Week in Review, Week Ahead, & Portfolio Update
Market outlook, thesis, reminder of long term objective and moves made last week
This last week I was in Las Vegas for a work convention and I didn’t realize how much a lot of growth stocks (stocks in general) fell last week till I updated a lot of my data. This is the price action I actually expected after the last Fed meeting. The reason why, I posted this SubStack a few days prior:
Surprisingly, it was one of my least popular articles and many accused me of “selling fear”. But, that’s not the case at all, it’s real talk. We are in a macro situation that is very scary and it doesn’t look like it’s going to clear up any time soon! Also, in that article it shows a good investment idea if you’re not looking to put your wealth in high beta stocks, or stocks in general. In essence, I believe that there are two vehicles that will perform well from this point as we head deeper into the bear market:
Gold
U.S. Treasury Bonds
I expect further weakness in the stock market in the near future. The reason why; I base my fundamental thesis on “what drives markets” as being federal reserve monetary policy (expansion and contraction of liquidity), corporate earnings and expectations of those earnings, economic expansion/contraction, as well as technical (think “normal”) trends. Each one of these factors do favor further market weakness.
This is both an opportunity and risk depending on your strategy and time horizon
Looking at the Week Ahead: Earnings and Inflation
We have a massive earnings week and have PCE Inflation data (the Fed’s most closely monitored inflation print). When it comes to inflation and the data that comes out, I expect it to come in hot. Even if it doesn’t and it comes in to the downside, I doubt that will meaningfully make much of a difference in Federal Reserve policy and outlook. Last week, Jerome Powell basically came out and said, “yea dude, we’re doing a .50 hike”.
The real market moving catalyst’s will come from this upcoming earnings week. We have big companies reporting and each gives us some sort of insight into cyclical/secular economic trends:
Coca-Cola, this will help us gain clarification on consumer spending
UPS, this will help give us an indicator to overall economic activity
Microsoft, paving the way for cloud growth and cloud expectations. I expect strong earnings from them.
Google, this will give us a leading indicator to any and all AdTech earnings
Enphase, I expect a good quarter and still really like this company
Chipotle, they recently raised prices. Watch to see if they raise prices again.
ADP, this will give us insight into the jobs market
Meta (Facebook), this one is scary because they’re being eaten alive by competition (TikTok). Hopefully we don’t have a Netflix pt. 2
PayPal, this will give us insight into continued fintech adoption and trends
Caterpillar, this is a very cyclical business and will be a solid leading indicator to any sort of economic weakness/strength
Apple, because it’s Apple and the most important stock in the market
Amazon, this will show e-commerce and cloud growth trends (AWS)
Roku will give us insight if all streamers are lagging or if Netflix is collapsing on competitive pressure
Obviously there is so much more to get from next week because it’s arguably the most important for this earnings season. If we rolled everything above up and simplified exactly why this is so important, it will show us economic activity and each businesses guidance will give us an outlook into our economic future. If many of the businesses above beat and raise guidance, I wouldn’t be surprised to see the S&P rally back to all time highs despite Federal Reserve monetary policy. However, if these company’s miss and guide down…. Look out below…. We are probably going down on “economic fears”.
My Portfolio Strategy
I am confidently in the position that this earnings season is one of the most important in my investing career. To this point, I have been very transparent and I will continue to be transparent every single week. I have thought deeply about exactly what I am going to do based on my current financial situation and with the macro outlook we have. I have quite literally asked myself, “Alright, I do believe we are heading to a recession and I do believe we are in the middle of a market crash. It only makes sense that the S&P declines at least 20% and “long duration” (growth stocks) assets should continue to struggle while the Fed is hiking rates and inflation runs rampant. What do I believe is the best strategy to take?”
We are running the risk of a “lost decade” or the beginning of a secular bear market and we could potentially drop 50% down on the S&P in the worst case scenario. Regardless, it all comes back to one thing…
I don’t know what is going to happen next and truthfully, nobody does.
Inflation could have peaked, which means the Fed wont tighten as aggressively. The economy could truly be fine and we don’t go into a recession and we could realistically still be in the middle of an ongoing secular bull market. I just don’t know. But I do know one thing:
The businesses I own are STILL doing extremely well and they are trading at discounts. I want as much business equity as possible before the markets rally again.
This earnings season is make or break for my portfolio because it will validate which companies I keep and which I cut. If all still out perform earnings expectations (beat last quarter and raise guidance) in THIS macro environment, I will double and triple down on these businesses while the rest of the market is on full distraction mode. I do not care about the short term price action and hope I get them at lower prices.
At the end of the day, revenue, earnings, and cash flow growth is all that matters. The businesses that continue to grow revenue, earnings and cash flow during this period will produce monster outsized returns for the next 3-5 years. At these valuations, we could realistically see a 2x, 3x, or even a 4x in some stock’s price.
If somebody said your favorite stock was going to produce 4x returns from today’s price, in the next 2-3 years, would you sell? Or, would you double TF down on your position and buy as much as possible?
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