3 Tips to Survive the Federal Reserve’s Rate Hikes
In two hours, the Federal Reserve will announce its first rate hike decision of the year.
The Fed’s already dished out seven consecutive hikes — today’s will likely be #8, a smaller 0.25% increase.
Still, you can’t blame investors for flinching when Powell takes the podium this afternoon. This rate-hiking campaign is the fastest in history:
But here’s the Real Talk…
If you’re sitting around worrying about this rate hike, you’re missing the big picture… and an even bigger opportunity.
Yes, these rate hikes seemed like the key catalyst for falling stocks last year. And another rate hike may seem like a good reason to sell…
But history shows it was never quite that simple…
Rate Hike Reality
The first rate hike in March 2022 came as a shock to the financial system.
Inflation was at 40-year highs, and the Fed was out to stop it — slamming the brakes on the global economy.
And while everyone knew those first few rate hikes were just the beginning, no one knew which businesses could survive in this new environment.
I don’t think investors were ever worried about the rate hikes themselves… They were worried about the uncertainty surrounding them.
How high would rates go? How fast? And most importantly, which businesses wouldn’t be able to survive them?
That uncertainty is what really caused the massive sell-offs in the first half of the year. And in that selloff, we got our answer to the most important question.
As it turns out, zombie stocks — companies that earn just enough money to continue operating and service, but not pay off debt — folded like a house of cards.
Stocks like Carvana, Coinbase and Teladoc…
Some of these fell 90% from their highs or more.
Even quality great businesses like Google, Microsoft, and Apple saw their share prices tumble as well. Because when the bear comes to Wall Street, he doesn’t care what he eats. (I was actually thrilled to see that … and I’ll explain why in a minute.)
But this time around, things are a bit different…
Through the last five rate hikes — from June 16th, 2022 through today — markets have actually gone up.
The S&P 500 rose over 12% even as the Fed’s key rate has nearly doubled.
While we can’t rule out future rate hikes, it seems the worst is behind us.
The Fed’s rate hikes are working. Inflation is already down from last year’s highs. And high-profile layoffs prove the economy is slowing down.
Keep in mind, the stock market is a discounting machine that looks toward the future, not the past. So even though some investors might still be struggling with shellshock, the market’s already ahead of the curve.
Instead of worrying about how much markets might slip or rise after a Fed announcement today…
Investors should be focused on the specific companies that can dominate their industries over the next five years … not on what they’ll do over the next five minutes.
As Warren Buffett said, “If you wait for the robins, spring will be over.”
Bear Market Gifts
Aside from energy stocks, just about everything went down in 2022.
It was a rude awakening after the longest bull market in stock market history.
But what I’ve learned over 40 years in the market and investing through six bear markets, it’s that these times are a gift…
An opportunity to buy some of the market’s best businesses at bargain prices.
That’s especially true right now. Thanks to last year’s panic-selling, some great businesses are selling at bargains we haven’t seen since the last bear market — over a decade ago.
You don’t want to wait around and miss an opportunity like that. Especially not because you’re waiting to see where rates might end up or when “things settle down.”
That’s why I never stopped buying.
Through seven different rate hikes, I continued to buy and recommend new stocks to my readers.
And the results so far speak for themselves …
On April 14th, just 3 weeks before Fed Chair Powell hiked rates by half a point, I told my subscribers to buy Atlas Air Worldwide Holdings Inc. (Nasdaq: AAWW), a leading global air freight company.
Despite five subsequent rate hikes, we’re already up 49%.
The same goes for Biohaven Pharmaceuticals (NYSE: BHVN), a cutting-edge pharmaceutical company that was added to the portfolio just one week after a ¾ point rate hike.
That one’s up 170%!
I even made my most recent recommendation on January 9th — just 3 weeks ago — with today’s incoming rate hike in mind (and it’s already up 24%).
So it doesn’t really matter whether rates rise or not.
What matters is buying great businesses at bargain prices … partnering with rock-star CEOs in industries that have massive tailwinds.
Do that and it’s pretty hard not to make money.
The hardest part for most people is just pulling the trigger.
For investors with their own savings on the line, it’s hard to keep emotion out of the process. So many fall back on their instincts … and start to follow the herd.
They’ll wait for sentiment to improve, only investing when other people are — often when prices are at their highest.
That’s the fatal flaw that locks investors out of some of their biggest potential gains.
Just look at what happens if you follow the herd with your investing decisions…
We can see how “the herd” feels with the consumer sentiment index. It measures how optimistic consumers feel about their finances and the state of the economy.
