Connect with us

Politics

Power Through a Possible Recession With Growth Stocks

Published

on

A graph depicting the change in the 2- and 10-year yield spread and the federal rates, also showing periods of recession


Lately, the stock market has been getting crushed. It’s clear that we’re in the middle of a bear market. And it seems likely that the U.S. will see a recession within the next 12 months. That’s if it’s not there already.

That may sound scary. But it shouldn’t be.

Recessionary periods and bear markets create once-in-a-decade buying opportunities in the stock market.

In other words, recession risks are rising, and the broader markets are highly volatile. But we’re growing very bullish on a particular group of stocks right now.

Historically, crises have created opportunities. This time is no different. And the opportunities we’re seeing right now are potentially life-changing.

So, don’t freak out. Don’t run for cover…

The best thing to do during bear markets and crashes is to hunker down in stocks that will soar once the downturn passes.

Watch the Yield Curve in Bear Markets

There’s some spooky data out there that implies that a big economic slowdown — or worse — has arrived.

Perhaps the most important of these data points is the spread between the 2- and 10-year Treasury yields. It’s been shrinking rapidly over the past few months. And this past Monday, June 13, the yield curve briefly inverted minus 2 basis points before normalizing.

Recall that a flattening yield curve is the bond market saying that an economic slowdown is coming. And a yield curve inversion has preceded every economic recession since 1980.

Since March, we’ve seen a rapid flattening of the yield curve to below 30 basis points. That’s a bearish dynamic that’s happened only six times since 1982.

Four of those six occurrences were followed by a yield curve inversion within 12 months. And those inversions subsequently spilled into recessions. Two of those six occurrences were not followed by a yield curve inversion (August 1984 and December 1994). Both of those times, an inversion was averted by the Fed cutting rates.

Well, in March, we did see a yield curve inversion. And even still, the central bank has been quite hawkish.

To get a handle on runaway inflation, the Federal Reserve is hiking rates. And such an unprecedented action is expected to happen alongside a war in Europe and a slowing labor market. That’s not a bullish setup.

The Fed had its June meeting on Wednesday of this week. The central bank hiked rates by 75 basis points and signaled for another potential 75-bps hike in July. This is a Fed that will hike more now to hike less later. And it expects the next few big lifts to successfully stomp out inflation.

In other words, we finally have visibility to inflation falling to normal levels. But it will take a lot of rate hikes and some significant economic cooling to get there. And to be frank, a recession is now likely the base case.

Sounds scary but it’s not.

How Much Farther Will Stocks Fall?

In the early 1980s, a U.S. economic recession led to just a 15% drawdown in stocks. The early 1990s recession similarly led to just an 18% drawdown.

A graph depicting the change in the S&P's levels off highs

Sure, the early 2000s recessions resulted in a 40% stock market collapse, while the 2008 recession sunk stocks by 50%.

But this is not that.

In 2000, we suffered from gross overvaluation. The S&P 500 was trading at 26X forward earnings, with a 10-Year Treasury yield above 5%. Today the market is trading at 22X forward earnings, with a 10-Year yield below 3.4%. Today’s valuation is lower both in absolute and relative terms compared to what we saw in 2000.

Meanwhile, in 2008, the entire U.S. financial system was on the verge of collapse. We don’t have that today. Balance sheets across banks, corporations, and households are cash-heavy and very strong. Interest rates are still relatively low. We do not have another 2008 on the horizon.

So, in the grand scheme of things, we face what will likely be a shallow recession. It’s likely to follow those of the early 1980s and early 1990s, when stocks dropped around 20- to 30%.

Buying the Dip During a Bear Market

Over the past few months, we’ve seen some sharp drops in stocks. And in such an unpredictable climate, it’s far too early to call a bottom in the markets. But we believe that hypergrowth stocks are very close to one. And now may be the time to start buying the dip.

Because weaker consumer confidence leads to less spending. Less spending leads to lower inflation on the demand side. This could very well be what the Federal Reserve is hoping for. That is, as the specter of higher rates takes down all assets (crypto, equities, housing), consumer spending is curtailed. And demand hits a slowdown. And this is coinciding with the normalization of global supply chains. Supply spikes, and demand takes a dive.

That’s bullish for a slowdown in inflation.

However, consumer credit numbers are hitting new highs, which could signal they’re still spending by maxing out their credit cards. After all, folks still need food, housing and transportation. So, spending can only be curbed by so much.

