Adam Smigielski
From “Mag 7” to “Mag 1” – Nvidia
In the 1970s, all you had to do was invest in the Nifty Fifty, a large growth stock on the New York Stock Exchange, and you had the keys to the safe. Now in the 2020s, To make your portfolio completely bulletproof, own the “Magnificent Seven”MSFT, AAPL, Amazon, Google, Meta, NFLX and NVDA). These stocks are key to protecting your investments from the tough times that experts predict are surely coming (and that for many have been coming for the past year and a half) that come on the back of the Federal Reserve, its Chairman Jerome Powell, and its ongoing battle to tame inflation through higher (for longer) interest rates.
Federal Reserve meeting minutes trigger market break There is no new news
As it became clear again yesterday (pretty old news to me) that interest rates aren’t going to come down anytime soon, the market bought into it. Even the “mag7” got hit, except for one… Nvidia (and there was one other). The market reacted the same way it did after the April 30/May 1 press conference with Jerome Powell where he said the exact same thing and suggested that persistent inflation would keep interest rates high. It dropped for a few days, but then rose to a new all-time high. Minutes The following news once again captured the market’s attention like the proverbial mule hit over the head with a 2×4. This was not new news.
“Members agreed that they do not expect it would be appropriate to lower the target range (the federal funds rate of 5.25 percent to 5.5 percent) until there is greater confidence that inflation is moving sustainably toward 2 percent.”
If you have any doubts, please refer back to our Coronavirus Prevention Guide
The “Corona Strategy” was a term I coined in 2020 to refer to the phenomenon where investors pulled out of what they believed to be economically sensitive and invested in the safest large growth stocks, or growth and innovation stocks at the time. Investors fled there to escape the pandemic that was about to devastate economically sensitive companies. In the end, it turned out to be a disaster. The ARK Innovation ETF (arc) is emblematic of this thinking, having fallen about 75% from its COVID-19 high on February 16, 2021.
The scary thing is a Fed (high interest) induced recession. Every time this issue comes to a head, the Dow, S&P 400 Value Index and the small cap Russell 2000 get hit. That’s exactly what happened yesterday (Dow -1.53%, S&P 400 -1.28%, R2K -1.6%). The Nasdaq also fell, but only by 0.39%… that’s where the growth is!
Primitive AI in action
As we have said before, 70% of the trading volume we see in the market every day is computer-automated. Computers scout headlines using algorithms looking for keywords or word combinations that could move the market in one direction or another. This may explain why old comments that have already influenced the market, when repeated three weeks later, can take on new life as old news and impact the market negatively or positively. This seems to be exactly what has happened in the last few days. Three weeks ago, this news first broke. This is not an investment. Yet, it needs to have an impact in investor psychology to recognize the volatility it brings. This is noise.
Conclusion
For the past year and a half, we have heard predictions of impending disaster as a result of the Federal Reserve’s interest rate policies, but the economy remains strong with job growth. And there are certainly signs of a slowdown. “Higher for longer” may finally slow inflation without killing the goose that lays the golden eggs. That’s what the market has been telling us for the past year. I believe that the constant return to “COVID-19 measures” and narrow focus on mega-cap tech is a false strategy and that the real money makers are small-cap growth and value stocks, along with mid-cap and cyclical stocks.
What do you think?
