A Recession Would Be Good for These Stocks

February 1, 2023 | Sentiment Geopolitics Investing

Let’s start with some good news…

If you’re a subscriber to my premium investment letter Street Freak, 2022 was a fantastic year—the portfolio closed 4% higher.

You might say, “Why is 4% such a big deal?” Well, it was a big deal because the S&P 500 fell 19.4%. And if you can beat your benchmark by 2,300 basis points, that’s a pretty good accomplishment.

It’s a new year, though. Truth is, when I look at the Street Freak portfolio, it’s sort of ugly. It has some questionable companies in it. But as I learned about navigation in the Coast Guard: “If it ain’t ugly, it can’t be good.”

Point being, I’m happy with the results. There weren’t many newsletters that outperformed the market by 23% last year, and looking ahead, I believe the portfolio is well-positioned for 2023.

We’re off to a promising start already—up 7.3% versus the S&P’s 6.2%.

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A Recession Would Be a Good Thing

The 2023 Federal Open Market Committee (FOMC) meetings began yesterday and conclude with a policy decision today at 2 pm Eastern time.

There’s reason to be worried about the latest meeting because, at this point, the Fed is still speaking hawkishly, while the market has opposite expectations. What the market is expecting the Fed to do is hike rates 25 basis points and then pause.

But the Fed could be a little more hawkish than that, which would open the door for a bumpy week.

One thing I hear from people all the time is that you should sell stocks because we’re going into a recession. Maybe that was true with other recessions, but it’s certainly not true with this one.

Because really, what the stock market feared was monetary tightening. And if you remove the tightening and have easing, financial conditions are going to get better, which should be positive for risk assets.

A recession for the stock market would be a good thing, believe it or not. There’s really no reason to worry about it.

I’ve said before that 2023 is going to be a pretty good year for stocks—and I still believe it.

Value Will Outperform Growth Again

Of course, there’s risk in everything with investing. In Street Freak, we have bets on value and international stocks, among others. Those bets could turn out to be wrong. There’s no guarantee that they’ll work.

But last year, our approach worked, and I anticipate it will continue to work. Value is going to outperform growth for the next three to five years.

I plan on sticking with that strategy. Because ultimately, it doesn’t make sense to try to pick the bottom in some of the big tech names.

If you’re interested in learning more about Street Freak and the specific positions on my radar, you can check out the details here.

Jared Dillian