So proceed with caution. If you buy the dip, make sure to only invest what you can afford to lose. Take a nibble here and there by cost-averaging down into your positions. If growth stocks do have further to fall, the drops will be swift. By cost-averaging, you can limit your downside while allowing for further upside when the market rallies again. Don’t buy the dip all at once.

Growth Stocks Win Once the Crash Passes

At the top of this note, we wrote that we’re very bullish on a certain group of stocks at the current moment. That group is hypergrowth tech stocks.

I know. That may sound counterintuitive. But follow me here…

In our flagship investment research product Early Stage Investor we invest in stocks for the long-haul. We’ve identified a particular group of stocks that have been unnecessarily battered despite sporting rising earnings and revenues. And these stocks have a very good chance of snapping back to all-time highs.

See the chart below, which illustrates the strong positive correlation between S&P 500 price and sales. Numerically, this is a positive correlation of 0.88, or nearly perfectly correlated. You don’t get much more closely correlated than that in the real world.

Regardless of a recession, solid growth companies will continue to grow their revenues and earnings at a very healthy rate over the next several years.

In other words, their “blue lines” from the above chart will continue to move up and to the right. Eventually, their “red lines” — or their stock prices — will follow suit.

That’s why we’re very bullish on growth stocks today.

Their blue lines (revenues) continue to go higher and higher, while their red lines (stock prices) are dropping sharply. This is an irrational divergence that emerges about once a decade during times of economic crisis. And it always resolves in a rapid convergence, wherein the stock prices rally to catch the revenues.

Bear Market Opportunity in Growth Stocks

Despite the present market climate, now is not the time to freak out.

Remember: Crises create opportunities. In stocks, this has been the case forever. This time is not different.

And, in the current crisis, the opportunity is particularly large in growth stocks. We fully believe that once this bear market ends — and it will — certain growth stocks will rattle off 100%, 200%, and even 300%-plus gains.

The investment implication? It’s time to hunker down in the right growth stocks.

Published First on InvestorPlace. Read Here.

Image Credit: by Ketut Subiyanto; Pexels; Thank you!

Politics

Fintech Kennek raises $12.5M seed round to digitize lending

Published

on

Google eyed for $2 billion Anthropic deal after major Amazon play


London-based fintech startup Kennek has raised $12.5 million in seed funding to expand its lending operating system.

According to an Oct. 10 tech.eu report, the round was led by HV Capital and included participation from Dutch Founders Fund, AlbionVC, FFVC, Plug & Play Ventures, and Syndicate One. Kennek offers software-as-a-service tools to help non-bank lenders streamline their operations using open banking, open finance, and payments.

The platform aims to automate time-consuming manual tasks and consolidate fragmented data to simplify lending. Xavier De Pauw, founder of Kennek said:

“Until kennek, lenders had to devote countless hours to menial operational tasks and deal with jumbled and hard-coded data – which makes every other part of lending a headache. As former lenders ourselves, we lived and breathed these frustrations, and built kennek to make them a thing of the past.”

The company said the latest funding round was oversubscribed and closed quickly despite the challenging fundraising environment. The new capital will be used to expand Kennek’s engineering team and strengthen its market position in the UK while exploring expansion into other European markets. Barbod Namini, Partner at lead investor HV Capital, commented on the investment:

“Kennek has developed an ambitious and genuinely unique proposition which we think can be the foundation of the entire alternative lending space. […] It is a complicated market and a solution that brings together all information and stakeholders onto a single platform is highly compelling for both lenders & the ecosystem as a whole.”

The fintech lending space has grown rapidly in recent years, but many lenders still rely on legacy systems and manual processes that limit efficiency and scalability. Kennek aims to leverage open banking and data integration to provide lenders with a more streamlined, automated lending experience.

The seed funding will allow the London-based startup to continue developing its platform and expanding its team to meet demand from non-bank lenders looking to digitize operations. Kennek’s focus on the UK and Europe also comes amid rising adoption of open banking and open finance in the regions.

Featured Image Credit: Photo from Kennek.io; Thank you!

Radek Zielinski

Radek Zielinski is an experienced technology and financial journalist with a passion for cybersecurity and futurology.

Continue Reading

Politics

Fortune 500’s race for generative AI breakthroughs

Published

on

Deanna Ritchie


As excitement around generative AI grows, Fortune 500 companies, including Goldman Sachs, are carefully examining the possible applications of this technology. A recent survey of U.S. executives indicated that 60% believe generative AI will substantially impact their businesses in the long term. However, they anticipate a one to two-year timeframe before implementing their initial solutions. This optimism stems from the potential of generative AI to revolutionize various aspects of businesses, from enhancing customer experiences to optimizing internal processes. In the short term, companies will likely focus on pilot projects and experimentation, gradually integrating generative AI into their operations as they witness its positive influence on efficiency and profitability.

