Why You Shouldn’t Worry About Fed Chair Powell’s Hawkish Speech
This was a big week for Wall Street, not just because of the slew of earnings reports that were released, but because of the all-important November Federal Open Market Committee (FOMC) statement.
The FOMC statement was released yesterday afternoon, and as expected, the Fed raised key interest rates by 75 basis points. It will also continue to unwind its balance sheet and remains committed to bringing inflation back to its 2% target.
What was unexpected, however, was how dovish the FOMC statement was.
Specifically, the Fed “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” In other words, it implied that it would not continue to raise rates in 75-basis-point increments moving forward. This sets us up for maybe a 50-basis-point increase in December.
Personally, I had expected the FOMC to include phrases like “parity” or “data dependent,” which would signal that the Fed would be neutral after December. So, the Fed’s comments were even a surprise to me – and I’ve been in the investing business for more than 40 years!
The Fed’s dovish stance sent stocks soaring; the Dow surged more than 1%, while the S&P 500 jumped 1% and the NASDAQ climbed 0.9%.
Enter Fed Chairman Jerome Powell to throw cold water on the Fed party.
Powell took a much more hawkish stance during his press conference. Regarding future rate hikes, Powell stated:
“It is very premature to be thinking about pausing. So people, when they hear lags, they think about a pause. It’s very premature, in my view, to think about or be talking about pausing our rate hike… it’s not something that we’re thinking about. That’s really not a conversation to be had now. We still have a ways to go.”
Investors panicked, and the market sank in response. The S&P 500, Dow and NASDAQ ended Wednesday down 2.5%, 1.5% and 3.4%, respectively, and opened lower this morning.
I know the discrepancy between the dovish FOMC statement and Powell’s hawkish comments is confusing, but here’s the reality: This kind of “doublespeak” is common. At the end of the day, the FOMC statement is much more important than Jerome Powell’s off-the-cuff comments.
Given this, I think the Fed will increase rates by 50 basis points in December and then be done with it. I don’t care what anyone else says; I used to work at a division for the Federal Reserve, so I have some insight into how they think and what they do.
Don’t Worry About the Fed; Focus on Earnings Instead
So, don’t worry about the Fed too much. Your focus should be on earnings because results are still coming out, and they are working.
Case in point: Tecnoglass, Inc. (NYSE:TGLS).
Tecnoglass released record top- and bottom-line results in its third quarter this morning, and TGLS shares surged more than 19% following the report. Revenue jumped 53.3% year-over-year to $201.8 million, which beat estimates for $169.75 million. Adjusted earnings more than doubled year-over-year to $48.0 million, or $1.01 per share, compared to $21.2 million, or $0.45 per share in the third quarter of 2021. Analysts expected adjusted earnings of $0.71 per share, so Tecnoglass posted a 42.3% earnings surprise.
Given the “exceptional third-quarter performance” and company management expectations for ongoing demand for its products through the end of the year, Tecnoglass increased its full-year revenue outlook. The company now expects revenue between $680 million and $700 million in fiscal year 2022, which is up from $496.79 million in fiscal year 2021.
The truth of the matter is we’re in a stock-pickers market, where fundamentals reign supreme. If you want to be successful, you need to be in the top 15% of stocks – and that’s exactly where my Breakthrough Stocks are.
My Breakthrough Stocks Buy List is “locked and loaded” for the current third-quarter earnings season, since my average Breakthrough Stock is forecasted to post 42.2% annual sales growth and 428.7% annual earnings growth. And due to a strong U.S. dollar impeding the multinationals in the S&P 500, there is a big shift to more domestic, smaller-cap stocks. As a result, I am expecting that many of my Breakthrough Stocks will continue to emerge as a silver lining, critical path for investors to follow – just like Tecnoglass did today.
To further position my Buy List to benefit in this earnings environment, I will be releasing four exciting new buys in my Breakthrough Stocks Monthly Issue for November on Friday. Become a member of Breakthrough Stocks today so you can receive the Monthly Issue when it’s hot off the presses. Also in this Monthly Issue, I’ll reveal my latest Top Stocks list and explain why small-cap stocks are the place to be right now.
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P.S. In the next few days, I will release a special briefing on my latest quantitative project. I’ve been sharpening my stock-picking system for more than 40 years, and I can’t wait to show you my latest breakthrough.
More details will be coming soon… so keep an eye on your email. You won’t want to miss what is coming next!
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Tecnoglass, Inc. (TGLS)