Today was a horrible day for the stock market. We experienced a sharp market selloff, with the S&P 500, NASDAQ and Russell 2000 dropping more than 3% and the Dow falling more than 2%.
Whenever we experience broader market volatility or receive breaking news, I like to send my subscribers across all my services a Special Market Podcast. So, this morning, that’s exactly what I did. I discussed the broader market’s sharp selloff, as well as…
- What’s happening with Apple Inc. (AAPL)
- The inverted yield curve
- Why the Federal Reserve needs to cut rates six times
- Why there are growing recession fears
- Super Micro Computer, Inc.’s (SMCI) upcoming earnings report
The last thing I want any investor to do right now is panic, so I’ve decided to send you this morning’s podcast, too. Whether you’re a paying member or not, I think it’s important that you hear what triggered the broader market weakness, how long I expect it to last, as well as the best way to protect yourself.
You can read the full transcript of today’s Special Market Podcast below.
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This is Louis Navellier. It is August, Monday the 5th. Obviously, it was a horrific opening to the market today. So, I have several things to point out.
First, it’s August. No one’s around and the computers are running everything. So, the key on the selloff is to watch the volume. The selloffs are going to continue until the volume dissipates. So, what we want to see is a blowoff and then a quick reversal. But it’s hard to get reversals in August because again, no one’s around. So, expect more air pockets like this to continue because this is what happens in August and that’s just unfortunate.
There is some significant news out there. News broke that Warren Buffett sold half of his Apple Inc. (AAPL) holdings and Apple was one of the few Magnificent Seven stocks that had better-than expected results. So, they’re shooting Apple.
There’s something called a carry trade. The folks in Japan can’t raise rates because the deficit is so big. They’re trying to have positive rates, but they would rather stick their money in America and buy our Treasuries and they get the currency appreciation plus higher yields.
Now, today the Japanese yen is down 2.7% against the dollar. The dollar is also down because our interest rates are collapsing. The two-year and the 10-year Treasury are about 3.7%. So, the yield curve has been uninverted and is as flat as a pancake. So, the strongest currency right now is the euro.
But the bottom line is interest rates are collapsing so fast that the Fed has to cut rates six times. Basically, that’s six quarter-point rate cuts just to be in sync with market rates.
Now, some of you might’ve seen my article on MarketWatch came out on Friday where I basically admonished the Fed for not listening to its elders. Bill Dudley and Alan Blinder both wrote editorials respectively in Bloomberg and The Wall Street Journal calling the Fed to cut now.
I was essentially demanding a 50-basis-point rate cut and I’m still in that camp that they should cut rates down 50 basis points before their meeting in Jackson Hole at the end of the month. That Jackson Hole meeting is a big deal; other central bankers show up.
But the sad thing is if our Fed waits till September 18 to cut rates, they’re not even late to the party. It’s like showing up to the party after it’s over because by then, by September 18, Canada will already cut twice, Great Britain will have cut twice and the European Central Bank will have cut twice. So, for us to be so slow to cut is irresponsible.
So, the Fed has to do something. They can’t just be like an ostrich with their head in the sand and be oblivious to everything. Unemployment has risen from 3.4% to 4.3% in the last 15 months. It’s going to be 5% by October.
Also, if you haven’t noticed, we have an election coming up. So, I’m sure this is very upsetting to the Biden administration and Kamala Harris, who’s going to be running on their behalf. It’ll be interesting to see how everybody responds.
So, the bottom line is welcome to August. I did give a talk at the Vegas MoneyShow on Friday and my title of my talk is “Why I Think the Stock Market Should Be Closed Every August.” This is most unfortunate. Usually in a presidential election year, you don’t have this kind of volatility in August. But nonetheless we do.
I get a lot of questions on how can the market possibly do what it’s doing. And the answer is the machines are in control. Wall Street is on vacation, Europe is on vacation. The machines are running amuck. And we will have a reversal, but we have to watch the volume in it. We have to have a blowoff and then a reversal.
Super Micro Computer, Inc. (SMCI) is announcing this week. Their sales are supposed to be up 142%, earnings are supposed to be up 130%. So, we’ll see if it can find firmer footing. Obviously, there’s no earnings or sales problem with Super Micro.
I think the main thing is that the Fed has to cut 50 basis points yesterday and they’re just so far out of sync with market rates. It’s not even funny. So, this means credit’s essentially being cut off to a lot of people, even good borrowers. No one would be stupid enough to borrow right now at the rates the Fed has because they’re so far above market rates.
So, hang in there, folks. I know you don’t enjoy this, but I do want to remind everybody that when the market gets hit, they do throw the baby out with the bathwater. But good stocks bounce like fresh tennis balls and bad stocks bounce like rocks. We don’t have rocks in our portfolio. We have stocks with strong sales, strong earnings. We have stocks that are an oasis. That’s the high Alpha stuff that we calculate. We are purposefully looking for stocks that zig when the market zags. So, hang in there.
The good news is our stocks will bounce, and the bad news is a recession is imminent. So, hang in there everybody. I know you don’t enjoy this, but we will be bouncing here shortly. Take care everybody. It’s Louis Navellier.
Sincerely,
Louis Navellier
Editor, Market 360
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Super Micro Computer, Inc. (SMCI)