Goldman Sachs’ Cautious Approach to Implementing Generative AI

In a recent interview, Goldman Sachs CIO Marco Argenti revealed that the firm has not yet implemented any generative AI use cases. Instead, the company focuses on experimentation and setting high standards before adopting the technology. Argenti recognized the desire for outcomes in areas like developer and operational efficiency but emphasized ensuring precision before putting experimental AI use cases into production.

According to Argenti, striking the right balance between driving innovation and maintaining accuracy is crucial for successfully integrating generative AI within the firm. Goldman Sachs intends to continue exploring this emerging technology’s potential benefits and applications while diligently assessing risks to ensure it meets the company’s stringent quality standards.

One possible application for Goldman Sachs is in software development, where the company has observed a 20-40% productivity increase during its trials. The goal is for 1,000 developers to utilize generative AI tools by year’s end. However, Argenti emphasized that a well-defined expectation of return on investment is necessary before fully integrating generative AI into production.

To achieve this, the company plans to implement a systematic and strategic approach to adopting generative AI, ensuring that it complements and enhances the skills of its developers. Additionally, Goldman Sachs intends to evaluate the long-term impact of generative AI on their software development processes and the overall quality of the applications being developed.

Goldman Sachs’ approach to AI implementation goes beyond merely executing models. The firm has created a platform encompassing technical, legal, and compliance assessments to filter out improper content and keep track of all interactions. This comprehensive system ensures seamless integration of artificial intelligence in operations while adhering to regulatory standards and maintaining client confidentiality. Moreover, the platform continuously improves and adapts its algorithms, allowing Goldman Sachs to stay at the forefront of technology and offer its clients the most efficient and secure services.

Featured Image Credit: Photo by Google DeepMind; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

Continue Reading

Politics

UK seizes web3 opportunity simplifying crypto regulations

Published

on

Deanna Ritchie


As Web3 companies increasingly consider leaving the United States due to regulatory ambiguity, the United Kingdom must simplify its cryptocurrency regulations to attract these businesses. The conservative think tank Policy Exchange recently released a report detailing ten suggestions for improving Web3 regulation in the country. Among the recommendations are reducing liability for token holders in decentralized autonomous organizations (DAOs) and encouraging the Financial Conduct Authority (FCA) to adopt alternative Know Your Customer (KYC) methodologies, such as digital identities and blockchain analytics tools. These suggestions aim to position the UK as a hub for Web3 innovation and attract blockchain-based businesses looking for a more conducive regulatory environment.

Streamlining Cryptocurrency Regulations for Innovation

To make it easier for emerging Web3 companies to navigate existing legal frameworks and contribute to the UK’s digital economy growth, the government must streamline cryptocurrency regulations and adopt forward-looking approaches. By making the regulatory landscape clear and straightforward, the UK can create an environment that fosters innovation, growth, and competitiveness in the global fintech industry.

The Policy Exchange report also recommends not weakening self-hosted wallets or treating proof-of-stake (PoS) services as financial services. This approach aims to protect the fundamental principles of decentralization and user autonomy while strongly emphasizing security and regulatory compliance. By doing so, the UK can nurture an environment that encourages innovation and the continued growth of blockchain technology.

Despite recent strict measures by UK authorities, such as His Majesty’s Treasury and the FCA, toward the digital assets sector, the proposed changes in the Policy Exchange report strive to make the UK a more attractive location for Web3 enterprises. By adopting these suggestions, the UK can demonstrate its commitment to fostering innovation in the rapidly evolving blockchain and cryptocurrency industries while ensuring a robust and transparent regulatory environment.

The ongoing uncertainty surrounding cryptocurrency regulations in various countries has prompted Web3 companies to explore alternative jurisdictions with more precise legal frameworks. As the United States grapples with regulatory ambiguity, the United Kingdom can position itself as a hub for Web3 innovation by simplifying and streamlining its cryptocurrency regulations.

Featured Image Credit: Photo by Jonathan Borba; Pexels; Thank you!

Deanna Ritchie

Managing Editor at ReadWrite

Deanna is the Managing Editor at ReadWrite. Previously she worked as the Editor in Chief for Startup Grind and has over 20+ years of experience in content management and content development.

Continue Reading

Copyright © 2021 Seminole Press.