Bullish case for growth stocks

Submitted by lospepes0 t3_yh1fb9 in wallstreetbets

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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VisualMod t1_iubjcbo wrote

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>TL;DR: Growth stocks will continue to outperform in the long run, regardless of interest rates or inflation.

1

VisualMod t1_iubjcx2 wrote

>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.

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longGERN t1_iubjzqq wrote

So you're telling me stocks go up and down?

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lospepes0 OP t1_iubl2oo wrote

Replying to VisualMod (#330,652)

Exactly, also in an environment where inflation remains higher than interest rates, and stocks are going up, more people want to buy stocks to protect their money against inflation, increasing stock prices even more.

1

Superb_Feature_8966 t1_iubldhv wrote

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?

6

wongyeng888 t1_iubljez wrote

Growth stocks with gravy... those others that require bank loans are in dire straits

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BulletPlease t1_iublufy wrote

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.

1

lospepes0 OP t1_iubobw6 wrote

Replying to BulletPlease (#331,160)

Wait for what? The bottom? ;) To me it sounds you are trying to time the bottom... If we are actually going to stay pretty flat, I'd rather buy a little too early than too late

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lospepes0 OP t1_iubohkg wrote

Replying to BulletPlease (#331,160)

I'm bullish, I don't want to keep waiting for stocks to go lower. What if they go higher instead, and I keep waiting and waiting for them to go down but they never do..

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BulletPlease t1_iubojmo wrote

Replying to lospepes0 (#331,680)

All depends on your time horizon. I’m making out 401K with company match so that’s long term, short term, I’m playing weekly options and scalping with 1 DTE on QQQ and SPY.

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FukkenSaved t1_iubu68d wrote

Noooo God! No, God, please no! No! No! Noooo!

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TheSilentSamurai1996 t1_iuc0m7f wrote

Replying to wongyeng888 (#331,094)

I was just about to comment this lol. During recessions having reserve cash is very very important for companies and many of these next gen stocks that were meant to obliterate the future market have huge current debts and survive on taking bank loans. So as interest rates go up, it will take a huge toll on companies that borrow money from banks coz of the interest rates.

During recession some of these speculative stocks with huge loans might also get permanently burried.

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