Disruptors Reawakened as Fed Sparks 'Reflation Renaissance' Dream Trade
The Federal Reserve's opening salvo to ease monetary policy has reignited fervor in the most speculative corners of disruption. By taking the first swing at lowering interest rates, the central bank cracked open the gates for a tidal wave of capital to come crashing back into high-multiple growth plays.
Cutting-edge themes like artificial intelligence and semiconductor innovation emerged as major beneficiaries in the initial blast higher. Trendsetting issues like C3.AI and Nvidia exploded out of the gates as traders piled back into their lofty long-term earnings models.
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Each successive rate cut serves to lower the discount rates applied to those bold cash flow projections years into the future. The further rates come down, the more irresistible the high-risk/high-reward setups become for aggressive contrarians positioning early.
With Treasury curves still deeply inverted on entrenched recession fears, some of the most belligerent dip-buyers started front-running a potential "reflation renaissance" trade that could fully revive the pandemic-era frenzy from 2020's unwind.
However, major risks remain that any stumbles from the Fed in choreographing a finely-tuned economic softening could demolish these fragile fantasy leaps. One wrong policy misstep could rapidly pull the rug out from under the euphoric rebound in disruptive moonshots.
For the high-wire growth bets to maintain their reincarnated premium valuations, the Powell team will need to stick one of the toughest soft landings in monetary policy history. Every upside swing in these high-multiple stories is increasingly contingent on the central bank defying looming recession odds ahead.
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'Wheels Are Falling Off' the U.S. Stock Market
The last time the U.S. economy looked like this, stocks didn't move for 16 years...
And many investors lost 80% of their wealth in real terms.
But before you touch any of your holdings – or buy anything – please review my latest warning about the U.S. stock market. It's free to watch.