by Louis Navellier
March 12, 2024
From the latest news and earnings reports, it looks like the Magnificent 7 leadership is changing. For starters, Apple and Tesla are beginning to falter, while the AI-related rally in Nvidia (NVDA) and Super Micro Computer (SMCI) continues to lead the overall stock market higher. NVDA rose 3.6% on Monday, while SMCI soared 18.65% due largely to the news that it will be added to the S&P 500 on March 18th – and many investors decided to get a head start on the index funds.
It looks like Super Micro Computer snuck up on many institutional investors, since Goldman Sachs only began its coverage last Monday with a “neutral” rating, while Bank of America and Wells Fargo were also late to the party in SMCI, initiating their coverage back in mid-February.
So far, March has been characterized by wave after wave of positive analyst earnings revisions, since fourth-quarter earnings surprises were so strong. In fact, in the past month, the analyst community has revised their consensus earnings estimate by an extraordinary average of 5.3% for our average growth stock. Typically, such strong earnings revisions precede positive surprises.
In other words, this market’s current “melt up” is likely to persist, since there is plenty of fuel ($8.8 trillion in money market assets on the sidelines) that can be tapped to move back into the stock market over the next several months. Furthermore, Goldman Sachs stated that it expects corporate stock buybacks to rise by 13%, to $925 trillion in 2024 and another 16% in 2025. If the volume of outstanding shares shrinks this rapidly, underlying earnings per share can rise faster.
My latest back-testing of “what works now on Wall Street” (via my on-line Stock Grader and Portfolio Grader databases) revealed that the top 35% of stocks with A & B stock rankings are dramatically outperforming the overall stock market. More importantly, the top 5% are beating the top 35% by over 2 to 1, so the stock market leadership remains concentrated in these elite, extraordinary, powerful stocks, like Nvidia, Super Micro Computer, Eli Lilly and Novo-Nordisk.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Inflation and Job Trends Put the Fed in a “Wait and See” Mode
Chaos in the Middle East persists. Last Wednesday, a dry bulk carrier, ‘True Confidence,’ was hit by a missile from Yemen, killing three crewmen. Additionally, Houthi rebels in Yemen have reportedly cut three internet and telecommunication cables in the Red Sea. These cables control about 25% of transmissions passing through the Red Sea. Specifically, these cables control major internet and telecommunications traffic between Europe and Asia.
Despite this chaos in the Middle East, crude oil prices have been stagnant over the last month, so OPEC extended its voluntary production cuts through June, despite the fact that demand for crude oil rises in the spring and summer. Saudi Arabia continues to account for most of the production cuts, but Algeria, Kuwait, Iraq, Kazakhstan, Oman and UAE said that they will comply with these cuts. I expect oil prices will meander higher, but mostly due to rising seasonal demand.
While the Fed focuses on U.S. inflation, deflation in China has spread to pork, which is China’s staple meat. China’s pork herds make up about half of the global total, reaching 434 million in 2023, up substantially (+40%) from 310 million in 2019, when an outbreak of African swine fever dramatically shrank the nation’s pig herds. During 2023, pork prices declined 13.6% and in January, there was an additional 17% plunge in pork prices, which caused total food prices to fall 5.9%. Clearly, there are too many pigs in China, so prices will remain soft until herd sizes shrink.
Despite global deflation, Fed Chairman Jerome Powell keeps focusing on core U.S. inflation data instead of the threat of future global deflation. Last Wednesday, he testified in front of the House Financial Services Committee, where he stuck to the script and said that the Fed is still on track to cut key interest rates this year – as soon as inflation falls within its 2% target range. Specifically, Powell said, “What we want is more evidence that will give us more confidence that inflation is on the path down to 2%, sustainably.” Powell added: “We don’t want a situation where the six months of good inflation data we had last year … didn’t turn out to be an accurate signal.”
Then on Thursday, in front of the Senate Banking Committee, Powell added, “We’re waiting to become more confident that inflation is moving sustainably at 2%,” and added, “When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction.” Notably, Treasury yields fell in the wake of Powell’s “not far from it” comment.
