What’s driving Louis’ bullishness … strong retail numbers … positive earnings surprises … record cash on the sidelines … being realistic about the soft spots
We’re going to finish the year on a very strong note.
I would be very, very disappointed if growth stocks weren’t up 20% or more this quarter.
And of course, we’re off to a very, very strong start already.
So says famed investor, Louis Navellier.
This past Friday, Louis sent his Platinum Growth Club subscribers his weekly update, including his podcast commentary on the market.
For newer Digest readers, Louis’ Platinum Growth Club members get access to the picks from all his services, plus a model portfolio made up of the best of the best from all his recommendations.
As a preview of what this “best of the best” can do for your portfolio, it turns out Louis has now closed 48 double- or triple-digit winners in his Platinum Growth Club already this year.
Fortunately, he still sees signs of a climbing market ahead. In fact, if I had to sum up his podcast in four words, it would be …
Get ready for gains.
Now, for some readers, this might feel like too bullish of a prediction.
As we detailed in Friday’s Digest, we’re still contending with the coronavirus … state lockdowns … sputtering progress on unemployment … and a heated presidential election.
So, what’s behind Louis’ optimism?
Let’s find out.
***Last week ended on a bullish tone
Louis began his podcast by noting the positive news from Friday — a strong retail sales report.
Now, the big news (from Friday) is that retail sales came in much better than expected.
For any readers who missed it, we learned that sales at U.S. retail stores surged 1.9% in September.
It was the fifth straight month of growth, which points toward an economic recovery that’s still healthy.
While 1.9% may not sound like much, economists polled by MarketWatch had only been looking for a 1.2% increase. So, comparatively, 1.9% was an incredibly strong number.
What’s even more impressive is that retail sales have now recovered to their pre-pandemic levels.
Below, you can see that U.S. retail sales have risen 5.4% in the last 12 months, and that includes the economic kneecapping from the coronavirus.
Back to Louis:
And (the retail numbers) were up for every single category except for electronics.
And electronics will be up next month because the new iPhone was just announced, so that will cause electronic sales to be up in October.
On that note, MacRumors.com has reported that iPhone 12 Pro pre-orders are already selling out. Delivery times are pushing in November.
Here’s Louis’ overall take on the retail numbers:
… the truth of the matter is that it’s un-American to suppress people. People want to get out and about. They want to go out and spend.
And what we call the velocity of money is very healthy. And that’s what showed up in retail sales …
Consumer spending on services has been hit by the coronavirus because the bars, restaurants, hotels, and travel industry is still down. But I can’t tell you how impressive that retail sales report was today …
It’s very, very impressive.
***Looking forward, Louis expects market gains coming from earnings strength
Regular Digest readers know that Louis loves earnings season.
That’s because Louis is a numbers-guy, or a “quant.” He uses a series of quantitative inputs to help him find the strongest stocks in the market — and many of these numbers revolve around earnings strength.
Given this, earnings seasons are often when Louis’ recommendations surge, distancing themselves from the market through superior earnings performance.
True to form, the Q3 earnings season we just started has Louis excited, and his expectations are high.
After referencing the way some investors try to buy on dips when a market is oscillating up and down, he says the ability to do that is about to end …
Unfortunately, your dips are going to cease (this) week because we’re going to have wave after wave of better than expected earnings, driving our stocks higher.
You have to be positioned for these earnings.
FactSet, which is the data analytics company used by the pros, reported that, as of last Friday, 10% of companies in the S&P have reported earnings. Of them, 86% have reported a positive earnings-per-share surprise and 82% have reported a positive revenue surprise.
So far, so good.
***Another tailwind behind the market? Cash on the sidelines
Back to Louis:
… there’s so much cash on the sidelines, folks.
When everybody thinks the coast is clear, when that cash comes in, it’s going to drive a lot of our stocks higher.
We can analyze this “sideline-cash” by looking at money market funds.
These are mutual funds that invest in short-term bonds. They’re a popular place for traders and investors to park cash while they wait to deploy that cash into longer-term positions.
It turns out, the total amount of money invested in money market funds hit an all-time record high of $4.8 trillion in May. That’s according to Morningstar Direct.
The number fell to $4.5 trillion in August (that’s the most recent data available), but that’s still way above the previous high of $3.8 trillion, set back in January 2009.
From the Pittsburgh Post-Gazette:
That’s a mother lode of cash piled up in fixed income investments that will earn only about 1% or 2% interest at best while avoiding stock market risk …
That’s the exact reason why this record-level of cash likely won’t remain out of the market for too long. There’s simply not a great alternative to investing in stocks if you want to reach your financial goals.
So, if something causes stocks to surge higher, many anxious investors will likely see that as a green light, and will put their cash to work.
Here’s Louis on that:
So, when that cash comes in, whatever the trigger is going to be, whether it’s earnings, or the election outcome, or raw seasonality like Thanksgiving — markets love to rally around Thanksgiving — we’re going to finish the year on a very strong note.
I would be very, very disappointed if growth stocks weren’t up 20% or more this quarter.
And of course, we’re off to a very, very strong start already.
***Is there anything Louis is nervous about?
Someone reading the above might come away with the impression that Louis is a perma-bull. In other words, regardless of what’s happening in the market, and in the world, the forecast for stocks is always “up.”
But that’s not Louis. He’s not blind to the various challenges before us:
Now, you’ll still get negative headlines …
And as far as the coronavirus is concerned, yeah, it’s a big problem. Of course it’s a problem. But the treatment is also a lot better.
Louis also pointed toward the potential for negative unemployment data coming out of California.
California hasn’t been reporting for three weeks. There’s a lot of fraud in the California unemployment claims, so they stopped processing new claims.
So, you could have a little spike, but continuing unemployment claims continue to decline.
***As usual, stocks climb a wall of worry
Looking at the market today, it’s easy to be nervous — but there’s always a reason to be nervous.
And yet, here’s a reminder of how the market has performed over the last 30ish years, despite bear markets, scandals, crises, and everything in between.
Here’s Louis with some final words of optimism:
All I can tell you is things look awfully good.
The fact of the matter is, this V-shaped economic recovery that we’re in is real …
Are we hitting on all cylinders? Or course not, but there’s a lot of hope for the future.
There’s a lot of optimism. And there’s a lot of cash on the sidelines.
So, I just feel very, very good right now. I think it’s just time to go out and prosper.
To learn more about Louis’ Platinum Growth Club service, click here.
For any readers out there who remain nervous about being invested today, we’ll wrap up today with a quote from asset manager and chairman of Research Affiliates, Rob Arnott:
In investing, what is comfortable is rarely profitable.
Have a good evening,
Jeff Remsburg
