Federal Reserve Chair Jerome Powell’s speech Wednesday painted a bleak outlook for the U.S. economy and spooked Wall Street, but there are still a plethora of investing opportunities to be found.
Powell had laid out a few sobering takes on an economy he said is experiencing “a level of pain that is hard to capture in words,” and those words sent the stock market tumbling.
“The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” Powell said. “We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased.”
The Fed has stepped in to prop up the economy and financial markets by slashing interest rates to near zero and delving into numerous lending and liquidity efforts.
Banyan Hill’s Charles Mizrahi
Banyan Hill Publishing’s Charles Mizrahi praised Powell and the Fed’s response to the crisis so far, as there is no modern road map to follow.
“I tip my hat to Chairman Powell and I totally agree,” said Mizrahi, editor of Alpha Investor.
Powell also signaled the Fed may not be done yet.
“While the economic response has been both timely and appropriately large,” Powell said, “it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.”
Mizrahi gave his own translation of Powell’s speech, noting what the Fed chief is really saying: “‘I have no freaking idea what is going to happen’ — but that doesn’t mean he’s doing a bad job,” Mizrahi quipped.
“There is no playbook for shutting down a $22 trillion economy on a dime. Never before have 33 million Americans filed for unemployment. The unemployment rate, at 14.7%, is the worst in 70 years,” Mizrahi explained. “Since the stay-at-home orders went into place, people aren’t starving in the streets, and looting is not rampant. Powell is doing a terrific job and is using the power of the Fed the best way he knows how.
“Only time will tell how this turns out.”
The bottom line is that no one really knows what recovery out of the ongoing economic shock is going to look like, as many factors are still up in the air concerning a vaccine and also how the country handles reopening.
So how should investors approach the stock market amid so much uncertainty, even from the lips of the chairman of the most powerful central bank in the world?
Investing After Fed Chief Powell’s Speech
Powell’s speech sent markets into a downward spiral Wednesday, but Mizrahi isn’t changing his approach of buying “financially sound companies, when they are trading at bargain prices.”
Some sectors are pretty hot right now, and Mizrahi says they should be avoided while everyone is piling in and driving up prices.
“Businesses in huge trends like AI should do very well over time. However, they are not trading at bargain prices right now,” he warned. “Everyone had the same idea.”
That’s where Mizrahi’s Alpha Investor comes in.
“Each month I select one stock that is financially sound,” Mizrahi said, “with a rock star CEO in an industry with a tailwind that is trading for a bargain.”
And while the market has been rocky lately, Mizrahi only has to look to the past for guidance.
“I’ve seen this before during the 1987 crash, the dot-com bubble, the 2008 financial crisis and now,” he said. “Each time the lyrics are a bit different but the tune is the same.
“This too shall pass.”
Newer investors who may not have experienced a downturn like the one that started in February may be spooked, but Mizrahi suggests staying engaged in the stock market.
“It is during times of uncertainty that you can buy great businesses for a fraction of their worth,” he said. “While most investors are like deer staring at the headlights, you need to act. Now is not the time to sit on your butt.”
And he’s got the perfect play.
“In the most recent issue of Alpha Investor I selected a business that is pandemic proof, is responsible for the plumbing of the financial markets and is trading for a bargain price,” Mizrahi said. “One more thing — there is a government regulation requiring companies to use their service. It’s only during times like these that stocks like that go on sale.”
So while Powell’s speech on the economy’s future knocked the stock market down a few percentage pegs Wednesday, that doesn’t mean you should be sitting on the sidelines. There are still plenty of bargains to be found and money to be made.