by Louis Navellier
March 16, 2021
Looking forward to the first quarter announcement season, staring in mid-April, I see both sales and earnings momentum for our quality stocks accelerating, so we have a lot to look forward to in the upcoming weeks and months. In the short term, I expect quarter-ending window dressing, commencing this week, to drive many of our powerful growth stocks dramatically higher by the end of March.
Last week, the NASDAQ market and many hot Chinese ADRs “capitulated” on Monday on light trading volume. As you may have heard me say before, a light-volume selloff is nothing to worry about. As I mentioned on Monday’s podcast, sometimes stocks have to “capitulate” multiple times, but as long as trading volume remains light, we have nothing to worry about, since there is no panic selling.
Most of the selling pressure in the popular NASDAQ names and the hot Chinese ADRs can be traced to “thematic investing” ETFs that specialize in “disruptive technologies” (like ARK Invest specializes in).
This is not the first time that the ETF industry has inflated or deflated the price of hot stocks. However, as long as the underlying fundamentals of a stock remain strong, you should not worry. Here’s an example:
Daqo New Energy Corporation (DQ) makes polysilicon for solar panels. Last Tuesday, the company announced that its fourth quarter sales almost doubled to $247.7 million compared with $125.5 million in the same quarter a year ago. During the same period, earnings soared 250% to $72.8 million ($1.01 per share) compared with $20.8 million ($0.29/share) last year. Excluding extraordinary charges, operating earnings were $1.07 per share.
Navellier & Associates owns Daqo New Energy Corp. Sponsored ADR (DQ) in managed accounts. Louis Navellier and his family own Daqo New Energy Corp. Sponsored ADR (DQ) personally via a Navellier managed account.
Just so you are aware, although ETFs have management fees, the real money they make is in the bid/ask spreads. Our friends at Bespoke Investment Group (BIG) have thoroughly documented the fact that if you bought popular ETFs like SPY or QQQ at the market opening and sold them at the close every day since inception, you would have lost money! On the other hand, if you bought SPY and QQQ at the close and sold at the opening, you made a lot of money! The moral of the story is that investors have to check the bid/ask spreads of any ETFs before they trade (just key in the ETF symbol on www.Morningstar.com and check the Intraday Indictive Value compared to the ETF price). So try to not get “fleeced” on bid/ask spreads!
The bottom line is that I do not care how much the ETF industry jerks around the price of hot stocks, as long as we have strong quarterly sales and earnings to count on to drive powerful growth stocks higher.
Will Stimulus Checks Boost Inflation Further?
The Labor Department announced last Wednesday that the Consumer Price Index (CPI) rose 0.4% (a 4.9% annual rate) in February, which was in-line with economists’ consensus estimates. More than half of the CPI increase was due to a 6.4% increase in gasoline prices. Overall energy prices rose 3.9%, while food prices rose 0.2%. Excluding food and energy, the core CPI rose only 0.1%. In the past 12 months, the CPI and core CPI have risen 1.7% and 1.3%, respectively, well below the Fed’s 2% inflation goal.
Then on Friday, the Labor Department announced that the Producer Price Index (PPI) rose 0.5% in February, in-line with economists’ consensus estimates. Wholesale energy prices rose 6%, while food prices rose 1.3%. Excluding food, energy and trade margins, the core PPI rose 0.2%. In the past 12 months, the PPI and core PPI have risen 2.8% and 2.2%, respectively, well above the Fed’s 2% goal. It will be interesting to see if higher wholesale prices creep into consumer prices in the upcoming months, but for now, most inflation is related to higher energy prices and trade margins caused by a weak dollar.
Now that the Biden Administration has passed its stimulus package, the next question is how will those $1,400 stimulus checks boost retail sales? The $600 debit cards that arrived in January helped to boost retail sales 5.3%, so another potential surge in retail sales is imminent, which is great for GDP growth.
The Labor Department on Thursday announced that new weekly unemployment claims rose to 712,000 in the latest week, down from a revised 754,000 in the previous week. Continuing unemployment claims declined to 4.144 million compared to a revised 4.337 million in the previous week. Both new weekly and continuing claims were better than economists’ consensus estimates of 725,000 and 4.2 million, respectively. Unemployment claims are now running at the lowest pace in four months and are expected to continue to improve as states continue to lift Covid-19 restrictions – and as the weather improves.
China announced last week that its exports surged 60.6% to $468.9 billion in the first two months of 2021 vs. the same period a year ago. China’s exports to the U.S. have soared 87.5% to $80.5 million in the same two months (January and February). This export surge has caused an acute container shortage, so shipping rates have increased, which is good news for stocks in the container shipping companies.
Interestingly, China is forecasting 6% annual GDP growth for 2021, but the U.S. may start out growing even faster. The Atlanta Fed currently forecast the U.S. economy growing at an 8.4% annual pace in the first quarter. Since the U.S. is a robust consumer-driven market, the U.S. has the potential to possibly keep pace with China’s GDP growth in 2021, especially if the U.S. continues to boost its productivity.
On March 7, The Wall Street Journal published an interesting article that said the U.S. economy could have a bigger impact on worldwide economic growth than China this year for the first time since 2005.
Europe will likely be slower to recover than the U.S. as Europe’s 2021 GDP is forecasted to grow at a 4% annual pace. Amazingly, even though European bond yields meandered lower last week – even going deeper into negative territory – the euro continued to strengthen relative to the U.S. dollar last week.
When Will the Biden Administration Declare Victory? July 4th? Never?
It was widely perceived by cynical political observers that the Biden Administration did not want to admit that new Covid-19 cases are plummeting because they wanted to use Covid-19 as a Trojan Horse to push through their stimulus package, which ironically does not have much Coronavirus relief in it.
The next question is: When will the Biden Administration join many states and declare that Covid-19 has been mostly defeated? The warm spring weather naturally suppresses Covid-19 and other Coronaviruses that appear every year. The news media’s obsession with any deadly Covid-19 mutations from Britain and South Africa are clearly an attempt to perpetuate the Coronavirus crisis so they can continue to keep their ratings high. However, I must say that I was relieved that President Biden said on his national address on Thursday night that it was his Administration’s goal to get at least partially back to normal by July 4th.
Naturally, as soon as the Biden Administration admits that Covid-19 has been defeated, all schools will be free to reopen and working Moms can return to the labor force, so there should be nothing holding back U.S. economic growth. The only “glitch” I foresee is that politicians do not like to waste any crisis, so watch out for political advisors counseling Biden to keep economic restrictions in place beyond July 4th.
I should add that during the Great Plague of London in 1665 to 1666, which was the last major outbreak of bubonic plague in Britain, almost 25% of all London residents died in 18 months, Sir Isaac Newton fled to the countryside and when he was in isolation, he codified gravity and wrote the theory of calculus. This unleashed the Age of Enlightenment and new scientific discoveries. The $64,000 question this time around will the isolation of many Americans in the past year also unleash a new Age of Enlightenment?
The pandemic already has accelerated technological change and worker productivity. I do not know about you, but I have been excited by all the technological changes in the past year and certainly hope that more changes are coming to boost productivity, which helps to squelch inflation and increase prosperity!