Why the Fed’s meeting last week wasn’t as hawkish as many thought… Louis Navellier and Luke Lango both see gains coming this summer… get ready for a “spectacular” Q2 earnings season

Two world-class stock analysts, two bullish predictions.

First, from legendary growth investor, Louis Navellier…

The “Goldilocks” environment is set to continue for the foreseeable future… we remain in the ideal environment for stock appreciation.

Second, from wunderkind hypergrowth investor, Luke Lango:

We are due for a huge breakout in (top-tier technology) stocks in the coming months.

Get ready for a summer to remember.

What, exactly, is behind these bullish forecasts?

After all, last week marked the worst week for stocks since October (the Dow dropped 3.5% while the S&P was off 2%).

It turns out that Louis’ and Luke’s bullishness stems from the same thing that caused much of last week’s volatility…

The Fed.

In today’s Digest, let’s find out why these two experts are so bullish considering a Fed meeting that, at first appearance, was unexpectedly hawkish. If they’re right, look for fundamentally strong growth stocks to lead the market higher this summer.

***How the Fed is helping drive the next leg higher in elite growth stocks

For newer Digest readers, Louis is a legendary “quant” investor. This simply means he relies on numbers, not hunches, to drive his investment decisions. He uses computers and algorithms to identify a small group of stocks that are rooted in quantifiable earnings strength.

Meanwhile, Luke is InvestorPlace’s hypergrowth expert. He’s a voracious researcher, finding the technological innovations and trends that are transforming our world. He then digs deeper, identifying the related market leaders that are the most likely to reward investors with lifechanging returns.

While these two analysts approach the markets differently, they both have the same takeaway from last week’s Fed meeting…

Quality growth stocks are headed higher, despite some surprises from the Fed last week.

To set the stage, here’s Luke from his Daily 10X Stock Report issue on Saturday:

In its Summary of Economic Projections release and subsequent press conference this past Wednesday, the Fed lifted inflation expectations, reeled in rate hike projections, and admitted that if inflation is not transitory, they’re going to have to act (while still saying they believe that inflation is transitory).

The dovish Fed turned slightly hawkish.

Of course, that doesn’t sound like the Fed has your back. It sounds like the Fed is going to tighten, yields are going to pop, and growth stocks are going to collapse.

But when you dig a bit deeper, it becomes clear that the ostensible implications here are all wrong.

To make sure we’re all on the same page, last week, the Fed maintained its near-zero key interest rate policy and $120 billion per month quantitative easing program.

As to why some commentators colored the meeting as hawkish, it’s because the Fed admitted that inflation continues to rise, upping its annual inflation forecast to 3.4%, up from 2.4%. On top of that, the FOMC statement revealed that 13 of the 18 FOMC members expect a key interest rate hike by the end of 2023. Previous statements had projected that the FOMC wouldn’t raise rates until 2024.

But let’s turn to Louis now for why this shouldn’t alarm investors. From yesterday’s Accelerated Profits update:

I don’t want you to be concerned with these projections.

Remember, the U.S. has a massive budget deficit; the budget deficit breached $2 trillion in May. Given this, the Fed will not want to risk raising rates too soon, too fast or it would blow up the deficit.

Bottom line: We remain in a “Goldilocks” environment of near-zero interest rates, robust economic growth and a dovish central bank.

Louis also points toward how FOMC members still want to see full employment before raising key interest rates or cutting back on its quantitative easing.

Now, that’s all well and good, but what about the threat of inflation? If it rises more than expected, won’t it force the Fed to raise rates, which would hurt growth stocks?

Here’s Luke on that:

Powell said the Fed will hike rates if and only if inflation proves durable. If it’s not, they’ll stay on the sidelines.

So, knowing that this is a Fed that’s methodical and dovish, one of two things will happen going forward…

Either inflation stays super-hot, and the Fed stomps it out with small and gradual rate hikes, bringing inflation and yields down (because bond investors won’t have to worry about inflation killing real returns, but also won’t have to worry about the Fed lifting the front end of the curve too much, either). Those dynamics will send growth stocks higher.

Or, inflation cools down, and the Fed stays on the sidelines, keeping yields lower-for-longer, which will send growth stocks higher, too.

Either way, growth stocks head higher.

***History suggests Powell does not want to ruin the party on Wall Street

In Luke’s issue, he highlighted Powell’s past experiences with an unhappy market/economic environment, drawing the conclusion that Powell will do all he can to keep investors happy.

To illustrate, Luke first points back to early 2019. As soon as the stock market began panicking about rate hikes throttling an economic expansion, the Fed immediately stopped hiking rates.

Then, in August 2019, Powell and company cut rates as soon as the U.S.-China trade war started to adversely impact the economic growth trajectory in America. They kept cutting them for months until the trade war stopped showing up adversely in the U.S. economic data.

Then, we have last year, when the Fed threw the entire kitchen sink at the economic collapse caused by Covid-19. It cut rates to zero immediately and pumped trillions of dollars into the financial system.

Here’s Luke with the takeaway:

This is a Fed that’s always dovish, never wants to upset the apple cart, and always errs on the side of better safe than sorry.

***Another bullish catalyst is right around the corner

Q2 earnings season begins in a couple weeks. And Louis notes that the earnings environment remains “spectacular.”

We can get a better sense for this by looking at Q2 earnings projections from FactSet, which is the go-to earnings analytics company used by the pros.

From FactSet:

Analysts and companies have been much more optimistic than normal in their estimate revisions and earnings outlooks for the second quarter to date. As a result, expected earnings for the S&P 500 for the second quarter are higher today compared to the start of the quarter.

The index is now expected to report the highest year-over-year growth in earnings since Q4 2009 for Q2. Analysts also expect double-digit earnings growth for the second half of 2021.

The above-average growth rates for the second quarter and for all of 2021 are due to a combination of higher earnings for 2021 and an easier comparison to weaker earnings in 2020 due to the negative impact of COVID-19 on numerous industries.

So, it’s looking like we’re going to have low interest rates, fantastic Q2 earnings, and a Fed that will err on the side of being accommodative.

It all points toward a rallying market as we move deeper into the summer.

To take us out, let’s sum up with Luke…

I have some really good news for you: The Fed has your back.

That’s right. The Fed this week made it abundantly clear that its policy stance will continue to support strong performance in early-stage, hypergrowth stocks.

And now, Louis…

The “Goldilocks” environment is set to persist for the foreseeable future. And that’s the ideal environment for stock appreciation.

Have a good evening,

Jeff Remsburg