and cracked key support levels.
Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN), Facebook Inc. (NASDAQ:FB) and others have dropped 10-20% in the last few weeks.
The S&P 500, Nasdaq and Dow industrials have all tested below their 50-day support, just like they did in October and again in November. We survived each of those dips.
This isn’t a crash. If you’re scared, retreat to the safety of dividend stocks. My Value Authority portfolio has plenty of ideas.
If you’re excited about the future, check out my IPO Edge. We’re holding up well here because we’re directly exposed to companies at the very start of their growth curve.
And in the middle, we trade the controversy. I’m talking about all of this on my Millionaire Makers radio show. Now, there’s a podcast (Spotify)(Apple) as well to keep you focused on opportunities to build real wealth while avoiding obvious threats.
P.S. I’m excited to be part of the Mad Hedge Fund Traders and Investors Summit, which is a free online event taking place on March 9-11. I speak on Thursday at 10:00 a.m. Eastern. Please join me and many other great speakers by clicking here now to register. It’s going to be a great event, and I can’t wait to see you there. (Well, “see” you virtually!)
CANNABIS CORNER: A Little Rain on the Parade
Another week of volatility on Wall Street has been savage for the cannabis stocks.
Look at the numbers. Canopy Growth Corp. (NASDAQ:CGC) is down another 5%. Tilray Inc. (NASDAQ:TLRY) dropped another 11%. Aphria Inc. (NASDAQ:APHA) lost another 12%.
The dozen cannabis stocks I track in my proprietary index are now down 29% in the past two weeks. We’re past correction territory now. This is formally a bear market on the “buzz” theme.
But get real. Even after that sickening lurch to the downside, my index is still up 58% year to date (YTD). That’s two months of rallying that not even two weeks of pain could erase.
It’s just a little rain on the parade. There’s no headline catalyst here and no reason to sell these stocks.
The only thing traders seem to be afraid of here is the notion that the market will take their recent gains away. They’re afraid of fear itself.
We’re holding onto the cannabis micro-caps in my IPO Edge portfolio. They’re up 109% in the aggregate with blue skies ahead.