by Bryan Perry

February 15, 2022

The weekend edition of Investor’s Business Daily was full of bullish stories regarding powerful earnings beats from so many great companies that it was hard to balance all this good corporate news with the multiple headwinds facing the economy and the stock market. The chill of the possibility of a new Cold War with Russia, tensions with China over Taiwan, Iran’s defiant tone amidst nuclear talks, and the highest rate of inflation in 40 years are throwing a wet blanket on an otherwise stellar reporting season.

The other positive news that provided some bullish price action last week was the sharp change in sentiment toward the Omicron of Covid-19. The chart below represents the U.S. caseload, and the trend is very encouraging, especially being that we are in the middle of winter flu season.

New Cases of Covid-19 Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

As a result of this sharp decline in caseloads, shares of hotel, casino, casual restaurant, airline, cruise line, booking agency and live venue stocks are making their third rally attempt, which this time around looks like it will work like a charm: Some are already trading at new all-time highs.

This group of reopening stocks in the hospitality, travel, and leisure sector represent pent-up demand to get out and go places on vacation; but at the same time these businesses are having to absorb rapid cost increases in labor, fuel, maintenance, food and beverage, making the price of everything soar this year.

For example, I’m heading to the Miami International Boat Show later this week, doing some due diligence on one of the early entrants in the EB (Electric Boat) market. I’ll also be doing some diligence at the Fontainebleau poolside bar and Joe’s Stone Crab House, assuming we can get a table. For the boat show, rooms start at $775 per night, and most of the nicest hotels are sold out or nearly so. I mean, who doesn’t want to get to Miami Beach right now? America is so ready for this pandemic to end.

Recovery Forecast for Domestic and International Travel Spending Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Meanwhile, some of the major world banks are expecting the Fed to raise its key rate 1.75 percentage points this year. Prior to the release of the CPI last week (at +7.5% with a core rate of 6.0%), the banks were approximately half-point lower. Some are saying the Fed will frontload its rate tightening with a 50-basis point hike in March. Consequently, Reuters adds that the economists “also highlight the increasing risk of a 2023 or 2024 recession.”

This rapid rate increase scenario, perhaps followed by a hard landing, gets somewhat diffused when you take into account a post-Covid world where the global supply chains rev back up to full capacity, where prices for commodities and finished goods have a chance to come down from sky-high levels they currently command. The major outlier, though, is oil, due to the botched energy policies of the Biden administration. A full-throated reopening of the economy that doesn’t include economic sanctions on Russia is going to keep a firm bid under crude prices.

Rising oil prices are a big concern for sure, and the situation is growing more intense each week. Last week, crude traded above $94 per barrel for the first time since October 2019, and any disruption in global production will put $100 per barrel within easy reach. Just seven days ago, Marketwatch reported, “The U.S. Energy Information Administration raised its 2022 forecasts for U.S. and global benchmark oil prices by about 11%, according to a monthly report released February 8. The EIA said this year’s Brent crude is expected to average $82.87 a barrel, up 10.6% from the January forecast.”

If heavy economic sanctions are placed on Russia, then the entire commodity space will likely continue to see further price gains. Investors should monitor the Invesco DB Commodity Index Tracking Fund ETF (DB) as a way to keep up with overall commodity inflation.

The fund managers at DBC invest in a portfolio of exchange-traded futures on Light Sweet Crude Oil (WTI), Heating Oil, RBOB Gasoline, Natural Gas, Brent Crude, Gold, Silver, Aluminum, Zinc, Copper Grade A, Corn, Wheat, Soybeans, and Sugar. The weightings are Energy 47.53%, Agriculture 25.28%, Industrial Metals 15.17%, Precious Metals (12.02%), while using short-term Treasuries as collateral.

DB Commodity Index Fund Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Right now, in my opinion, opportunities for hedging against inflation, seem to lie best in the big multinational oil stocks, some of the domestic pipeline operator stocks, global iron ore and copper producer stocks, floating-rate senior loan closed-end funds, shares of some specialty Real Estate Investment Trusts (REITs), top-rated Business Development Companies (BDCs) with adjustable-rate loan portfolios, and covered-call closed-end funds and ETFs that own inflation-friendly stocks.

So, until the tide has turned for inflation, Fed policy, and the bond market, I’ll keep pointing out what’s working, what’s under accumulation, and what the market favors regarding highly attractive yields, where conventional income asset classes (paying relatively paltry yields) are no match for inflation and taxes.

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

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Geopolitics Can Override the Fed – At Least for A While

Sector Spotlight by Jason Bodner
Is It News – Or Just Noise?

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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