Over the past 50 years, every time this index makes a low, stocks soared over the next 12 months:
|Date Consumer Sentiment Bottomed:||Stock Market Gains in 12 Months:|
As I write this, it’s already been over six months since consumer sentiment reached its newest lows.
During that time, many of the stocks in our portfolios have soared higher.
So, before you listen to the endless video clips of the Fed meeting …
Before you watch CNBC’s talking heads pick apart every line of Powell’s speech …
And before you spend another day waiting for a sign from above…
Remember These 3 Things
If you want to make money in the stock market in 2023, keep in mind…
No. 1: Stocks are up 12% in the past seven months, even with five rate hikes.
No. 2: Great businesses will keep growing their earnings regardless of what the Fed does.
No. 3: There are always opportunities in the market … you just need to know where to look.
And that’s where I can help you…
My readers and I are sitting on gains like the 24%, 49% and 170% I mentioned above.
The bottom line is this: I don’t let 12 people in a room dictate my strategy. The Fed can raise rates again today and I wouldn’t change one thing in how I invest.
If you invest in stocks for what they really are — pieces of a business — you don’t need to change anything.
Buy businesses, run by rock-star CEOs, in niche industries at bargain prices.
But if you’re waiting for the Fed meeting to tell you what to do… you’re missing a huge opportunity.
I’m not waiting.
In fact, I’m investing $1 million in my new Inevitable Wealth portfolio.
I explained it all to my friend, former Governor Mike Huckabee — including details about the first three stocks I was buying.
At first, he didn’t understand why.
Then, I showed him one single chart … that ended up leaving him speechless.
A week after our interview went live, his daughter Sarah became the first female Governor of Arkansas.
When I texted him congratulations, he was quick to respond:
“Thanks. And I bought all 3 of those stocks!”
Go here now to hear about these three stocks. I guarantee it’ll be more fun than waiting for the Fed’s announcement!
Founder, Alpha Investor
Market Edge: The Meme is Dead, Long Live the Meme!
One of the unfortunate legacies of the 2020-2021 “everything” bubble was the rise of the meme stock trader.
Hordes of amateurs sharing stock ideas over internet message boards, usually with a healthy dose of profanity and always with an inside-joke vocabulary…
It wasn’t the stock market. It was the stonk market.
They had their moments. Some of the smarter meme traders noticed the exceptionally high short interest in GameStop and concocted what may be remembered as the greatest short squeeze in history.
Others bid up troubled stocks like AMC Entertainment (AMC) to prices that made no economic sense.
But perhaps the most ludicrous of all was the story of rental car company Hertz. At the onset of the pandemic, the company was forced to declare bankruptcy… and yet meme traders bid the shares up by 825%.
Stop and think about that. The company was bankrupt, unable to pay its debts and forced to reorganize.
In bankruptcy reorganizations, the existing stock generally gets written down to zero. And yet there was a bubble even in that.
The saga continues. Charles Mizrahi’s worst stock to own in 2023 – Carvana – is the latest meme stock. As I write this, the stock is up about 50% over the past two days… on no news or announcements.
When you see a move like that, particularly when there is no news, it generally means one thing: short squeeze.
No intelligent trader is buying Carvana because they think it’s a good company. They’re buying it because they understand the internals of the market.
As I write this, approximately 65% of Carvana’s float, or the shares available to trade, are sold short.
When you short a stock, you’re betting it will fall in value. But you can’t sell something you don’t have.
So in order to short a stock, your broker has to go borrow it first from another investor.
When you borrow something, you’re expected to pay it back. So, every single share of Carvana that has been sold short is a share that must be repurchased. And when prices rise, short sellers panic, and that can snowball quickly.
Because of 2022, I know you’re familiar with panic selling. Well, in a short squeeze, you get panic buying because the short sellers face potential ruin if the shares rise too much.
That’s what traders are betting on with Carvana right now.
If you want to play that game, I’m not stopping you.
Just don’t stick around too long. Because once the short sellers are done covering their shorts, gravity has a way of reasserting itself, and you don’t want to ride the stock all the way down. (Take a look at the chart of GameStop, AMC, and Hertz from their “heyday” for good examples of what can happen.)
If you’re looking for something to buy and hold, steer clear of meme stocks like Carvana. This is not a “sleep well at night” stock by any stretch of the imagination. It’s a trade.
For sensible long-term investments, you’ll want to check out Charles Mizrahi’s latest and greatest venture…
He just released a list of stocks that he expects to climb 10x in the next 10 years.
To learn how you can get access to it, go here and listen to a recent conversation Charles had with one of his readers, governor Mike Huckabee.
Charles SizemoreChief Editor, The Banyan Edge