by Louis Navellier

May 5, 2020

With the exception of California and some other blue states on lockdown, the news that many states were gearing up to reopen basically helped to propel many stocks substantially higher early last week, but when the “dust” settled late last week, first-quarter earnings announcements and second-quarter guidance took the market down. There is no doubt that the second-quarter earnings results will be much worse, but many investors seem to be looking forward, anticipating a robust economic recovery in the second half.

That is the good news. The bad news is that although we all hope for a V-shaped economic recovery, we are going to get a U-shaped economic recovery. Life will not be normal for some time, since many states are reopening with social spacing restrictions that will still impede commerce. Nonetheless, Americans are notoriously optimistic, so hopefully this optimism will persist for the next several months.

Before the coronavirus chaos, 75% of the Initial Public Offerings (IPOs) in the past several quarters did not have positive earnings, so many analysts were forced to issue positive forecasts for any company representing “transformational change,” like Tesla (TSLA) and other business disruptors, since many analysts seem to be courting these companies so they can participate in future secondary stock offerings. Companies that have these “transformational change” themes, or are seen as “disruptors,” like Tesla or Virgin Galactic (SPCE), involved in space tourism, continued to squeeze short sellers last week,

Navellier & Associates does not own Tesla (TSLA) or Virgin Galactic (SPCE) in managed accounts or our sub-advised mutual fund.  Louis Navellier and his family do not own Tesla or Virgin Galactic in personal accounts.

In other words, too many Wall Street analysts are forced to issue positive reports on IPOs, in hopes of participating in the next lucrative secondary stock offering. This means that too many IPOs are essentially involved with “pump and dump” stocks, unless they feel the company can eventually make real money.

One example of short covering is that Tesla remained on a roller coaster ride last week, since its Fremont factory opening was delayed by Alameda County’s decision to extend the “stay at home” order through May 31st. Complicating matters further for Tesla was that Elon Musk tweeted last Friday that “Tesla stock price is too high, imo,” which promptly wiped out $14 billion in its stock market capitalization.

I have friends at the Tesla/Panasonic Gigafactory in Reno and most of them now work on the Powerwall side, since wealthy Northern California residents continue to install Powerwalls in their homes to prepare for the next fire season, which is why Enphase Energy (ENPH) and SolarEdge Technologies (SEDG) have been such hot stocks. The other problem is that strong demand for Powerwalls is taking the batteries away from Tesla to build electric vehicles, so an acute lithium battery shortage persists that may have impeded Tesla and other manufacturers of electric vehicles that cannot boost output due to an ongoing shortage of lithium batteries from LG Chem, Panasonic and other battery suppliers.

Navellier & Associates does own Enphase Energy (ENPH) and SolarEdge Technologies (SEDG) in managed accounts and our sub-advised mutual fund.  Louis Navellier and his family own Enphase Energy (ENPH) and SolarEdge Technologies (SEDG) via the sub-advised mutual fund personally.

“Where is Everybody?” – Big City Streets Recall Twilight Zone’s First Episode

My favorite economist, Ed Yardeni, started last week talking about how the very first episode of The Twilight Zone was titled, “Where is Everybody?” It was about a ghost town, totally devoid of people. Today’s empty airports, office buildings, hotels, restaurants, shopping malls, stores, and streets looked like a replay of Twilight Zone during April, and this lockdown will continue to weigh on the America psyche.

Twilight Zone

People will get out and about slowly, at their own pace, but there is no doubt that millions of Americans are now afraid and suspicious of everybody and anybody. All those folks that we already knew were OCD (with obsessive compulsive disorder) are now seeing germs on everything and fear just about everybody.

The tension in America is everywhere. For example, President Trump decided to stop holding daily press briefings, since he had decided that many in the news media just wanted to sensationalize everything and quote him out of context. Increasingly, politicians are being ignored as California Governor Gavin Newsom learned when folks ignored his advice and flocked to beaches during a recent heat wave. This defiance is spreading, and Americans do not like to be told what to do or where they can go. The good news is that the faster Americans can get back to normal, the faster the U.S. economy will recover.

In the meantime, we are nowhere near normal, since production shutdowns are now overwhelming the domestic crude oil and natural gas industries. Many businesses and consumers have stopped paying rent. Finance companies are not curtailing credit card limits and are bracing for defaults. On Thursday, Wells Fargo (WFC) announced that it will stop accepting applications for home equity lines of credit. All these events impede the “velocity of money,” which is how fast money changes hands. The best thing we can all do is to get back to normal as fast as possible, so that we can help the velocity of money reaccelerate.

Navellier & Associates does not own Wells Fargo (WFC) in managed accounts and our sub-advised mutual fund.  Louis Navellier and his family do not own Wells Fargo (WFC) personally.

You may have noticed that our elected leaders are now fighting over anything and everything all over again, aided and abetted by the conflict that the media likes to foment. One frustrating example is how members of both parties of Congress are trying to impede the recently approved stimulus checks, over whether or not they want President Trump’s signature on the new checks. The truth of the matter is that the rural (mostly red) states are reopening faster than the urban (mostly blue) states, so blaming anyone in Washington DC is a bit futile, since the governors are deciding how fast to open their respective states.

In the meantime, the Congressional Budget Office is predicting a 40% annualized drop in second-quarter GDP and that the unemployment rate on Friday may soar to 14%. As a result, the economic news in May is going to be absolutely horrific, so I want to brace you for the negative onslaught that is about to begin.

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
“Computers Gone Wild”

Sector Spotlight by Jason Bodner
Is the Market Entering “Overbought” Territory Again?

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.

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