This morning’s live event with Keith and Louis… why the Powell drama is just “noise” – until it isn’t… LEI data shows a weakening economy… is tech overvalued or not?… don’t make this rookie trading mistake
Before we jump in, thanks to the thousands of investors who joined us for this morning’s live event with TradeSmith CEO Keith Kaplan and legendary analyst Louis Navellier.
If you missed it, Keith and Louis demonstrated one of the most advanced pieces of fintech available to investors today. Louis says, “it’s unlike anything I’ve encountered in my 50-year career.”
It’s a trading tool that:
- Highlights the exact days to buy and sell a stock based on that stock’s unique, historical “seasonal” patterns – no more guesswork
- Works on specific stocks, indexes, even currencies and commodities
- Can be used alongside other quantitative systems (Like Louis’ fundamentals-based quant approach) to select only the strongest trades/positions – even in volatile markets.
If you weren’t able to attend, you can check out a free replay right here.
Today, the system is signaling a broader bearish turn beginning next week. But while the S&P 500 may struggle, select stocks are setting up for significant gains – because it’s never just “the stock market”… it’s a market of individual stocks. And the seasonality trading tool enables you to zero in on those specific stock opportunities, despite what might be a weak overall market.
It’s easier to get a sense for how powerful this seasonality tool is when you see it in action. So, click here to watch the replay and see what this game-changing trading tool can do.
The Powell drama deepens
The rumor that President Trump might fire Federal Reserve Chair Jerome Powell just won’t die.
At the core is Powell’s refusal to cut interest rates, despite mounting pressure from Trump. But the latest headlines center on a ballooning renovation project at the Fed’s headquarters – once budgeted at $1.9 billion, now running about $700 million over. Trump’s team has blasted it as a “Palace of Versailles.”
Powell has defended the upgrades as necessary and approved and has called for an internal watchdog review.
This morning, Treasury Secretary Scott Bessent weighed in: he says Powell doesn’t need to resign, but he is calling for a broader review of how the Fed operates.
From Bessent:
Everything else that the Fed has done over the years has just grown and grown and grown, and this is what happens when you don’t have oversight.
Right now, this is all just political noise.
It only becomes relevant to your portfolio if Trump tries to fire Powell in a way that challenges the Fed’s independence. That kind of move could shake markets and raise real questions about executive overreach.
If that happens, you’ll hear from us. Until then, we’re ignoring the drama and focusing on more relevant things for your portfolio, such as some weak economic data yesterday…
Warning signs from the economy?
Yesterday, the Conference Board’s Leading Economic Index (LEI) – a tool designed to signal where the U.S. economy is headed – fell by 0.3% in June, continuing a downward trend to watch.
Over the first half of 2025, the LEI has dropped 2.8%, more than double its decline in the back half of 2024.
This matters because the LEI is one of the best early-warning systems for the business cycle. And right now, the signal isn’t great.
From Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board:
The LEI’s six-month growth rate weakened, while the diffusion index over the past six months remained below 50, triggering the recession signal for a third consecutive month.
Translation: Not only is the index falling, but most of its component indicators, (think manufacturing orders and consumer expectations) are weakening at the same time. This is a classic red flag for economic trouble.
Interestingly, stock prices were one of the few bright spots last month. But as The Conference Board noted, “For a second month in a row, the stock price rally was the main support of the LEI,” meaning if not for the market’s gains, the index might look even worse.
To be clear, the sky is not falling
Despite the LEI suggesting weakness, The Conference Board still expects slow growth rather than a full-blown downturn. They project GDP to rise 1.6% this year, down from 2024, as tariffs and rising prices start to weigh on consumer spending.
Meanwhile, the Coincident Economic Index (which tracks where we are, not where we’re going) actually ticked higher in June. This signals that the economy is still on decent footing at the moment.
But we shouldn’t ignore the overall weakening trend. It points toward a cooling economy through the second half of the year, even if a recession isn’t imminent (right in line with this morning’s presentation from Keith and Louis about seasonal weakness).
How is Q2 earnings season shaping up?
We’re about one full week into Q2 earnings season, and so far, the numbers are coming in strong.
From FactSet, which is the go-to earnings data analytics group used by the pros:
At this early stage, the second quarter earnings season for the S&P 500 is off to a strong start compared to expectations.
Both the percentage of S&P 500 companies reporting positive earnings surprises and the magnitude of earnings surprises are above their 10-year averages…
Overall, 12% of the companies in the S&P 500 have reported actual results for Q2 2025 to date. Of these companies, 83% have reported actual EPS above estimates, which is above the 5-year average of 78% and above the 10-year average of 75%.
Now, it’s not all good news.
For example, in this afternoon’s Growth Investor Flash Alert, Louis said that the market is in search of leadership from a company that not only beats earnings but guides higher. And he’s not sure we’re going to get it this week.
From Louis:
Leadership remains elusive.
General Motors Company (GM) posted a solid beat, but shares fell after management failed to provide guidance and mentioned tariff-related headwinds.
Meanwhile, Lockheed Martin Corporation (LMT) disappointed on earnings, and that’s dragging down names in the defense sector.
Even high-flying names like Palantir Technologies Inc. (PLTR), which should benefit from reforms in the Department of Defense, were caught in the crossfire.
So, the market is meandering.
