7-12-22: If We Enter a Recession, Will it be Mild or Extra Strength?

by Jason Bodner

July 12, 2022

Just because you’re in a position to judge doesn’t mean you get it right. For example, our current American flag was designed by a teenager, Robert Heft, in 1958. He was a student in Ohio.

His teacher gave him a B- for lack of originality. So, what did the teacher expect, a Picasso flag?

In a recent poll, 62% of CEOs (and most of America) believes a recession is assured. Will they be right? Last week I told you economist Paul Samuelson famously said that “the stock market has predicted nine of the past five recessions.”  Will this bear market predict the next recession or be the next false alarm?

We shall see. The past few sessions have been oddly consistent. Each day the market opens weak. But then it casually lifts the rest of the day. We can see that here in a five-day chart of the NASDAQ index:

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

In a typical day, Europe is selling in premarket and mornings. When their market closes, the algos start buying through to the end of the day. Europe might have more reason to sell. Europe’s economy is in worse condition than the U.S. They face a recession, coupled with a commodities shortage. Remember, commodities are priced in U.S. dollars. And we can see how the euro continues to weaken. Now, it seems headed for parity with the dollar, so pressures in Europe seem to translate to them selling U.S. equities.

As we can see below, the Big Money Index (BMI) is chopping along in sideways motion. For a bull market to begin, we need to see some buying as a catalyst. As you can also see here, there has been hardly any unusual buying in stocks and zero buying in ETFs. This is because uncertainty still looms large.

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

In America, despite the negative rhetoric and talking heads, the news isn’t as terrible as the stock market would have you believe. The ISM numbers released this week were better than expected for the first time in five readings – since February. Inflation may finally be peaking. Fed Chair Jerome Powell revised his April peak to May and said a recession is not imminent. Treasury Secretary Janet Yellen also sees peak inflation, and the New York Fed President John Williams said recession is not in his base case.

In other good news, the June job numbers were strong, adding 372,000 jobs while unemployment held steady at 3.6%. The labor market continues to reinflate. It is now nearing pre-pandemic levels:

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

There are other signs of peak inflation. Energy has peaked near-term. Oil fell from $120 per barrel to $95. It’s on the rise again, but the near-term is in a down trend.

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

This should translate to some relief at the gas pump. Demand also slowed for gasoline, indicating prices at the pump might be breaking the consumer’s will to drive. This set of events has rocked energy stocks, but the energy sector is still the strongest sector in terms of future sales and earnings.

As you can see here, energy saw a drop in sector rankings from 1^st in mid-June to 4^th July 6th:

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

You’ll notice that the fundamentals haven’t changed – only the technicals have weakened due to the heavy selling we have seen. The strongest sector since the beginning of the year met with heavy distribution the past few weeks. Look at the recent deep red lines:

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

But there’s always a sector to turn to: As has been the case for much of this year and last, when one cup empties, another fills. This time, we saw significant Health Care buying last week. And looking at the sector strength chart above again, we see Health Care moved from 6^th to 3^rd. Below we can see recent blue spikes of Health buying and the pie chart shows how outsized Health buying was this past week:

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

Another tidbit on why the market may have finally found its bottom is this: We’ve seen small breakouts in overall growth stocks, specifically tech. Suddenly some stocks in the unloved areas are starting to see some capital inflows. It’s too early to call it the start of a trend, but it’s a positive development.

The market is still unfolding as I predicted it would. From January on, we’ve seen “ghost tightening.” The Fed used “scary-speak” to spook risk assets downward. It took a while for rates to rise to 1.75% (their current upper boundary). I foresee two more hikes of 50 to 75 basis points each in July and September. (There is no August meeting.) Nothing will happen in November as it’s a mid-term election month. By then I believe the data will indicate slowing inflation. This should alleviate uncertainty and give the market a reason to rise. Now, if only the Ukraine conflict ends, the market will zoom. Should that line up with Q4 and some positive election results, it will exert even more upward pressure on markets.

So, my bottom line is that I believe that if there is a technically defined recession at all, it will be mild.

Remember, we’re in the middle of summer. That means trader vacations, which thin out volume, making room for lots of algos to play their games. As I mentioned, the big equity bid disappeared because of uncertainty. As clarity comes, that bid for equities will eventually resume. When it does, it will create lift, perhaps in Q4. Keep your eyes on tech, which is deeply oversold. Demand will only grow – not wane.

Some markets can feel hellish, but Winston Churchill said: “If you’re going through hell, Keep Going!”

Important Disclosures:

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 info@navellier.com. 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.