by Louis Navellier

January 11, 2022

So far this year, energy and financial stocks have been the leaders. The recent weakness in NASDAQ even caused CNBC’s Jim Cramer to imply that growth stocks will lag in 2022 and value stocks will outperform. The biggest problem I have with Cramer’s “value declaration” is that it will soon be proven obsolete when the fourth-quarter announcement season commences and it’s “every stock for itself.”

Semiconductor stocks are expected to announce the strongest fourth-quarter results in years. The Consumer Electronics Show (CES) is now underway and most of the latest and greatest consumer products – like televisions, virtual reality, video games, 5G, and electric vehicles – now require more high-powered semiconductor chips than ever. If you have any spare cash to invest, I strongly recommend that you buy some of my favorite semiconductor stocks, like KLA Corporation (KLAC), Kulicke & Soffa Industries (KLIC), NVIDIA Corp. (NVDA), and United Microelectronics Corporation (UMC).

Another big deal at CES was the many new electric vehicles (EVs), like the Chevy Silverado pickup. Sony is also getting into the EV business, and the Mercedes Vision EQXX offers a 620-mile range.

All of these new EVs are still two or more years away from production due to an acute shortage of lithium-ion batteries. In fact, even though Ford is now in the process of almost doubling the production of its F-150 Lightening from 80,000 to 150,000 per year, it still cannot compete with Tesla, which just made over 300,000 EVs in the fourth quarter! The reason is that Tesla’s Shanghai plant is making EVs with less efficient but cheaper iron-phosphate batteries made by CATL. In the U.S., Tesla is still utilizing Panasonic’s lithium-ion batteries, but CATL’s batteries increasingly dominate its international sales. Right now, Tesla’s competitors are waiting for the production of lithium-ion batteries to increase, so they are losing potential EV sales until battery production catches up with demand.

America’s appetite for electronics will not diminish – and that will fuel NASDAQ and the tech recovery.

This appetite for new technology also likely caused the trade deficit to soar in November. The Commerce Department reported last week that the trade deficit rose to $80.2 billion in November, nearly reaching an all-time high. Imports surged 4.6% to $304.4 billion in November, while exports rose by only 0.2% to $224.2 billion. The good news is that this robust consumer demand is positive for GDP growth.

The Atlanta Fed revised its fourth-quarter GDP estimate last Tuesday to an annual pace of 7.4%, down slightly from its previous estimate of 7.6%. Combined with strong U.S. dollar windfall profits for multinational stocks and this is setting us up for a truly outstanding fourth-quarter announcement season.

As any stock market climbs higher, the leadership typically becomes narrower, so the institutional buying pressure is anticipated to chase fewer stocks as year-over-year comparisons become more difficult. Our fundamentally superior growth stocks are poised to continue as market leaders. Superior fundamentals are very important as the stock market becomes more selective. We have seen many stocks appreciate in excess of 100% since 2020 and many more growth stocks should break out in the upcoming months!

What was most impressive about the latest NASDAQ rallies is how our growth stocks rebounded on light trading volume, which brings up the question of how well they will perform on higher trading volume.

What “Easy Money” Means to Corporate America

You may wonder why so many companies with strong cash flow also float so many robust corporate bond offerings. It’s because companies can borrow at interest rates that are well below the rate of inflation and then turn around and buy back their own shares for a greater return on equity. Wall Street does not care if it sells stocks or bonds. Despite all the news reports that some billionaires (like Tesla’s Elon Musk and Microsoft CEO Satya Nadella) are selling a record amount of stock, stock buy-backs also hit a record high in the third quarter and were also likely strong in the fourth quarter. New stock offerings will likely suffer, but corporate bond offerings will likely remain robust, so stock buy-backs are expected to remain strong.

This year is expected to be characterized by a passive Fed that will keep Treasury bond yields well below inflation. Although the Fed is expected to increase short-term interest rates, based on the Federal Funds Rate, from 0% to 0.75%, the fact that interest rates will remain well below inflation should cause millions of new investors to turn to the stock market in search of inflation protection as well as higher yields. In other words, this “Goldilocks” environment of low interest rates and steady growth is expected to persist.

Although the Fed is in the early innings of their Modern Monetary Theory (MMT) experiment, their massive money printing – which Japan and continental Europe pioneered – has yet to cause interest rates to rise much. We still have higher rates in the U.S. than Europe or Japan, which attracts foreign capital and helps strengthen the dollar. International buying pressure represented 69% of the bids at the most recent 10-year Treasury auction, which is one reason why the Fed can reduce their quantitative easing.

By late 2022, the stock market will become increasingly distracted by the mid-term elections, after which the leadership in Congress is expected to change. Then, if the Biden Administration decides to cooperate with the new Congress, like Bill Clinton did, that could save Joe Biden’s legacy. Wall Street usually loves gridlock. That means the political environment should soon be much more favorable for growth stocks.