Part of the issue is that there’s a very high bar today due to valuations looking forward.
FactSet puts the S&P’s forward 12-month P/E ratio at 22.2. This is almost 12% more expensive than the 5-year average at 19.9 and nearly 21% pricier than the 10-year average of 18.4.
So, companies need to beat today – and these earnings forecasts need to come to pass tomorrow – or else investors will find themselves sitting on lofty stock prices unsupported by fundamentals…a great recipe for sharp pullbacks.
By the way, take a guess – what’s the worst sector offender from a valuation perspective? (As measured by the forward 12-month P/E ratio.)
Information Technology, clocking in at a forward P/E of 30.0.
(Consumer Discretionary isn’t far behind, with a forward P/E at 28.4.)
Before you sell all your tech stocks, here’s perspective from our technology expert Luke Lango
Specific AI tech leaders aren’t trading at such lofty valuations.
Let’s go to Luke’s Innovation Investor Daily Notes from last week:
Despite the boom, AI stock valuations remain “normal” right now – implying room for valuation upside in the second half of the year.
Although AI stocks have broadly surged to all-time highs recently, the surge has been driven by profit growth, not valuation multiple expansion.
At the valuation level, AI stocks are broadly trading at “normal” valuations, with Bloomberg’s AI stock index trading at 24X forward earnings – which is actually below its average valuation multiple throughout the AI Boom at 26X forward earnings.
We think AI stocks have room for valuation multiple expansion over the next few months. Alongside continued strong profit growth, that should drive healthy gains across most AI stocks.
Now, there are all sorts of AI investment opportunities that have Luke excited today, but high on that list is “Enterprise AI software.”
Luke writes that over the next few years, the biggest growth in AI won’t come from Nvidia or OpenAI. It will come from the wave of businesses adopting AI solutions as they try to avoid being left behind.
These companies aren’t going to hire armies of data scientists to build their own LLMs. Instead, they’ll buy enterprise AI software that helps them survive in this new era.
Luke writes, “that’s where the big investment opportunity lies.”
Here are seven stocks he just flagged to help you begin your research:
- Palantir (PLTR)
- ServiceNow (NOW):
- Toast (TOST):
- Guidewire (GWRE):
- Samsara (IOT):
- Cloudflare (NET)
- Twilio (TWLO):
And for another promising angle on AI investing, don’t miss robotics and humanoids. We’ve been profiling this regularly in the Digest.
I won’t delve into it in today’s issue, but you can check out Luke’s recent research video on the robotics revolution right here.
Finally, circling back to earnings season, don’t make this rookie mistake
Many traders love earnings season – and for good reason: it can be a gambler’s paradise.
But for traders who are interested in making money, not gambling away their money, expert trader Jonathan Rose offers a better strategy.
In last Friday’s Masters in Trading update, Jonathan began by highlighting the way most traders play earnings season…
They read the news. They watch CNBC. They get a gut feel. Then they place their bet (usually with an option) on one variable…
Direction.
Will this stock go up or down?
Here’s Jonathan with the problem with this approach:
Even if they’re right about the company’s performance, they often still lose money.
The options market already knows there’s an upcoming catalyst. The expectations are already priced in. So the smart money hikes up the implied volatility for options around that date.
True, the stock could still pop higher in the short term. But if it doesn’t move outside of the range the market makers are expecting, the options will still lose value.
That’s not a calculated strategy. That’s a roll of the dice.
The wiser strategy that Jonathan and professional traders follow centers on playing how earnings are priced – not the earnings themselves.
In other words, Jonathan looks at how much the options market expects a stock to move, then he compares it to how much the stock has actually moved in the past, based on its own historical data.
When the difference between “what happened” and “what’s priced in” is big enough, that’s often a trading opportunity.
Let’s look at an example with drone maker Kratos Defense & Security Solutions (KTOS)
Last week, we looked at KTOS. Jonathan profiled it for his subscribers last year in a report on how to trade combat drones. Here’s a link to it for free. And here’s Jonathan’s video profile of KTOS from back on February 14…before it exploded 100%+.
(And if you want Jonathan’s more recent dive into the sector, here’s in his Tuesday 7/8 episode of Masters in Trading Live, he delved into the “Drone Revolution,” detailing nine different drone companies.)
Now, KTOS has been ripping for months – and it could continue. But be careful about playing its upcoming earnings announcement on August 6.
Here’s Jonathan explaining:
Over the last six earnings announcements, KTOS has moved an average of 10%. But the options market?
It was pricing in more than 15%.
When the market is pricing in 15% of movement, and you know the stock has only moved 10% on average — where’s the edge?
There isn’t one.
The options are simply too expensive. And it doesn’t matter how “hot” the company is or what the headlines say — if the pricing is off, I’m out. Because I’m not guessing direction. I’m measuring expectations.
Bottom line: If you’ve been trading earnings by betting on direction, there’s a far better way. If you want a deeper dive on how it works with Jonathan, click here to learn more.
And as always, you can join him for his free Masters in Trading Live broadcasts at 11:00 a.m. Eastern time every day the market is open. They’re a fantastic way to learn more about trading, while also giving you the tools to put a wad of cash in your pocket.
We’ll keep you updated on all these stories here in the Digest.
Have a good evening,
Jeff Remsburg
