A hike all but certain in March … more perspective on recent market declines … billions of investment capital flowing into EVs and battery research … when we’ll see a next-gen battery

 

This afternoon, Federal Reserve officials announced they expect to be raising interest rates soon.

From their policy statement:

With inflation well above 2% and a strong labor market, the FOMC expects it will soon be appropriate to raise the target range for the federal funds rate.

Officials did not commit to what “soon” means. However, Federal Reserve Chairman Powell all but promised the first hike will come in March.

From his comments during the press conference:

I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming that conditions are appropriate for doing so.

As to the Fed’s massive bond portfolio, the central bank approved one final round of asset purchases, which will bring the bond-buying program to a conclusion by March.

Investors didn’t receive specifics about when the Fed will unwind its portfolio. But the Fed did release “principles.”

From CNBC:

There were no specific indications Wednesday when the Fed might start to reduce bond holdings that have bloated its balance sheet to nearly $9 trillion.

However, the committee released a statement outlining “principles for reducing the size of the balance sheet.”

That policy sheet noted that the benchmark funds rate is “primary means of adjusting the stance of monetary policy.”

The committee further noted that the balance sheet reduction would happen after rate hikes start and would be “in a predictable manner” by adjusting how much of the bank’s proceeds from its bond holdings would be reinvested and how much would be allowed to roll off.

In the wake of the FOMC policy release, the market surged, only to give up those gains as Powell held his press conference.

Powell sounded hawkish, saying the Fed might shrink its balance sheet at a faster pace than the last cycle. He also said the Fed has lots of room to raise rates without it damaging the labor market.

Translation – bet on more hikes rather than fewer.

In the wake of the comments, stocks lost all prior gains. The Nasdaq saw the biggest whipsaw, going from up 3.7% to flat on the day. The Dow and the S&P 500 both finished in negative territory.

***Was today’s Fed announcement the beginning of a bottoming process and reversal north? Or is more pain in the immediate future?

No one knows.

That’s why looking at historical market data can be incredibly helpful in moments like this.

Analyzing how markets have rebounded in the past can be a helpful reminder that stocks are resilient in case there’s more weakness ahead.

Below is research from Ryan Detrick, Chief Market Strategist at LPL Financial. Earlier this week, he looked at all market corrections since 1980, analyzing subsequent returns.

From Detrick:

This isn’t fun, but it is part of the process sometimes.

Here’s a list of all the other corrections since 1980. Each felt really bad as well.

A year later?

Up 25% on avg and higher 90% of the time.

Two years out gets even better.

Source: Ryan Detrick

If you’re having trouble seeing the details of the chart above, there are plenty of big losers in the “Correction Return” column. But the column showing returns two years later is filled with monster gains. I’m seeing loads of 50%+ returns. In fact, even the median return after two years is 45%.

Wealth manager and financial author, Ben Carlson, offers additional perspective:

I know it feels like the world could be coming to an end every time stocks fall but the S&P 500 has had the following corrections since 2009:

-16.0%

-19.4%

-13.3%

-10.2%

-19.8%

-33.9%

The market is up 740% since the Mar 2009 bottom even w/all of these corrections.

It happens.

One more…

Let’s return to Detrick for more analysis on fast-moving correction. From earlier in the week:

The S&P 500 is about to move into a 10% correction.

What stands out (as we all know) is it happened, fast, really fast.

Here are the only times it took less than a month to move from an ATH (all-time-high) to down 10%.

The good news is 6 months later never lower and up nearly 15% on avg.

Source: LPL Research

The bottom-line is these corrections are painful and it can feel as though there’s no end in sight.

But a bottom always comes, and so too does an ensuing rally.

Be smart. Meaning stick to your personalized investment plan. But know that this too shall pass.

With that dose of perspective behind us, let’s refocus on how to make money.

***Yesterday brought news that Nissan-Renault will be spending $26bn on EVs and solid-state batteries

From NikkeiAsia:

The automotive alliance formed by Nissan Motor, Renault and Mitsubishi Motors will invest a combined 3 trillion yen ($26.3 billion) through fiscal 2026 mainly into developing electric vehicles and new solid-state batteries that are expected to triple driving ranges.

