The ADP payrolls reported surprised to the upside … what we can learn from the shipping sector … where Louis Navellier is putting money today … keep your eye on dwindling gas supply
The economy is not cooperating with the Fed.Yesterday, the payroll services firm ADP reported that U.S. private payrolls rose by 239,000 in October. That topped the estimate of economists polled by The Wall Street Journal that forecasted an increase of 195,000 jobs.This growth isn’t what Jerome Powell & Co. want. By extension, it isn’t what you should want. After all, “more growth” = “more tightening” = “more stock market headwinds.”If you’re looking for a silver lining, the report showed a slight easing in wage growth.Here’s MarketWatch with more:
Workers who stayed in their jobs saw pay gains of 7.7%, in line with recent months.Job changers saw annual pay growth of 15.2%, down from 15.7% in September.
The Labor Department’s monthly employment report arrives tomorrow. The Wall Street estimate is growth of 205,000 jobs.If it surprises to the north as well, it suggests we’re even further from when we’ll see meaningful policy change from the Fed. We’ll keep you updated.
Meanwhile, what are we learning about global growth from the shipping sector?
Want to analyze the condition of the global economy?All you need to do is check in with the shipping companies that make global trade happen.This is what many macro investors do, viewing shipping earnings and freight rates as a barometer for global trade and the supply chain.A.P. Moeller-Maersk is one of the world’s biggest shipping companies, controlling about one-sixth of the world’s container shipping industry. This makes it a great “barometer” for the shipping sector, and by extension, global trade.Earlier this week, in the company’s earnings call, CEO Søren Skou reported encouraging news related to freight rates and inflation:
It is clear that freight rates have peaked and started to normalize during the quarter, driven by both decreasing demand and easing of supply chain congestion.As anticipated all year, earnings in Ocean will come down in the coming periods.
But it wasn’t all good news.Remember the Catch-22 we’re in today: As central banks around the world hike rates at record paces in their attempts to quash inflation, the potential collateral damage is a global recession due to kneecapped consumer spending.On that note, here’s Skou with what he sees coming:
With the war in Ukraine, an energy crisis in Europe, high inflation, and a looming global recession there are plenty of dark clouds on the horizon.This weighs on consumer purchasing power which in turn impacts global transportation and logistics demand.
So, lower freight rates are good news to a point (reflecting easing inflation) but then become bad news (reflecting empty-pocketed consumers).But for now, we’re in the “good news” zone.
Legendary investor Louis Navellier has added some top-tier shipping stocks to his Accelerated Profits portfolio in recent months
One of them is Scorpio Tankers (STNG).From Louis’ “Buy Alert” back in June:
…Investors are starting to realize these stocks still benefit from elevated shipping rates and will post record results in July and August.So, today, I recommend that we take advantage of the recent weakness to add another shipping company with stunning forecasted earnings to the Accelerated Profits Buy List.
Those “stunning earnings” did, in fact, materialize for Scorpio – twice, in fact.The crude oil shipper crushed its Q2 earnings in July. And on Tuesday, it crushed Q3 earnings.From Louis:
Ahead of Tuesday morning’s earnings report, analysts had increased earnings estimates for Scorpio Tankers, Inc. (STNG) by a whopping 262.4%. So, it wasn’t too surprising that the company beat analysts’ earnings expectations.
Congrats to Accelerated Profits subscribers who followed the official recommendation. They’re up 38% since late-June.In fact, in light of these steep returns in just a few months, Louis has recommended his subscribers lock-in a 1/3rd portion of their trade today.Louis’ “buy up to” price is $53. As I write Thursday afternoon, Scorpio trades at $52.00, so a small buy-window remains if you want to add it to your portfolio.
But if you feel you missed out on Scorpio’s gains, what does Louis like today?
From his latest issue of Accelerated Profits:
…We are now entering a more narrow stock market – and it is every stock for itself.In other words, the market is growing more fundamentally focused and companies that announce strong results and increase their outlooks will continue to attract a lot of individual and institutional investors’ attention.The simple fact is that oil and natural gas companies – as well as food companies, fertilizer companies and other commodity-related companies – continue to prosper in the current inflationary environment.
In one of Louis’ recent podcasts, he referred to this market as “simple.” If you want to preserve and grow your wealth, you have to fill your portfolio with stocks that do well in an inflationary environment. And Louis just gave you the outline for what those stocks are.For more of his market analysis and specific portfolio holdings in Accelerated Profits, click here.By the way, over the next few days, Louis will be releasing a special briefing about his latest quantitative project.Regular Digest readers know that Louis was one of the market’s earliest “quant” investors. He’s been using computers and algorithms to produce superior investment results for decades.But this is an ongoing process. Louis has been sharpening this approach for more than 40 years, and he has a new iteration to unveil – I’m told he’s calling it a “breakthrough.”If you’re a Louis subscriber, more details are coming soon to your inbox, so keep an eye out.
Finally, keep your eye on gas prices
A huge contributor to softer inflation data in recent months has been falling gasoline prices.While we’re still enjoying those (relatively) lower prices today, keep your eye on supply. There’s a potential problem brewing.Let’s jump to Bloomberg:
Gasoline supplies on the US East Coast tumbled to an eight-year low, exacerbating a fuel shortage among wholesalers that threatens to further drive up pump prices heading into the midterm election. Overall US stockpiles are now the tightest since November 2014.That’s hitting pump prices, with East Coast states seeing some of the biggest jumps while, nationwide, prices have halted their streak of declines and started to rise again.
On Wednesday, the national average price for a gallon of gas came in at $3.765. Yes, that’s down from summer’s all-time-highs, but according to AAA, that’s the highest level recorded for this time of year.Behind the supply shortages is a plunge in oil imports that are at their lowest since April 2020.
While higher prices at the pump will be a headache for consumers, the bigger story is what’s happening with diesel
From Oil Price:
Multi-year low inventories and constraints in supply are exacerbating a diesel shortage in the United States, especially on the East Coast.Diesel demand continues to be strong after recovering faster from the pandemic slump than other fuels such as gasoline, refiners say.But several factors have combined this year to deplete U.S. distillate inventories, which include diesel and heating oil. And ahead of the winter, the distillate fuel crunch is worsening.
So, why is this a big deal?Because diesel fuel is what drives our economy.Diesel technologies are behind more than four-fifths of the products exported from and imported to the United States by truck, train, and ship. If we look at the fossil-fueled equipment used in construction, mining, and agriculture, 75% of it is diesel-powered.Diesel is also behind many mass transit systems, fire and rescue vehicles, hospitals and government offices, national defense, you name it.So, as diesel shortages intensify, this is a significant issue.Back to Oil Price:
A diesel shortage and high diesel prices don’t bode well for the global economy, which is slowing down and could tip into recession at some point next year. Distillate fuels are used in transportation, agriculture, manufacturing, and heatingIn the U.S., distillate fuel inventories are about 20% below the five-year average for this time of year, according to the EIA’s latest weekly inventory report…According to CNBC, U.S. diesel reserves at the end of October have never been so low since 1951, with the Northeast most exposed to low levels of diesel stocks.
While some reports have gone so far as to say that diesel supply could run out in 25 days, that’s a bit misleading. On average, diesel stockpiles ordinarily extend only about 35 to 40 days. So, stockpiles are down, but not to some terrifying level.The bigger issue is diesel’s potential price-spike relative to these shortages. If prices remain elevated for a prolonged period, that would eventually trickle down, hitting you and me in our wallets for all sorts of goods and services.We’ll keep you updated as this story develops.Have a good evening,Jeff Remsburg
