Trading Desk: The Right Stocks Are Rallying

Mighty AAPL has lost about $150 billion in market cap in the last few days . . . enough to keep the market overall under a cloud. It’s hard for the S&P 500 and the NASDAQ to recover their momentum in any meaningful way when their biggest engine is stalled.

But guess what? You won’t find AAPL on my Buy List. Our stocks have retained their dynamic equilibrium throughout this season despite all the weight of an economy that’s frustratingly running too hot for the Fed and not hot enough to overcome gnawing recession fears. We’re actually winning, with our active positions up another 2% in the past week where the S&P 500 and the NASDAQ have drifted lower.

We’ve all heard market players talk from their feelings. But in this case, the hard numbers are proof that this is more than my native grit and optimism talking. This is reality. Money is moving into our specific mix of stocks even as it moves out of AAPL and other giants.

This is what winning looks like. It’s tangible. And while not every stock has moved in the right direction, we’re not passive passengers on the ride. Since our earnings season began, we’ve added three names to the Buy List, flipped one of them for a fast 20% profit and rotated out of a company I love for the long haul but not for right now.

We keep dodging bullets and embracing opportunities. The end result: at almost every phase in the market’s mood cycle, we’re winning. Even a tiny edge compounds if you can exploit it for extended periods, and that’s exactly what we’ve done this season.

Let’s take a little time today to dissect that statement and demonstrate that it’s more than a feeling. Start with the formal start of this earnings period, when the big banks hogged the early spotlight and left our stocks in the shadows. The banks are all about caution: the Fed, capital reserves and credit quality. When they control the messaging, these are the topics that rise to the surface.

Our stocks took a step back for a few weeks. A few really struggled to attract buyers in that environment. But we hung on for the mood to turn and now I’m pleased to say that they’ve clawed back all the ground they lost when the banks were in the spotlight . . . the worst is now up a net 10% across the larger season.

The rollercoaster wasn’t so scary after all. And because “our” earnings season started late, the next few weeks established a pattern: great quarterly numbers and better guidance on name after name proving that the Fed and the economy aren’t pushing these companies into any kind of wall. The stocks faltered, but we can’t attribute that to the fundamentals.

As we can all remember, the stocks faltered because last month was terrible for the bond market and a lot of investors had trained themselves to associate high bond yields with low valuations on growth stocks in particular. It was really a matter of math . . . but mostly morale. People flinched. It happens.

Our stocks dropped 7% in this stage of the “earnings” season. I put it in quotes there because the actual earnings were secondary at best. It was really all about the rate environment triggering a relapse to last year’s bear market mood.

But in the weeks that followed, the numbers kept stacking up and people found a way to get used to those bond yields. Suddenly the rate environment didn’t look so instantly lethal . . . after all, growth companies were not only surviving but thriving. The selling slowed down. Buyers came back.

You can see on chart after chart that Jay Powell’s much-dreaded Jackson Hole speech was the turning point. After that, it was clear to everyone who was really paying attention that the Fed had run out of fresh ways to scare us. Inflation is receding. The economy remains resilient. We might not end up in a truly soft landing, but a hard crash looks a lot less imminent now.

Either way, between that nothingburger speech and now, stocks that have moved across the GameChangers screen have rebounded 10% in the aggregate. Huge. It hasn’t even been three weeks!

It’s all about the numbers. We stay open to big wins even if it means setting ourselves up for a comparable loss. As long as the wins outnumber and outscale the losses, we make money in the aggregate. With the right numbers, we make more money than we’d ever make on the S&P 500 or even the NASDAQ.

That’s why I wake up in the morning thrilled to check the GameChangers spreadsheets. The old names are outperforming. The new names are even better. And I think that’s going to accelerate as the market continues to wake up to the reality of this rate environment.

Rates sting. The Fed is hellbent on cooling the economy down. We’ve already seen that chilling effect on S&P 500 earnings and higher interest rates generally force the hottest stocks back to earth as well.


Our stocks are hot because the companies behind them are growing so fast that they deserve to trade at a significant premium to either the S&P 500 or the Mega Tech names that dominate the NASDAQ. That growth has not stopped. If anything, you could argue that companies that are still expanding deserve an even higher premium price because the S&P 500 as a whole is in such a funk that real growth is scarcer than usual.

And our stocks already crashed when interest rates made their steepest ascent of all early last year, jumping infinitely from zero to positive territory. We didn’t own a single stock on the Buy List then. Our world was very different, and we’ve done the heavy lifting required to get from there to here.

Maybe there’s a recession brewing. You could not tell from these conference calls, where guidance came in as good as Wall Street dared to hope . . . and in most cases, BETTER. There’s no recession for these companies. And these are the companies we own.