by Bryan Perry

July 13, 2021

The perpetual debate over whether investors should weight their portfolios toward growth or value stocks rages every day the market is open. Both the bond and stock markets hang on every economic data point to bolster the case for one or the other side, with algo-models fueling fierce sector rotation – like neon fish in an aquarium darting back and forth, from side-to-side, anytime someone taps on the tank.

For the market, that “someone” tapping on the tank is usually the Fed, because very little else that would normally wallop investor sentiment is even putting a chink in the market’s armor. For instance, investors don’t appear to be fazed by the news that President Biden signed executive orders aimed at increasing competition in the railroad, banking, transportation, healthcare, agriculture, and technology industries.

The market reaction to high-profile cyberattacks is also surprisingly complacent. Russia-linked agents infected thousands of victims in at least 17 countries via a software company, Kaseya, demanding $70 million to unlock computers in what is the biggest ransomware attack on record. Ho-hum!

Adding to the Teflon market action, investors don’t seem overly concerned by ongoing reports discussing the spread of the Delta variant. While Asian markets have been caught up more in that concern, the U.S. stock market has proved resilient, content that there aren’t any moves to impose new restrictions, and that the Pfizer, Moderna, and J&J vaccines have robust efficacy against severe illness and hospitalization.

Navellier & Associates owns Johnson & Johnson (JNJ) in managed accounts but do not own Moderna Inc (MRNA) or Pfizer (PFE). Bryan Perry does not own Pfizer (PFE), Johnson & Johnson (JNJ) or Moderna Inc (MRNA).

The latest data shows about half the country is fully vaccinated (see chart, below). Last Thursday, both the CDC and FDA said fully vaccinated Americans don’t need a booster shot, now being developed by Pfizer to treat the Delta variant. With this assurance in hand, investors stepped in to put cash to work.

United States Vaccinated Population Chart

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

So, while the U.S. might be in a safer situation against the risk of a new deadly variant, San Francisco Fed President Mary Daly (a voting member) pointed to the Delta variant as a global recovery risk, reportedly saying that the Fed should be cautious about withdrawing its policy support. “I think one of the biggest risks to our global growth going forward is that we prematurely declare victory on COVID.” She said countries around the world need to increase their vaccination rates, or COVID could continue to spread and act as a “headwind on U.S. growth.” This caution from Ms. Daly was music to bullish ears seeking reasons to buy stocks, and for shorts to run for cover, pushing the S&P 500 to another all-time high.

Speaking of Fed policy, this is a big week for the central bank. Fed Chair Powell will provide testimony July 14-15 to Congress, outlining the Semiannual Monetary Policy Report, of which the text was released last Friday mid-session – a text that also bolstered Friday’s day’s rally. Mr. Powell’s testimony will be a focal point next week, along with the start of the second-quarter earnings reporting season.

In what is a most interesting development, Friday’s session saw broad participation from most all market sectors, briefly putting to rest the need to be right or wrong about the value versus growth trade. It’s beginning to look as if both views may be right in terms of future performance. Here are some reasons:

Liquidity for stocks is through the roof. The Wall Street Journal reported retail investors poured $28 billion into stocks and ETFs during the month of June, the highest monthly amount deployed since 2014, so it appears there is plenty of money to go around to facilitate strong gains for both growth and value.

Low interest rates vs. rising inflation. The radical move lower in long-dated Treasury yields was considered more of a technical and short-covering move that fueled the growth stocks higher. At the same time, prices of crude, gasoline, heating oil, natural gas, corn, soybeans, cattle, coffee, sugar, cotton, iron ore, hot rolled steel, and aluminum are all up on the year, but they came off their highs in the past month.

Core Commodities Index Chart

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

Meanwhile, there are inflationary pressures in both hard and soft commodities along with all manner of household services, labor, medical, education, vocational training, travel, and entertainment expenses. (The inflation data for June is out this week.)

Consumer Price Index Chart

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

The market is having its cake eating it too. Bond prices are down, the dollar is holding firm, the second quarter had 113 IPOs, raising $39.9 billion, the most active quarter since 2000, and there is an estimated $3 trillion in cash and money markets with central banks showing no signs of slowing the QE presses.

The Fed will have the luxury of receiving the June inflation data and a plethora of other data points before the next FOMC meeting on July 28. Between now and then, there is a growing case for a broad-based rally to include growth, value, and everything in-between, at least through earnings season, when forward corporate guidance will sort out second half winners and losers.

"Everyone In the Pool" Image

Until then, it looks like, “Everyone in the pool!”

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
What Do Bonds Know That Stocks Don’t?

Sector Spotlight by Jason Bodner
I Beat the Odds – in a Most Unwelcome Manner

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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