The Big Picture in 5
Your 5-Minute Weekly Update on the World’s Biggest Trends and Opportunities
Meet the $1.95 Trillion Man
His name is Jerome Powell. He’s chairman of the Federal Reserve. And in April alone, his aggressive rate-hiking plan cost tech stocks $1.95 trillion.
For a little perspective, that’s more than the entire annual gross domestic product (GDP) of Canada. Wiped out in just one month. Because of this fellow:
Jerome Powell wonders: “Did I do that?”
As you can imagine, he’s not all that popular with the investing crowd. But it’s important to remember the Federal Reserve is stuck between a rock and a hard place…
On the one hand, you have an entire index of tech stocks that need near-zero interest rates to sustain their sky-high valuations. In some cases, paying higher interest rates on their sizable debts could be disastrous. On the other, you have an economy where inflation is running rampant. And without quantitative easing, rate hikes are the only tool in his arsenal.
The Fed’s meeting again this week with another 0.5% rate hike expected. That might not sound like much, but it will effectively double the benchmark rate.
Most of this is already priced in, especially after last Friday’s massive tumble. But some tech stocks will surely start sweating the elevated credit risk.
The Best ETF for Rising Interest Rates
Financial stocks typically benefit from rising rates.
It makes sense too. Where most companies and investors are worried about paying higher rates, banks are instead able to charge higher rates. This boosts their net interest margin and makes for higher profits from quarter to quarter.
That’s great news for the Financial Select Sector SPDR Fund (NYSE: XLF). Ted first mentioned this fund in an episode of Your Money Matters during the COVID crash in 2020. With top holdings such as Berkshire Hathaway (NYSE: BRK.B) and JPMorgan Chase (NYSE: JPM), it can offer an outstanding value.
Ted’s first recommendation was timely as the fund bounced back over 56%. Major financial headwinds stalled XLF’s performance over the last year, but it may be ready to run once again.
Recipe for a Market Beatdown? Or Prelude to a Buying Opportunity?
Friday’s rout started as a selloff on bad earnings from Amazon (Nasdaq: AMZN) and Apple (Nasdaq: AAPL). But with a negative GDP print for the first quarter and a rate hike coming this week, the selloff didn’t stop.
And by the closing bell on Friday, the market had clocked its 15th biggest point drop in history.
What it felt like waiting for Friday’s closing bell.
In one day, the Dow Jones dumped a staggering 900 points, and the Nasdaq had dropped 4%, capping off its single worst month since the financial crash of 2008. Big tech companies weren’t spared either, with Amazon (Nasdaq: AMZN) losing 14% in its single worst trading day in fourteen years.
Historically, 8 of the 10 market’s 10 largest point losses all happened during March of 2020 — in the early days of pandemic panic. And after putting in a bottom at about 2,300, the S&P 500 subsequently rocketed back up to 4,600 in a little over a year.
So yes, Friday’s rout was punishing. But it also means some great stocks could soon be on sale.
Ted’s newest report — published that same day — is specifically designed to help subscribers take advantage of these types of opportunities. It’s called Your Plunge Protection Plan, with 20+ investments you can use to protect your wealth and keep your “powder dry” for upcoming opportunities.
The End of a Petrodollar Era?
On Friday of last week, a relatively “small” headline signaled a potentially massive change in energy policy and the lasting power of the U.S. dollar. Because for the first time ever, China is buying a shipment of coal and oil from Russia with their own currency (yuan/renminbi) and not our own U.S. dollars.
Historically, these kinds of transactions have always been dollar-based, since it’s effectively the world’s reserve currency. And once these suppliers are paid in dollars, they’ll often turn around and park those dollars in U.S. Treasury bonds.
The whole arrangement is kind of an “open secret” that keeps the dollar in charge and helps to fund a significant portion of our massive (and growing) debt. But with increasing sanction pressure on Russia and alienation from China, the system is slowly starting to unwind.
Financial experts like Albert Song don’t believe this will threaten the dollar’s dominance — but they also can’t deny what’s going on.
The Federal Reserve Is “Playing Chicken” With Our Chart of the Week
Tough talk from the Fed is nothing new.
Going back to “Helicopter Ben” Bernanke and even Greenspan, we’ve seen almost 20 years of Fed chairs who promise to contain inflation while simultaneously slashing rates. It’s a mind game they try to play with the markets, one of the few tools at their disposal.
But when you account for the long term, it’s easy to tell when they’ve been fibbing:
Proof the Fed won’t let the markets sink.
This is a chart from the St. Louis Fed comparing the S&P 500’s performance to the Federal Reserve’s abrupt changes of course over the last eight years.
As you can see, every time the market dips into negative territory year over year, the Federal Reserve is quick to pivot from “hawkish” promises of rate hikes to “dovish” language about quantitative easing and canceled rate hikes.
Mission accomplished? Not quite.
But when the market starts crashing, most people aren’t worried about inflation. So that’s a victory on some level. And based on this chart, we’ve probably only got a few months left before Fed Chairman Powell changes his tune.
The big question that remains: How many more trillions in lost market cap are between here and there?
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