The latest market thoughts from Louis … Washington gridlock, “roaring” inflation, and a surprise from the Fed? … where stocks will go this fall into the holiday season

 

Politics… Fed policy… earnings… August volatility… inflation… automation and jobs… the 10-Year Treasury yield…

Last week, in his Accelerated Profits Flash Alert, Louis Navellier provided his take on the biggest influences on today’s market.

Even better, Louis detailed where stocks go between now and the end of the year, when to add money to the market, and exactly why.

In today’s Digest, let’s get into these details. After all, everyone can benefit from the market perspective of one of the most successful analysts in the investment business.

Lots to cover, so let’s jump in.

***The next spending bill isn’t a sure thing…and don’t be so quick to think the Fed is about to act

For newer Digest readers, Louis is an investing legend.

MarketWatch called him “the advisor who recommended Google before anyone else.” And Forbes gave him the title “King of Quants.”

“Quant” simply means he uses numbers and algorithmic-rules to guide his investment decisions.

The approach has been highly-effective, as Louis has amassed one of the most respected track records in the investment community.

Circling back to Louis’ Accelerated Profits podcast, let’s begin with his take on what’s happening in Washington D.C.

Last week, the Senate passed the $1 trillion infrastructure bill, as well its $3.5 trillion budget blueprint. If this legislation becomes law, it would be a huge tailwind for targeted sectors, but neither bill is a sure-thing due to D.C. politics.

Here’s Louis with more:

I don’t expect other (spending) plans to be passed because there’s going to be more resistance in Congress.

Of course, that brings up the debate of “how do we pay for it?” and increasing taxes.

Senator Joe Manchin is not cooperating with the Biden Administration on a lot of things.

Quickly summarizing, nine moderate democrats said they will not vote to advance their party’s $3.5 trillion budget resolution until the bipartisan infrastructure bill is signed into law.

This has created an impasse since Democratic House Speaker, Nancy Pelosi, has said she won’t sign the infrastructure bill into law unless the $3.5 trillion budget resolution is passed.

This will be an important story to track, since its outcome will greatly influence our national debt, inflation, and the broader economy.

Back to Louis, expanding his analysis from politics to the Fed:

(Senator Manchin) has also been on the warpath against Federal Chairman Powell. He thinks the Fed should start to taper sooner than later.

I’m watching this very carefully and there are two hawks on the Fed from Dallas and Kansas City. And there are some other moderates that say, “well, maybe, we’ll discuss tapering in September.”

But I’m still in the camp that the Fed will not discuss any cutback in their quantitative easing until December. The Fed likes to make these big statements when we’re all in the holidays and not paying attention.

Louis might be right, but many economists are taking the other side of this bet.

From Reuters, this past Friday:

The Federal Reserve will announce a plan to taper its asset purchases in September, according to a solid majority of economists polled by Reuters who also said the U.S. jobless rate would remain above its pre-pandemic level for at least a year.

On the other hand, yesterday, Fed President Neel Kashkari said he’s looking for a few more strong jobs reports over the coming months before he’d feel it’s time to wind down the bond-buying program.

This will be critical to watch. As we noted in Friday’s Digest, the Fed’s decision to pare back its bond-buying program will be a precursor to the raising of interest rates. And even the threat of higher rates could spook the market.

Circling back, the Reuters article we just quoted mentioned the U.S. jobless rate. That’s another topic Louis hit on in his podcast:

Even though we have 10.1 million jobs posted, it looks like a lot of jobs aren’t coming back.

Any company that can use the internet, or offers an app for ordering its products, is becoming more efficient. They even have a machine that makes French Fries now.

As more low-paid workers are hired, that brings down the weekly average hourly earnings.

Louis notes that these optics are putting pressure on the Biden Administration. But the far bigger issue for Biden is inflation.

***Inflation is “definitely here to stay”

We’ve been tracking the government’s official “transitory” stance on inflation for months here in the Digest.

Our perspective has been that resolved supply-chain bottlenecks will ease transitory inflation, but the trillions of dollars of newly-printed money from the government threatens the health of the U.S. dollar.

In Louis’ podcast, the Producer Price Index information we received last week pushed Louis into the “inflation isn’t going away” camp.

From Louis:

The Producer Price Index – this is where the inflation is hot and heaviest.

The CPI came out the other day, it’s up 5.4% over the trailing 12 months. But the Producer Price Index is up 7.8%. Ouch, ouch, ouch…

Louis details the increase in “trade margins,” with the takeaway that everything coming out of global shipping containers is more expensive.

Yes, there could be different reasons for these higher costs, but, as Louis says, “the bottom line is inflation is definitely here to stay. And inflation is getting worse than ever” which means “the Biden Administration is feeling the heat on inflation.”

Back to the podcast:

So, we have inflation, wages aren’t rising enough to offset inflation, and people are just getting a little perturbed.

So, that means they’re going to have to keep pumping (liquidity into the system).

And that means the rich are going to get richer. Because when they add money to the system, guess where it goes?

It’s great for the stock market.

***Moving on to the stock market, prepare for August bumpiness that resolves into seasonal strength as we round out 2021

Beginning with the state of our current earnings season, Louis says that the best earnings have already come out. Now, we’re seeing some “sloppy earnings” so added volatility should be expected – even taken advantage of if you have money to invest.

Back to Louis:

Do not worry. This is August. What you’re going to see is stocks are going to oscillate. It’s a washing machine.

Basically, people are travelling and they’re not paying attention to their investments. It’s the same thing that happens to professional money managers as well.

If you decide to buy, buy on dips. But you have one month. I think the market is going to be oscillating through mid-September, then we’ll firm up for quarter-end window dressing.

I also don’t see a lot of money leaving the market because there’s nowhere to go. So, let’s not worry about things.

But you might be wondering about the rising 10-Year Treasury yield? Is that not a reason for concern?

Louis doesn’t see the yield rising significantly, even though it’s rallied off its recent lows. Behind this is plenty of demand for Treasuries, which will keep yields in check.

As I write Monday morning, the 10-Year Treasury yield is falling back to around 1.23% after climbing to roughly 1.37% last week.

***Louis’ bottom-line on current conditions and what they means for your portfolio throughout 2021

Louis says that “inflation is roaring” and “the Biden Administration is getting more and more frustrated with the inflationary environment.”

That said, we’re still in a Goldilocks environment of low interest rates with an accommodative Fed.

So, how should you play it?

Here’s Louis’ roadmap:

I do expect (market conditions) to get a little bumpier. But I expect the bumpiness to diminish around mid-September.

So, if you have capital to add to the market, you want to do it by mid-September. Then we should get another surge come mid-October for the next round of earnings.

Then, if you have additional money to invest, mid-November is always the best time because markets rally as we go into the Thanksgiving holiday.

Bottomline: Catch your breath, let the stocks oscillate, buy in dips, if you decide to sell then sell into strength, and that’s it.

We’ll keep you up to speed on all these stories and market dynamics here in the Digest.

Have a good evening,

Jeff Remsburg