This is a good time to remember that our small- to mid-capitalization growth stocks are “bunny stocks” that typically “hop” around at quarterly announcement time, so I fully expect that our patience will be rewarded in the upcoming weeks as wave after wave of better-than-expected results are announced.

Navellier & Associates owns Nvidia (NVDA), Microsoft (MSFT), Ford, (F), KLA Corporation (KLAC), Kulicke & Soffa Industries Inc. (KLIC) and United Microelectronics (UMC), in managed accounts. One clients owns Tesla (TSLA), per client request in managed accounts. Louie Navellier and his family personally own Nvidia (NVDA), Microsoft (MSFT), Ford, (F), Kulicke & Soffa Industries Inc. (KLIC), and United Microelectronics (UMC), via a Navellier managed account and Nvidia (NVDA) in a personal account, but do not own KLA Corporation (KLAC), Tesla (TSLA).

Last Week’s Economic News Was Mixed – and Slightly Mixed Up!

The economic news last week was mixed. The Institute of Supply Management (ISM) announced on Tuesday that its manufacturing index decelerated to 57.8 in December, down from 61.1 in November. Although this is a 16-month low, any reading over 50 signals an expansion. The new orders and backlog of orders components both remain above 60 and bode well for continued strong manufacturing growth, as 15 of the 18 industries surveyed in the manufacturing sector reported an expansion in December.

On Thursday, ISM reported that its non-manufacturing (service) index declined to 62 in December, down sharply from its record-high 69.1 in November. Although this appears to be a sharp deceleration in service activity, the truth of the matter is that any reading above 50 signals an expansion, so it appears that the ISM service slowdown is likely related to the Omicron disruption. Furthermore, all 16 service industries that ISM surveyed reported an expansion in December, so the service sector remains healthy.

Turning to jobs, this is where the numbers seem a bit “mixed up.” ADP reported on Wednesday that 807,000 new private payroll jobs were created in December, substantially higher than the economists’ consensus expectation for 375,000 new jobs and four times Friday’s number. ADP also revised its November payroll report to 505,000, down from 534,000. Leisure and hospitality led the December job tally with 246,000 new jobs, so it appears that the Omicron variant is not hindering most hiring plans.

By contrast, the Labor Department announced on Friday that only 199,000 payroll jobs were created in December, which is substantially lower than economists’ consensus estimate of 422,000 – even though the October and November payrolls were revised up by a cumulative 141,000, to 648,000 (compared to 546,000 previously estimated) and 249,000 (compared to 210,000 previously estimated), respectively.

The unemployment rate declined to 3.9% in December and the labor force participation rate remained unchanged at 61.9%. Average hourly earnings rose by 0.6% or 19 cents to $30.31 per hour. In the past year, average hourly earnings are up 4.7%, which is down slightly from a revised 5.1% rise in November.

So, what’s the truth about the jobs increase? It appears that the Labor Department is slow in calculating payroll jobs, especially compared to ADP, due to big upward revisions in previous months. The big news is that average hourly earnings are not growing as fast as inflation and the workforce continues to shrink.

Interestingly, the Labor Department also announced on Tuesday that 3% of all workers quit their jobs in November, up from a 2.8% quit rate in October. This higher-than-normal quit rate is predominantly associated with lower-priced jobs and is likely indicative of a tight labor force looking for higher wages elsewhere. This high worker turnover will likely boost payroll job growth a bit throughout 2022.

Also, the Labor Department on Thursday announced that new unemployment claims in the latest week came in at 207,000, up slightly from a revised 200,000 in the previous week. Continuing unemployment claims in the latest week came in at 1.754 million compared to a revised 1.718 million the previous week. Economists were expecting weekly and continuing unemployment claims to come in at 195,000 and 1.678 million, respectively, so unemployment claims are suddenly higher than economists anticipated. This may just be statistical noise, but that will be confirmed in next week’s revisions.

The bad news in all this good news is that the financial media cannot see the forest for the trees and continues to spook investors. The latest scare occurred on Wednesday when the December Federal Open Market Committee (FOMC) minutes were released revealing some anxiety, with statements that warned about lifting short-term interest rates “sooner or at a faster pace than participants had earlier anticipated.”

However, other FOMC officials thought that the Fed should reduce its tapering (e.g., quantitative easing) rate before raising key short-term interest rates! So, translated from Fedspeak, the Fed is still not expected to begin raising key short-term interest rates, namely the Federal Funds rate, until March or later.

In the end, the financial markets are grossly overreacting to a 0.25% rate hike that is fully anticipated!

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Jerome Powell’s Running of the Bulls

Sector Spotlight by Jason Bodner
Will Tech Stocks Continue to Crash?

View Full Archive
Read Past Issues Here

About The Author

Louis Navellier
CHIEF INVESTMENT OFFICER

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Important Disclosures:

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.