Some people are talking about the latest Fed meeting like it moved the goalposts back toward bearish territory. I am not convinced. Very little changed in the quarterly “summary of economic projections” released with this week’s statement, and most of the data points that shifted show that the economy is moving in a better direction than expected.
The job market looks like it will remain tighter than the Fed anticipated. Factor seasonal volatility out of energy prices and inflation targets remain exactly where the Fed thought they would go through 2025.
And while the Fed doesn’t anticipate a lot of rate cuts next year, about a half percentage point of relief is still on the calendar. Keep that in mind. Central bankers essentially see one more rate hike coming in the next few months and then that’s it. As long as inflation stays on course, that’s as bad as it gets.
In the meantime, the economy remains more vibrant than just about anyone dared believe. Three months ago, the Fed thought real GDP growth would crater to 1% by the end of the year and stay at roughly that level through 2024. Now they’re pleasantly surprised: the economy will probably expand at a 2.1% rate throughout 2023 and then slow to 1.5% next year.
What does a 2.1% growth rate feel like? Think back to 2019, 2017, 2012. Were those disaster years? Did you feel like you were going over a cliff? All I know is that we survived those years and the market kept moving up. If the Fed is on track, this year will be better than 2016, 2013 and 2011.
And then next year is currently on track to feel more like 2011 or 2016. If that’s as deep as the rate shock gets, I think you’ll agree history shows we can survive that level of sluggish but positive growth. It’s a long way from the contractions we endured in 2008-9 or 2020.
“Bad” Years Can Still Feel Good
We learned to live with that kind of “drift” in the economy. Dynamic companies shook up whole industries and built empires from the wreckage of the 2008 crash. That’s where the giants of the modern economic landscape were born. In 2013, for example, AMZN was only a $130 billion company, about double the size of SHOP today.
If SHOP gets that kind of trajectory in the coming decade, we’ll all be thrilled. Look at META in 2013. TSLA was just an oddball toy for Hollywood eccentrics. NVDA. Even AAPL and MSFT were still in the middle stages of their rise to the top of the corporate food chain. They did all this despite an economic environment that rarely provided any kind of tailwind.
When the economy is booming, it’s not hard to make money even if your business plan is out of date. But when growth is scarce, smart money gravitates toward companies that know how to make growth happen. That’s a classic GameChanger story.
And one more note on historical statistics before we get back to our real focus on the future. GameChangers was born in 2011, one of those “slow” years. Since then, money across the portfolio has moved at a rate of nearly 19% a year . . . just enough faster than the S&P 500 over time to keep life interesting across fast and slow periods, hot and cold.
I see no reason that won’t continue. If anything, I’m looking forward to pointing out the AMZNs and TSLAs of tomorrow here. Speaking of which, I can’t help but notice that while our portfolio has lost some ground since the Fed meeting, the real pain has come at the big end of the market.
The “magnificent 7” stocks that dominate Silicon Valley and Wall Street alike are down 4.5% in the last few days. Our stocks have evaded about half of that loss and I’m confident that we’ll ultimately recover that ground.
But how is it that our stocks are allegedly so overvalued and so vulnerable to the rate environment, yet we’re holding up better than the established giants? Once again, I think reality is getting in the narrative’s way, and when that happens the narrative has to be the one that folds.