If you’ve been impatient for the Federal Reserve to finally “just stop” with this aggressive interest-rate policy, then Jerome Powell had some good news and some bad news for you in yesterday’s Fed policy announcement.
After 10 straight increases, the Fed left interest rates unchanged – the first time that’s happened since January 2022. Yay!
But Powell also signaled that we’ve got a long way to go before inflation is beaten, so the Fed said it could bump rates higher again – maybe even two more times by the end of the year. Boooo!
So, what do we make of his announcement? And how should we play this with our stock portfolios?
Well, it’s important to note a couple of things here:
First, while inflation is still high, it’s clearly cooling. We’ve already watched it drop from 9.1% last June to 4.1% this May. That’s a 5% drop – a significant change.
Granted, when you strip out food and energy prices, inflation was more like 5.3% for May. And while that’s down from 5.5% in April, and the trend is clearly heading in the right direction, the Fed really wants us to get all the way down to 2%.
Second, there’s historical precedent with how these interest-rate policy cycles tend to play out.
When you look at the Fed funds rate going back to 2000, here’s what you’ll find: Each time the Fed made a bunch of hikes then “paused” like this – it didn’t come back and start ramping up rates again. There was a plateau. And not for an insignificant amount of time, either:
In fact, as you’ll see in the chart above, rates actually fell from that plateau – and pretty dramatically, too.
So, keeping in mind that the current cycle gave us the fastest surge in rates since 2007 – from 0.25% to 5% in just 14 months – it’s hard to imagine that the Fed will stray too far from its previous patterns of behavior.
Therefore, when Powell says he could boost rates two more times, I view that as more of a “warning” than a “promise.” I think he worried that folks were becoming less cautious — and wanted to send a message that says, in effect, chill out.
It’s kind of like your Mom or Dad saying: “Yeah, you can go play, but don’t forget, you’ve got to come back soon and do your homework.” Or: “Don’t get too crazy because you don’t want to hurt yourself.”
So, when these Fed meetings happen, you have to “decode” the messaging like that.
You have to keep telling yourself: “Inflation is cooling, things are getting better, and rates are stabilized for the moment.”
Truth be told, I won’t be stunned if we see zero rate hikes for the rest of the year. At most, I’d say Fed decisionmakers could pause for a meeting or two and then raise by just 0.25%; something like that.
All in all, it was actually a good meeting – and investors see it that way. After an initial sell-off, they’re buying off the lows.
In fact, it’s clear the S&P 500 has entered a new bull market.
Here’s Why I Still Expect a Strong Second Half of 2023
We’ll see how the markets react to the Fed’s language, near term.
But, stepping back, we’ve had a terrific run off the October lows. I don’t see us slipping back into a bear market any time soon.
After all, the tech rally is still very much underway – and it’s immense.
Nvidia (NVDA) is still on fire… as are other chipmakers like Advanced Micro Devices (AMD).
In fact, AMD just picked up another Big Money “buy” on Monday, pushing our Quantum Edge Trader position to a 30% gain in less than three months. The green bars in the chart below show you just how much Big Money has been attracted to AMD this year:
Chipmakers aren’t the only winners – software companies are doing great, too.
As a group, tech stocks just can’t be budged from the top of my Sector Ranks. Other sectors can’t even come close, particularly on the Technicals:
Back in 2022, of course, tech was the LAST place investors wanted to put their money.
Apple (AAPL) had gone from being the most reliable stock of the past two decades – to losing over 31% of its value. Facebook, now Meta Platforms (META), got stung even more – with more than 63% of its value wiped away in a single year. Both of these companies and more made huge layoffs.
It’s no surprise that most investors wouldn’t touch them.
After all, in a high interest-rate environment, it gets a lot more expensive for companies to invest in their business, banking on future profits.
But I’m not most investors.
And I know that you can still make a lot of money, even when our tech-driven economy is in the midst of a pure tech collapse.
I trust my Quantum Edge system when it lights up green for a stock like New Oriental Education & Tech (EDU) last June.
In the end, EDU doubled (and then some): gaining 158% in a little over six months.
Going forward, humanity’s reliance on tech is not going to shrink. It’s going to grow.
And that’s not the only path that’s starting to clear. We’re not out of the woods yet, but our stock portfolios have been doing very well overall.
I’ll keep you posted on what other opportunities pop up – especially the ones that no one else is talking about. (Yet.)
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends
Disclosure: On the date of publication, Jason Bodner held a position in Apple Inc. (AAPL) and Nvidia Corp. (NVDA), mentioned in this article.
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