Transcript:
Easan Arulanantham:
The rates, are you the Fed is announced, you know, seven times they’re gonna increase rates? Should I start to move away from growth stocks and lower my maybe my growth stocks to value stocks in my portfolio?
Tom Vaughan:
Yeah, I think a couple things are there that are important to unwind. The Federal Reserve has this dot plot, it’s their guess as to what they’ll do. So far the dot plots have been going up for you, it was it was one increase, and it was two to three, three to four. Now it’s seven. And so theoretically, if you watch those dot plots, you know the guesses are going up, it doesn’t mean they’re going to even do seven. There’s other things that can slow things down, including the situation in Ukraine, or even the situation in China with the lockdowns, which is basically a pandemic related slowdown. So there are things that can slow down the economy besides these rate increases, so we might not have them to always keep that in mind. Because all they’re doing there is guessing they’re gonna look at the data at each meeting and decide what to do. But let’s assume they are going to raise rates, or we’re going to continue to raise rates and rates are going to go up for quite a while here. Historically, during the rate increase, period stocks do well. It’s not until the end, the end of cycle beginning of cycle, which is where we are now stocks do very well. Theoretically, actually, you start to see more gains out of interest rate sensitive stocks, like bakes and those types of things. But I would be a little bit careful there. First of all, I probably have a balanced approach with most of my portfolio, which is what we do have a balance between the growth and the value. But if you’re looking at you know, where are you going to target as far as that goes, this week, what’s been running, so we’ve just increased rates, we’ve talked about increasing rates, even more.
Growth has been a huge, huge winner this week. I mean, monsters winner. And so there’s a couple reasons for that, number one, a lot of these companies already down. So if you’re looking forward, Microsoft, which we bought on a dip was down 20%, when we bought it, that’s a pretty big dip for a big company that does unbelievable things as huge cash flow. Apple’s been down from its high and all these things, but the smaller growth stocks that really ran in 2020, you know, peaked of Feb mid February of last year, those are down 40 to 80%. You know, the Cathy wood type ARK funds and those types of things. Man, Are they flying right now, but they’ve already sold off and see are getting some discount there. Some of them might still be selling for more than they should. But there’s a there’s an interest, these companies are really the future and they have high growth. And they might be selling for a lot. But there’s a lot more interest in those companies. Like for example, genomics, right can change the whole medical world could solve cancer delivery of different drugs. Genomics is really responsible for the vaccine, the mRNA vaccines, that’s a lot more exciting to people than buying a bank stock, because interest rates are going up. And so I think you’ve got to be careful of going too far away from the growth stories. Because every time they report earnings, it just keep it’s fantastic. I mean, unbelievable. Especially the Microsoft and Apple’s overall they Wow. I mean, they just keep coming out with all of these pieces. So I’m actually more inclined to be on the growth side than the value side here. I think growth is already sold off a lot. That’d be something to be made.
The ARK you were telling me today the ARKK fund for the week is up what 19% is pretty ridiculous. Now it was down like a massive amount before that happened. But they’re buying it right. They’re coming in and kind of buying on this dip and such too. And so we’re seeing, you know, growth stocks do well. So, ironically, I think it’s already happened. We’ve already seen the sell off. And now the place to be might be growth even though rates are coming up. Just because again, that’s where the sell off and sizzle excitement is to so I don’t know, I still lean towards growth, we we keep a very good balance on 75% of our portfolio between growth and value, basically buying the whole market. And then we have this targeted indexes that we use. And right now that’s three out of those four indexes are in growth pieces semiconductor index, Microsoft and Apple, for example, which I still really like. They’ve had, you know, mixed results so far. But I think going forward, we have some really good chances there.
Easan Arulanantham:
Yeah, we’ve always talked about how you shouldn’t try and guess what’s going to happen but try and react and so by reacting by guessing There’s gonna be a lot of great increase in moving away you’re kind of trying to jump the gun here and you don’t know what’s going to happen really.
Tom Vaughan:
Yeah, I mean people loaded up on all these financials and such you know, I’m still thinking that there’s some better opportunities out there personally nothing wrong with that as part of the overall portfolio mixture but in terms of you know, moving away from growth, boy you should be going the opposite direction the market right now there’s no doubt I mean, this thing is flying. And watching it right now. The S&P 500 Now up over 1% 1.05 It’s approaching the 200 day moving average it just blew through the 50 day moving air and this is a this is a melt up right now. I don’t know if it’ll continue. I don’t know if it’ll melt up all the way back to the highest that we set back on January 3, but it is really really strong. This is not this is not your your little jumps that we’ve had so far the year this year. This is much different. This this is an important week for the stock market.