by Jason Bodner
June 28, 2022
I don’t know about you, but I feel like I’m glued to the news recently. With all the stories swirling around about wars, pandemics, and political scandals, it’s enough to make your head spin. And as we watch market prices dip and pop, it’s often hard to reconcile the news against the prices of our investments.
When it comes to useful news, weather tops the list, as 70% of surveyed Americans deem it their top concern for everyday life. But I beg to differ. I see only one thing we need to focus on. Today, I’m going to show you the one simple piece of information all investors must know, whether they realize it or not.
On June 15, Fed Chair Jerome Powell announced that the Fed would raise the Fed funds target rate 75 basis points. That 3/4 of a percent rate hike was met with market cheer. Investors on Wall Street were waiting for decisive action to combat inflation. Stocks ended up closing significantly higher on the day.Alas, all that was washed away and then some with violent selling the next day, Thursday, June 16th. Little Switzerland unexpectedly raised their target rate half a percent while the UK enacted their fifth straight interest rate hike, so stocks closed firmly in the red in action that I said (last week) looked a lot like capitulation. Everything went down. All sectors closed lower that day. Both stocks and ETF’s were sold in very high volume. It looked like a lot of people were finally throwing in the towel.
This type of volatility just goes to show that there really is only one piece of information that people are looking for to soothe their minds, and that is the slowing of inflation. The week prior, on June 10th, the Consumer Price Index (CPI) for May was released. The inflation numbers were just plain hideous. But there was one main takeaway: Inflation is running rampant mainly in just two areas: Food and gas.
Here I reprint a table which I took directly from the Bureau of Labor and Statistics, only I took the liberty of highlighting the inflation rates greater than 5%. The inflation culprits should jump out at you:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Previous inflation culprits, like medical care, are rising very slowly. It’s plain to see that energy and food costs are the main killers right now. Energy can be broken down into crude oil and its derivatives. This affects everything from diesel fuel, jet fuel, utility-piped gas services, and, of course, airfares, which are up 38% year over year. There is increased airfare demand over last year coupled with fewer flights, but energy costs related to air travel have skyrocketed, accounting for much of that increase as well.
The one thing all investors are really focused on – knowingly or not – is inflation expectations, and as inflation costs run rampant, the American consumer has no choice but to spend more. It costs more to drive to work and more to feed your family, and neither of those expenditures are really optional.
It will be hard to find relief until one thing happens – energy and food prices stop inflating. The bad news is that energy prices usually spike in the summer. That is due to a seasonal surge in demand as people use more air conditioning, and drive to summer vacations. The good news is that fuel demand then wanes in the fall.
Food costs have spiked for several reasons. Labor shortages due to COVID helped contribute to all sorts of supply chain issues. Even though more workers are back on the job, the backlog is still huge. It will take a long time to get back to pre-pandemic surplus days. The war in Ukraine only complicated matters.
Ukraine is the breadbasket of Europe. Ukraine and Russia supplied 35% of the world grain exports. And many farms are now offline. Even if the war ended tomorrow and farms were immediately able to start producing food again, it wouldn’t be enough. The world would have to wait a minimum of one crop cycle just to match output from the pandemic in an ideal situation, and we are far from that ideal now.
Naturally, the world has to grow and adapt to different situations. New food production and consumption avenues are being put in place. Our reliance on that region will certainly dwindle, even after the war ends.
These forces take time. In the meantime, stocks are wildly volatile. Much of the world assumes there will be a recession in the U.S., but President Biden and Fed chair Powell say that is not necessarily the case.
There are other bits of positivity to cling to. JP Morgan’s chief of macroeconomic research sees the S&P 500 up to 4,900 (from last Friday’s 3,911 close) by the end of the year. He sees no recession, and earnings analysts still have not cut earnings estimates. S&P 500 consensus revenues estimates for 2022 and 2023 are still at record highs. The same goes for earnings forecasts for 2022 and 2023. While profit margin estimates are edging down for 2022 and 2023, the forward profit margin rose to a record high last week.
That just indicates that the market hates this uncertainty over inflation. When we get wild differences of opinion, we see those reflections in volatility. But this volatility will not go away until we see slowing inflation. Prices at the pump and the grocery store need to start coming down. Once we begin to get signs like that, the market should find its footing and I would expect a significant rally from there.
The next CPI comes out July 13th. Based on what I see every time I fill up my car, I don’t expect fuel prices to edge down much. And feeding a family of five is as expensive as ever, so until we get some clarity on price stability in these two areas, I’d expect a bumpy ride in stocks. But as mentioned above revenue and earnings are still at record highs, while many stocks have been pounded into oblivion.
Once we get that one piece of information we’re looking for, lookout above, because I believe investors will be piling into oversold stocks. As far as all that bad news is concerned, an old newscaster got it right:
“We cannot make good news out of bad practice.” – Edward R. Murrow
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
What’s Got Elon Musk So Cranky Lately?
Income Mail by Bryan Perry
The Market Heats Up as the Inflation Outlook Cools
Growth Mail by Gary Alexander
Own Gold and Real Estate for Portfolio Stability
Global Mail by Ivan Martchev
It’s Too Early to Call a Bottom
Sector Spotlight by Jason Bodner
The One Piece of News Investors Should Monitor
View Full Archive
Read Past Issues Here
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
Jason Bodner is a co-founder and co-owner of Mapsignals. Mr. Bodner is an independent contractor who is occasionally hired by Navellier & Associates to write an article and or provide opinions for possible use in articles that appear in Navellier & Associates weekly Market Mail. Mr. Bodner is not employed or affiliated with Louis Navellier, Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made here are those of Mr. Bodner and not necessarily those of any other persons or entities. This is not an endorsement, or solicitation or testimonial or investment advice regarding the BMI Index or any statements or recommendations or analysis in the article or the BMI Index or Mapsignals or its products or strategies.
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 firstname.lastname@example.org. 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.