The three automakers are expected to announce the plans on Thursday, which will include rolling out at more than 30 EV models in total through fiscal 2030 using jointly developed platforms…

Nissan intends to commercialize the all solid-state batteries that it developed by the fiscal year ending March 2029 for use by all three alliance members, with the mass production expected to reduce their cost to a level on par with gasoline vehicles.

Now, regular Digest readers likely perked up at the above mention of “solid-state batteries.” That’s because this is the holy grail of battery technology.

If you’re a newer Digest reader, here’s our hypergrowth expert, Luke Lango of Innovation Investor, to explain why:

The EV Revolution has arrived.

But here’s the thing: The EV Revolution won’t go mainstream until we make better batteries.

That harsh reality here is that while batteries make things work, today’s batteries are keeping EVs from working as well as they could.

Luke has done extensive research into the current battery market, including the next-gen “solid-state” battery that’s going to transform everything.

Here’s a quick overview from Luke on the significance of solid-state technology:

The implications of solid-state battery chemistry are huge.

Solid-state batteries could be the key to making our phones sustain power for days… enabling our smartwatches to fully charge in seconds… and, yes, allowing electric cars to drive for thousands of miles without needing to recharge.

That’s why solid-state batteries are dubbed by insiders as “forever batteries” — and it is why these forever batteries are the critical technology needed to propel the EV Revolution into its next phase of supercharged growth.

***But solid-state batteries won’t only last longer, they’ll be far cheaper

For more on this, we’ll turn to GreenCarReports:

Some of (the billions that Nissan will be investing) will also fund development of solid state batteries, which Nissan expects to be production ready by fiscal year 2028, with a pilot plant in Yokohama, Japan, coming online as early as fiscal year 2024.

Nissan expects solid state batteries to bring the cost of an EV battery pack down to $75 per kwh by 2028, and is targeting $65 per kwh at a later date with additional cost reductions.

Let’s add some context because this is an important point.

Last November, Electrek reported that the cost of electric vehicle battery packs has fallen to $132 per kWh.

Obviously, going from a battery pack costing $132 per kWh to just $75 kWh would be huge – that’s a 43% savings. This is especially important in light of the fact that the most expensive part of an electric car is the battery.

But the real significance is this $75 kWh price relative to the cost of gasoline-powered cars.

One of the advantages of combustible engine vehicles over electric vehicles is that they’re cheaper to produce, so they’re cheaper for the consumer to buy.

So, where’s the line-in-the-sand at which an electric vehicle battery becomes less expensive to produce than a gasoline-powered car?

From Electrek:

In the auto industry, it is generally accepted that $100 per kWh for battery packs is the price point needed for electric vehicles to be cost-competitive with gasoline-powered vehicles.

Given this, Nissan pointing toward a solid-state battery costing just $75 per kwh is enormous.

That’s when the game totally changes.

***How do you play it?

Nissan is an obvious option.

Its stock is riding through this correction far better than most. Below, you can see it’s actually up 11% on the year compared to the S&P, down 7%.

There are also a handful of ETFs that target electric vehicles.

Check out DRIV, IDRV, and KARS as three options. They’re all down roughly 10% over this correction.

Keep in mind, these ETFs are more of an ancillary play on battery technology.

For example, if we look at what’s in the ETF, DRIV, its top five holdings are Tesla, Nvidia, Qualcomm, Microsoft, and Apple.

If you want more of a focused play, Luke has an idea. He’s found a tiny, unheard-of solid state battery maker with a stock trading for less than $3.

He recently gave a presentation at the landmark Hudson Theater in Southern California that focused on the opportunity. You can click here to watch.

Wrapping up, keep your eyes on breakthroughs with solid-state technology. This next-gen battery will usher in more power at less cost. It’s going to be huge.

We’ll keep you up to speed here in the Digest.

Have a good evening,

Jeff Remsburg