Trading Desk: Powell Versus The Bears

This has been a great month for growth investors as Wall Street takes a fresh look at its walls of worry and decides that stocks like ours are the best way back to a bullish future. This week revealed that the Fed will do its best to avoid getting in the way of that narrative.

And while any of our stocks could still fumble their quarterly reports or get caught in a larger competitor’s undertow, on the whole this earnings season isn’t triggering a lot of sell signals. If anything, the dominant mood is relief mixed with a little welcome resilience: the trailing numbers may be soft, but executives can see real growth picking up again later this year.

All in all, the future looks brighter than it did a week ago. The economy is closer than ever to recovering from its overstimulated COVID haze and getting back to work. A new expansion cycle is on the horizon . . . and historically, stocks like ours are the ones that set the stage for the next boom.

Fed Dread Evaporates

Yes, the Fed voted again to raise interest rates. And yes, the tightening will continue until inflation recedes another percentage point or so. Neither of these factors is really positive for the market.

But a lot of people were nervous that Jay Powell would once again use his bully pulpit to kick the market. Wall Street was braced for another doomsday scenario . . . and for once, Powell seemed relatively upbeat.

He didn’t say anything at all to talk stocks down. Instead, he focused on progress on inflation and kept the prospect of an economic “soft landing” explicitly open. And suddenly the Fed doesn’t seem so antagonistic any more.

We all want inflation to come down. Consumers obviously need relief. Shareholders need to see the pressure on corporate margins ease. And we all need confidence that a cooling job market won’t necessarily lead to a 2008-style meltdown.

Beyond that, the wisdom of generations still applies. Good, vibrant, dynamic companies can rise above economic challenges and change the world. Disruption can be your friend as long as you can participate in the rewards.

And while there’s always the risk that a business plan that looked great on paper will fizzle out in the real world, a diversified and disciplined portfolio will smooth out a lot of the turbulence along the way.

All the Fed can do is hit the brakes or the gas pedal around that narrative, slowing it down or speeding it up. Some companies that flourished in the easy money COVID era may no longer have what it takes to get to the finish line.

Wide Open To The Recovery

But others will take their place. That’s why we took action last year to pull the plug on stock after stock, generating our first full-year net loss in a decade. The stocks we exited may triumph some day, but right now they’re barely grinding their gears.

What we want right now is stocks that can recover fast in the here and now so we make up for lost time, erase last year’s losses and get back to work. So far, the results have been both thrilling and tangible.

Four months ago, the market was depressed thanks to our friend Jay Powell hitting the brake as hard as he could. My growth portfolio at the time was sitting on a gruesome paper loss. Sure, we avoided the full extent of the NASDAQ as a whole . . . but that’s not exactly news worth cheering.

And so we rotated out of dead money names that would need months if not years to get their groove back. We also took profit on our winners when it started to stall.

That opened up space for new names. They haven’t all been instant winners, but we’re showing a net paper profit on the group now . . . and they’re collectively rebounding at an annualized speed of 12%, which is exactly the rate at which a healthy stock market moves up

This isn’t the bear market world any more. All you need is the vision to see it and the discipline to hold your positions while we’re waiting for the bull.