Turning to the Fed’s other mandate, sustaining employment, ADP reported on Wednesday that 140,000 private payroll jobs were created in February, slightly below the economists’ consensus estimate of 150,000. But on Friday, the Labor Department announced that nearly twice that total (275,000) payroll jobs were created in January. However, December and January payrolls were revised down by 167,000 to 290,000 (from 333,000) and 229,000 (from 353,000), respectively.
As long as the U.S. economy is creating jobs, there is minimal pressure on the Fed to cut key interest rates, but the higher unemployment rate (3.9% vs. 3.7%), as well as slower wage growth, likely got the Fed’s attention and may encourage key interest rate cuts sooner rather than later.
Super Tuesday and Biden’s Long Speech Launched an Odd Election Campaign
Super Tuesday results clarified that there will likely be a rematch between President Biden and Donald Trump. Robert F. Kennedy, Jr. will also run as an independent or maybe as a libertarian.
The current Presidential election cycle is certainly odd, as demonstrated by Thursday’s State of the Union speech, in which President Biden criticized Donald Trump’s economic agenda without naming him, calling him “my predecessor” 13 times. He also referred four times to a “comeback” in the fourth year of his first term. President Biden said, “In thousands of cities and towns the American people are writing the greatest comeback story never told” and, “America’s comeback is building a future of American possibilities.” I am not sure if “comeback” is the best word for a re-election campaign. President Biden went on to criticize the Supreme Court, billionaires and corporations for many of America’s problems. Obviously, the Presidential campaign is underway. Let’s hope there are some debates between Biden and Trump; they should be very entertaining!
President Biden’s energetic 68-minute speech seemed to sew up the nomination, arguing against him being replaced by a younger candidate with more energy, but we still have five months until the August Democratic Convention in Chicago, when we will know if Joe Biden is nominated or if he will be replaced by Gavin Newsom. Typically, the candidate with the most inspirational message prevails, since it lifts both consumer and investor confidence. Obviously, Newsom has more energy, so it will be interesting to see if there is an abrupt substitution by the Super Delegates at the Democratic Convention. Let’s hope that Robert F. Kennedy, Jr. and other candidates bring more energy into the Presidential election race, so Americans can be inspired.
Since candidate Trump wants to “drill, baby, drill” on Day #1, I suspect that crude oil prices may decline if Trump wins, so if Biden is not replaced in August, do not be surprised if I sell my remaining energy stocks by September, just before crude oil demand ebbs in the fall.
Despite any negative politics this year, the improving earnings environment, the expectation of multiple Fed rate cuts, and the hope for some political change help to boost investor confidence.
In summary, my fundamentally superior growth stocks are now acting like the market leaders. Not only do we have favorable year-over-year comparisons to boost sales and earnings, but I believe the Fed will start cutting key interest rates no later than the June FOMC meeting. Government gridlock is allowing the private sector to prosper and since this year is a Presidential election year, change is coming. Americans can sense that investor optimism is rising, so that $8.8 trillion of cash on the sidelines I expect will fuel a rally in growth stocks this year, possibly even better than in 1999!
Navellier & Associates owns Nvidia Corp (NVDA), Super Micro Computer, Inc. (SMCI), Novo-Nordisk A/S Sponsored ADR Class B (NVO), Eli Lilly and Company (LLY), and some accounts own Tesla (TSLA), and Apple Computer (AAPL), in managed accounts. Louis Navellier and his family own Nvidia Corp (NVDA), Super Micro Computer, Inc. (SMCI), Novo-Nordisk A/S Sponsored ADR Class B (NVO), and Eli Lilly and Company (LLY), via a Navellier managed account, and Nvidia Corp (NVDA) and Apple Computer (AAPL) in a personal account. He does not own Tesla (TSLA) personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
New Leaders Emerge as Market Dynamics Change
Income Mail by Bryan Perry
A Bullish Breakout That’s “As Good as Gold”
Growth Mail by Gary Alexander
Growth Stocks Keep Trouncing Value (and Global) Stocks
Global Mail by Ivan Martchev
Measuring the Bull Market by the Numbers
Sector Spotlight by Jason Bodner
Where is the Market Headed Next?
View Full Archive
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