Growth stocks have been hammered this year because of the prospect of higher interest rates.
Using the future discounted cashflows valuation, higher interest rates mean higher discount rates in the denominator of the cashflows and lower valuations.
However, higher inflation increases the multiplers of the cashflows and the valuations.
What matters is the annual difference between inflation and interest rates. The higher the difference, the higher the valuation.
Another factor is that companies may have lower returns in the next couple of years due to a recession, which lowers their valuation.
My point is:
Growth stocks don’t need to worry as much about lower short term returns. Their short term returns were going to be small anyways compared to their long term returns.
No need to worry about interest rates much either. They are still well below the inflation rate and the FED can’t increase rates too much for too long because that will crash the economy and make national debt unsustainable. If they crash the economy they will have to lower rates again and keep doing more QE lol
On the other hand, we can’t control inflation as much. There’s currently a trend towards reversing globalization, which will increase prices no matter what interest rates are. This will decrease the revenue of many companies buying/selling goods internationally. However, a lot of growth stocks SELL services internationally, mostly software, communications, and entertainment. They aren’t affected by commodities as much. Higher inflation means higher returns for these companies over the long run, which should increase their valuation. Plus many these companies have already fallen more than 30-40%…
As soon as the markets start to see that interest rates don’t go up so much and that inflation is still kind of high, the dollar will plummet and growth stocks will go to the moon 🚀🚀
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You kinda went know where here…. I think everyone here knows once the bottom is here growth stocks will grow…. now where is that casino at?
>I agree with your assessment that growth stocks will continue to perform well despite some headwinds in the near term. I believe that the market is underestimating the ability of these companies to adapt and thrive in an inflationary environment. Additionally, I think interest rates will remain relatively low as the Fed tries to support economic growth. Overall, I believe this creates a favorable environment for growth stocks going forward.
So you’re telling me stocks go up and down?
Growth stocks with gravy… those others that require bank loans are in dire straits
On a larger scale, we will be flat for another year, so unless you plan to try to time the bottom and cash out at the top (good luck), best just to wait; unless of course, you are trying to DCA for the long haul.
Noooo God! No, God, please no! No! No! Noooo!