On Monday, November 23rd, several stocks in the Rise stocks portfolio fell more than 5% after all the major market indices wiped off the initial gains spurred by the renomination of Jerome Powell to a second term as Chairman of the US Federal Reserve.
The S&P 500 was down by 0.3%, while NASDAQ recorded a heavier drag down of 1.3% as investors react to increasing treasury yields and possible interest rate hikes. High growth tech stocks were worse off as the market began to price future cash flows lower as a result of inflation and in anticipation of increased interest rate by the Federal Reserve.
A lot of the high growth tech companies In our portfolio like Crowdstrike (CRWD), Square (SQ), Shopify (SHOP), TradeDesk(TTD), Bill.com(BILL), Teladoc(TDOC), Coinbase (COIN), and many more experienced relatively steep drops as investors are pricing future cash flows lower due to higher cost of capital. On a fundamental basis, our thesis and valuations for these companies remain strong so we are not worried about their long term viability.
However, depending on how long the rise in interest rates lasts, we expect that growth stocks will continue to record a decline in the short to medium term just as they did earlier in the year when rates rose, only for them to push back higher as interest rates fell. With Powell remaining in the Fed position for a second term, we believe the Fed will support asset valuations more actively to stave off an economic downturn.
But with inflation continuing to climb up, some increase in rates may not be too far fetched. Whatever the case, you can count on Rise taking active measures to protect and grow your long term investments, no matter the short term fluctuations.