Louis Navellier’s thoughts on earnings … the latest on inflation and Fed policy … keep your eye on the brewing, global energy crisis
The next three weeks are going to be absolutely wonderful.
That comes from legendary investor, Louis Navellier, speaking to his Accelerated Profits subscribers.
Continuing with Louis’ comments…
As far as seasonality is concerned, the second half of October is better than the first half – probably because there’s all these good earnings coming out…
The next few weeks are going to be a lot of fun for us.
Yesterday, Louis sent out an Accelerated Profits Flash Alert. It covered the latest inflation data, the narrowing stock market, and what we can expect from Fed policy over the next 18 months.
Today, let’s eavesdrop to get Louis’ thoughts on why his subscribers, but not necessarily everyone, are going to enjoy earnings season. We’ll also add in commentary from Luke Lango and our technical experts, John Jagerson and Wade Hansen to round out the analysis.
Lots to cover, so let’s jump right in.
***Positive news on the inflation front
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 his Accelerated Profits Flash Alert, after his bullish opening, Louis touched on Wednesday’s inflation data:
We had some inflation news (on Wednesday). The Producer Price Index is hideous. It’s running at 8.6% in the last 12 months.
But the core rate is definitely cooling off.
Most of the inflation is tied to food and energy. So, that’s good news.
That means if we can get those two components under control, we might be able to defeat inflation.
Yesterday, our hypergrowth expert, Luke Lango, echoed Louis’ optimistic take on inflation.
From his recent Hypergrowth Investing update:
Here’s the thing: Inflation is cooling off, not heating up.
Go look at the bond market. When inflation expectations rise, yields rise. But (on Wednesday), after the CPI print hit the tape, yields plunged. They fell as much as 3 basis points to multi-day lows after the CPI print.
Why? Because the number that actually matters – core CPI, or core inflation less food and energy – rose just 0.2%, slower than expectations.
In fact, in September, prices for used cars, apparel, transportation services, and medical services all dropped from August.
As I write Friday morning, the 10-year Treasury yield has climbed to 1.56%, but that’s still below the 1.6% level we saw earlier this week.
***Expect a “narrowing” stock market as we move deeper into Q4
Let’s jump back to Louis:
It’s every stock for itself over the next few weeks.
Wall Street is no longer in the manic “buy everything” mode that has characterized the last 12 months or so. Given inflation and supply-chain impacts on revenues, the focus is returning to bottom-line earnings growth.
On that note, let’s turn to our technical experts, John Jagerson and Wade Hansen of Strategic Trader:
Earnings season is underway once again, and Wall Street is sending a clear signal: It wants to see growth.
Traders sent this message loud and clear (Wednesday) morning with their reaction to the JPMorgan Chase & Co. (JPM) earnings announcement.
John and Wade explain that JPM posted decent numbers, but the stock sold off because most of the $2.3 billion profit increase from last year to this year wasn’t driven by growth in JPM’s business segments; it was driven by an accounting maneuver.
Back to John and Wade:
Traders want to put their money in companies that are going to increase their profits, not just maintain them.
What happened to JPM is a microcosm of what is happening in the broader stock market.
Fortunately, we’ve seen some strong earnings reports over the last two days.
Yesterday, Morgan Stanley, Wells Fargo, Citigroup and Bank of America all posted stronger-than-expected earnings. Bank of America grew its up earnings by a whopping 57% from last year.
And this morning, Goldman Sachs reported strong earnings, topped off by its CEO, David Solomon, saying the company “saw strong operating performance” and that its “opportunity set continues to be attractive across all of our businesses.”
In related positive news, this morning we learned that U.S. retail sales climbed 14% over the last year. That reflects well on the sustainability of our economic recovery since consumer spending makes up about 70% of U.S. GDP.
***Looking ahead, what can we expect from the Fed?
Again, let’s return to Louis:
The Fed is going to be raising rates next year. There’s no doubt.
The reason I say that is because we had new claims for unemployment come out and they fell below 300,000 for the first time since March of 2020 when the pandemic commenced.
So, for all practical purposes, the Fed has fulfilled its unemployment mandate. It fixed it.
I know we don’t have as many jobs as we had before the pandemic, but it’s fixed. There are acute labor shortages all over the United States.
So, the Fed is now going to turn its attention to fixing inflation.
As you’re likely well aware, the main talking point for the Fed has been the anticipated “transitory” nature of inflation.
Louis points out why the Fed should be able to claim victory in its argument over the coming months.
Back to his Flash Alert:
The reason the Fed can say that inflation is transitory is you have this data, and you cut it off every month.
What’s going to happen is when we get to April or May of next year, we’re cutting off some huge (inflation) gains.
That is going to make the annual rate of inflation decline.
But it’s very clear what the problem is. It’s tied to natural gas and crude oil. Natural gas is tied to fertilizer. It makes food prices higher.
This is a global issue.
Louis’ comments dovetail us into our final point today – the growing crisis in global energy markets.
***Soaring energy costs are the next big issue to watch
You’ve likely seen gas prices leap higher in recent months. In fact, earlier this week, the average price of a gallon of gas in the U.S. hit a seven-year high, at $3.26 per gallon.
We’ve dedicated Digests to surging crude prices in recent weeks. However, it’s not just gas. And it’s not just here in the U.S.
…the world is entering a new energy crisis the like of which hasn’t been seen since the 1970s.
European and Asian gas prices are at an all-time high, the oil price is at a three-year high, and the price of coal is soaring on the back of energy shortages across China, India and Germany.
The surge in demand is being driven mostly by recovering economies and anticipated extreme weather across Europe and north-east Asia. China is stockpiling domestic coal and gas reserves, and Russia is reluctant to supply gas to Western Europe.
Closer to home, Australia’s gas prices are soaring…
In Britain, a shortage of the truck drivers who move fuel has led to panic-buying amid fears of a shortage…
Compounding Britain’s problem was its so-called “windless summer” in which renewable power production was much lower than normal. This put a significant strain on electricity generation as around 24% of its power is produced by wind.
It’s critical that global leaders find ways to address this since persistent high costs could derail global economic growth. We’ll keep you updated.
For now, let’s celebrate some strong earnings and a market that appears eager to rebound.
Have a good evening,