Huge inflation numbers … Louis’ roadmap for the stock market … when stocks could fall
Yesterday’s Platinum Growth Club Flash Alert from legendary investor Louis Navellier provided a step-by-step for how the market will finish the year, including when we could see a correction.
Today, let’s eavesdrop. There’s plenty to cover, so let’s jump straight in.
***Markets are pausing, but look for them to climb despite being overbought
For newer Digest readers, Platinum Growth Club is Louis’ premium investment service. Members get access to all of Louis’ newsletters, plus a model portfolio comprised of what he considers the “best of the best” of all his recommendations.
Members also get Louis’ Flash Alerts that provide timely market wisdom and actionable insights. Per usual, yesterday’s alert included both.
We’ll begin with Louis offering a 30,000-foot view of the market’s two-day pullback, though the Nasdaq and S&P are posting gains as I write Thursday mid-afternoon:
The market is having what I call “the pause that refreshes.”
Now, I will openly admit we are overbought, but it is November. And we tend to stay overbought in November.
There is some consolidation in the second and third weeks. But as we head into the Thanksgiving holiday, we should be rallying again.
We featured the chart below in a prior Digest. It shows research from economist Ed Yardeni on the average percent changes in the S&P 500, by month, between 1928 and 2021.
As you can see, to Louis’ point above, November is one of the stronger months of the year from an historical perspective.
While you’re looking, check out December’s average return.
***Louis quickly pivots to the yesterday’s big news – inflation
If you missed it, yesterday, we learned that October’s consumer price index soared to levels not seen since 1990. It jumped 6.2% year-over-year, blowing away the prior month’s year-over-year number of 5.4%.
Inflation is a global problem. China has hideous inflation right now, the most on record. And obviously, we have the highest inflation in over 30 years.
Most inflation is tied to natural gas, gasoline, and used cars – “used cars” because they can’t make new cars (due to supply chain bottlenecks).
What’s fascinating is that central banks around the world want to do nothing.
On this note, the Fed has already told us it won’t be touching rates until it ends its bond-purchase program (though this position could be jeopardized if inflation continues at its current, torrid pace).
Meanwhile, European Central Bank President Christine Lagarde said it is “very unlikely” interest rates will be raised next year.
And last Thursday, the Bank of England held interest rates steady, surprising some investors who thought it would be the first major central bank to hike rates.
Back to Louis:
Obviously, the central bankers still think (inflation) is transitory. I think that’s very sad.
I’ll add that on Tuesday, Treasury Secretary Janet Yellen repeated her belief that inflation will return to 2% next year.
When asked about the possibility that her forecast is wrong and inflation could go higher, Yellen brushed it off.
From Fox Business:
Yellen sought to assure that the inflation situation will be “watched carefully.” She said the Federal Reserve “wouldn’t permit” a return to the double-digit inflation levels seen in the 1970s.
I hope Yellen is right about 2% inflation next year. But the last time I checked, the Fed doesn’t wield absolute control over macro market forces. If it did, inflation wouldn’t be clocking in at today’s nosebleed rate of 6.2%…months after our leaders originally suggested it would have faded.
And how, exactly, would the Fed not “permit” inflation to rage out of control?
If we go by the Fed’s 70s blueprint, that would mean throttling rates to double-digit levels – which would kneecap the economy.
***The big question on the minds of investors
Let’s jump back to Louis on what inflation-response he’s looking for from global leaders:
It’s very clear on how they have to attack this.
You have to get energy costs under control. There’s only two ways to do that. Either boost production or have a recession.
The second thing they have to do is fix the supply chain bottlenecks and chip shortages.
Louis then pivots to the main issue weighing on investors:
So, you have to decide – we’re in an inflationary environment, where do you go?
Do you put your money at the bank, where it’s going to lose purchasing power after inflation?
Or are you going to put your money in the stock market where the companies are posting record earnings, and naturally, sales and earnings are going up because of inflation?
The winner in an inflationary environment, long-term, is the stock market.
One caveat to Louis’ takeaway that he would endorse…
The winner isn’t the entire stock market. Rather, it’s quality companies that sell in-demand goods and services that can protect their margins by increasing their prices. This offsets bottom-line declines.
Yes, pass-through costs aren’t great for you and me as consumers, but this is what separates top-tier businesses (and their stocks) from the average masses.
Consumers are still willing to open their wallets for the goods/services of quality businesses when prices are high. Not so much for average businesses.
On this note, a November survey of 560 small businesses from Vistage Worldwide found that 60% of them had raised prices in the previous 90 days.
Over time, this will serve as a great sifting mechanism.
***What Louis expects as we close out 2021, and when we might see a real correction
Let’s jump back to Louis:
Consumers have more money in their pockets than ever before. We’re headed into the holidays. When you put money in consumers’ pockets, they’re going to spend it.
So, we are anticipating record holiday spending.
And I want to remind everybody that November, December, and January are very seasonally-strong months. So, even though all the major indices are overbought, they’ll probably stay overbought through January.
And then, if we have any kind of correction, it will probably be early-to-mid February.
Louis wraps up by refocusing on today’s market, the potential for some near-term volatility, and how he’s handling it.
I’ll let his final comments take us out:
I want you to hang on and ride through these bumps.
(Yesterday) morning, the market opened lower yet firmed up a bit. That’s a good sign.
So, I’m going to stay invested even though I know we’re overbought. But if we do have a correction, it will be early-to-mid February.
Hang in there everybody. Enjoy the ride.
Have a good evening,