Jerome Powell Says Supply Shocks Are Coming—Which Stocks Can Still Thrive?

Fed chair Jerome Powell’s words sure can move markets. And while Fed meetings and new commentary from Chairman Powell will surely have some investors biting their nails, it’s worth noting that the market’s immediate reaction doesn’t always make the most sense.

Of course, it would be nice if the Fed would show a greater willingness to lower interest rates. But at this juncture, I think investors shouldn’t make too much of the commentary either way. At the end of the day, investors should focus on playing the long-term game and let Mr. Market overreact to any hints of what’s to come from the Fed. 

Recently, Powell startled investors as he warned that the U.S. may be in for more frequent and persistent supply shocks. Undoubtedly, these supply-chain shocks will make the Fed’s job a bit harder, as they look to find the right balance between fighting off lingering inflation and keeping employment in a relatively good spot. Indeed, supply shocks could give way to another big wave of inflation and some pressure on employment.

Get used to higher longer-term rates

At such a profoundly uncertain juncture, I’d argue it makes the most sense for the Fed to implement a more adaptive approach. Waiting and seeing certainly does seem like a good idea rather than committing to some number of rate cuts over a timeframe, given that the runaway inflation could be the far greater risk than an uptick in employment. In any case, investors had better get used to a “higher for longer” environment that sees longer-term rates stay on the higher end.

For now, I don’t think there’s any sense in panic-selling the stocks, like Apple (NASDAQ:AAPL | AAPL Price Prediction), that have already been beaten down amid tariffs and the cloud of supply chain uncertainties. Of course, Apple will have its hands full as it moves a chunk of iPhone production from China to India. But I think it’s a mistake to question Apple’s agility to pull off the feat without taking too large a hit to the chin.

In any case, for those with excessive exposure to such supply shocks, though, I think it makes sense to rotate to some of the names that don’t face as much risk. At the end of the day, it’s all about managing and mitigating the supply shock risks such that one won’t be inclined to hit the panic button should matters worsen from here.

In this piece, we’ll look at one name that I think can not only survive but thrive in the face of supply shocks.

Netflix: A perfect shelter from supply shocks

The digital economy plays are where you’ll want to be if you’re looking to steer clear of any supply shocks. Video streaming titan Netflix (NASDAQ:NFLX) looks very well insulated from any shocks, given the nature of its business. With shares recently surging to fresh, new all-time highs just north of $1,200 per share on the back of strong earnings and analyst price target boosts, shares of the streaming pioneers are starting to look a tad on the pricey side.

Still, I’d not be afraid to buy the name on strength, given the magnitude of clarity and certainty provided by the name compared to most other names in the market that would be more heavily weighed down by supply-side shocks. If the winds of recession do move in as a result of the brewing trade war,  I don’t think subscribers will be in a hurry to hit that cancel button, given the stacked content library and recent momentum in live events and gaming.

With Netflix recently bringing aboard Sesame Street, it appears a Netflix subscription has become that much stickier for families. In any case, Netflix seems like the perfect stock to hold in the face of more of the same (tariff talks and supply shocks).

Recently, Seaport Research’s David Joyce hiked his price target to $1,230 from $1,060, citing the name as a stock “with limited downside,” given its “recession-resilience during the spring market turbulence.” He’s right. Netflix surged in the face of chaos, and it could do so again as supply-side shocks were to cause another panic in markets.