Understanding the stock market right now is actually quite simple. It all comes down to the U.S. dollar. The strength of the U.S. dollar is hurting exports, pretax corporate profits and business investment, and that, in turn, is putting further downward pressure on overall GDP growth.
As we discussed earlier, as long as U.S. GDP growth continues to contract, the “data dependent” Federal Reserve will not raise key interest rates in 2015.
And I’m not looking for them to increase rates in 2016 either, since there will be political pressure in a Presidential election year. So, interest rates will remain ultra-low, which leaves the stock market as the only game in town.
But, of course, the strong U.S. dollar is crushing sales and earnings for the vast majority of multi-international stocks. That means mutual fund managers, institutional investors and individual investors are now flocking to stocks that can sustain strong sales and earnings growth.
So, the seismic shift out of multi-international stocks impeded by a strong U.S. dollar and into small- and mid-cap stocks with robust earnings and sales growth continues and is expected to persist for several months.
Many of the stocks that missed analysts’ estimates in the first quarter but are still characterized by strong forecasted sales and earnings, rebounded impressively in recent weeks.
The areas that I look to show particular strength in the coming months include the healthcare and technology sectors. In particular, biotech stocks and semiconductor stocks remain top picks in each of these sectors. Both areas have seen a pick up in acquisition activity recently, and I look for more acquisitions to be forthcoming.
So, we are essentially in a more stock-picking market, rather than a sector market right now — and it’s for these reasons that we’ve been loading up on semiconductor stocks like Ambarella (AMBA) and biotech stocks like AMAG Pharmaceuticals (AMAG).
Overall, we’re well positioned to take advantage of the continuing seismic shift on Wall Street. Due to multi-international companies’ woes with the strong U.S. dollar, the small- and mid-cap arenas have emerged as oases for institutional investors.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
