Powell’s Panic at the Disco
I originally wrote a nice Shakespearean Hamlet dissertation on “to buy, or not to buy?” in the current market environment.
It was peppered with references, such as “suffering the slings and arrows of an uncertain market” and “taking up arms to go bargain-hunting in a sea of troubles.” It was a thing of beauty, if I do say so myself…
And then … Federal Reserve Chairman Jerome Powell panicked and messed everything up.
In an emergency meeting on COVID-19 this morning, the Federal Reserve slashed its benchmark interest rate by 50 basis points. The federal funds rate now sits in a range of 1% to 1.25%.
In a statement, the Fed said: “The coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”
President Trump immediately responded to the Fed’s rate cut with the following tweet:
The Federal Reserve’s move stands in stark contrast to the inaction seen at yesterday’s G-7 meeting.
World financial leaders — including Jerome Powell, U.S. Treasury Secretary Steven Mnuchin and Bank of Japan Governor Haruhiko Kuroda — promised to use all the powers available to them … but gave no real plan of action.
“Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks,” the G-7 said in a statement.
In Fed-watcher circles, they say that you can tell the market’s true feelings about a rate cut (or hike) from the market’s movement immediately following the announcement.
That initial move … that initial tick in trading … was lower. That’s not a good sign.
And it makes me think that I was a bit hasty yesterday when I said that now’s the time to start bargain-hunting.
While President Trump and many financial talking heads called for an interest rate cut out of growth concerns, this emergency cut sends a much harsher message: The Fed believes the COVID-19 situation will get worse … so much worse that it couldn’t wait any longer to act.
After more than 10 years of stimulus, most central banks are running thin on ammunition right now, so caution should be the correct approach. The Fed just threw caution to the wind.
In my original draft of today’s Great Stuff, I wrote: “Expecting the world’s central banks to just come out and start throwing money at the problem right way is ludicrous.”
That was my response to the G-7’s wait-and-see attitude. It remains my response to the Fed’s emergency interest rate cut.
Going: Harsh Kumar Goes to AMD
If you’re looking for a real bargain on a semiconductor company, Piper Sandler Cos. (NYSE: PIPR) analyst Harsh Kumar has a real beaut!
This morning, Kumar upgraded Advanced Micro Devices Inc. (Nasdaq: AMD) from neutral to overweight, citing valuation. “We believe the recent pullback in price due to the coronavirus provides an attractive opportunity for long-term investors,” Kumar wrote to clients. “We see the company’s product set as extremely well positioned to gain share over the next several years.”
Kumar hit all the major AMD themes as well, including stealing market share from Intel Corp. (Nasdaq: INTC), data center growth, laptop/desktop chips and cost savings over major competitors. It was a veritable cornucopia of all the bullish reasons every single other AMD bull has previously covered.
Now, Kumar may be late to the game on many of those bullish drivers, but he’s right about AMD’s valuation. The coronavirus isn’t sapping demand — it’s hurting production. And that means investment opportunities at these levels for AMD bulls.
Going: Well … Duh?
In an announcement that every sane investor saw coming, Uber Technologies Inc. (NYSE: UBER) said that COVID-19 poses a “material risk to its business.”
The ride-hailing company believes that the coronavirus could decrease the number of Uber platform users and disrupt its recent initiatives in “new mobility” — i.e., rentable e-bikes and scooters.
The new stance, which reverses claims from early February, came out in the company’s 2019 annual financial filing this Monday. In the filing, Uber noted that many factors could hurt it materially, including “a pandemic or an outbreak of disease or similar public health concern, such as the recent coronavirus outbreak, or fear of such an event.”
If any Uber investor out there didn’t already see this coming and price it into their outlook … shame on you. This is a no-brainer.
Gone: Should I Stay, or Should I Go?
Nowhere are the market’s talking heads more confused right now than on electric vehicle maker Tesla Inc. (Nasdaq: TSLA).
In the past 24 hours, JMP Securities upgraded TSLA to market outperform (basically a buy rating), while Morgan Stanley (NYSE: MS) reiterated the stock at underweight (basically a sell rating).
But that’s not the half of it. JMP set a new target price of $1,060 on TSLA — the highest on Wall Street. The ratings firm believes that TSLA is a bargain right now, noting the company’s 23% annual growth. JMP said Tesla could churn out roughly 2 million vehicles per year by 2025.
In contrast, Morgan Stanley said it was too early for investors to jump in to TSLA. Morgan also reiterated a $500 price target — about 33% below Tesla’s current trading range. The firm also said that it would be bearish on Tesla even without the threat of COVID-19, citing delivery and production concerns.
Tesla is the epitome of the choice investors are forced to make in the current market. The company has solid growth prospects but faces a potential slowdown in demand and production due to the coronavirus.
Welcome to the Poll of the Week: Emergency Rate Cut Edition!
With the Federal Reserve cutting its key interest rate by 50 basis points, Great Stuff thought we should give you a chance to sound off on the Fed’s actions. After all, last week, over 32% of you said the virus would impact the market (and you were a bit worried). An equal share of you said that now’s the time to buy.
That brings us to today’s rate cut — and how you feel about the Fed stepping into virus mode. Tell us what you think below:
If a poll doesn’t adequately sum up your opinion on the Fed’s move, we’d love to know what you think! Email us your thoughts at GreatStuffToday@banyanhill.com.
We look forward to hearing from you!
Great Stuff: To Buy, or Not to Buy?
Don’t let the Fed’s fear stifle your growth. There are killer trade opportunities out there — Great Stuff readers have found them!
Let’s face it: When signs of trouble arise, sellers gonna sell, sell, sell.
But if you’re looking to shake it off, build out your portfolio and set yourself up for growth ahead? Well, there’s your answer to my question: “To buy, or not to buy?”
What to buy, on the other hand, depends on your personal investment taste…
Are long-term, high-growth tech trends your thing? Ian King’s research in Automatic Fortunes is perfect for you. Not only does Ian find the right tipping-point trends that should outlive the virus shenanigans, he also pinpoints each trend’s standout leader.
Click here to learn more about Ian King’s tech research.
Now, if finding the market’s undiscovered bargains puts a pep in your step, Jeff Yastine is your kinda guy. He sifts through the market with a keen eye for diamonds trading for pennies on the dollar. This time, he’s going biotech…
Click here to learn more about Jeff’s research in Total Wealth Insider.
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Until next time, good trading!
Editor, Great Stuff