by Bryan Perry

July 26, 2022

The economic headlines last week were anything but reassuring, yet stocks rose anyway. It can be a challenge for investors to make sense of why stocks rally in the face of missed earnings and, in some cases, lower guidance. But time and time again, a big drop in stock prices typically precedes a tsunami of bearish data followed by a rally in the averages ahead of the headlines and data turning positive again.

This mental dilemma can make it difficult to pull the trigger and raise exposure to equities when it seems counter-intuitive to do so. This past week, initial jobless claims rose to the highest level since November. Existing home sales fell for the fifth straight month to a level 14% below a year earlier. Housing starts and building permits both fell to their lowest levels since September, and manufacturing data from the Philadelphia Fed survey dove further into negative territory, reflecting a sharp drop in new orders in July.

Here are some more specific conundrums, when you consider price action vs. recent headlines:

  • If business conditions are so soft in the housing market, why did shares of the SPDR S&P Homebuilders ETF (XHB) rally 21% off their June low?
  • If growth in the job market is about to hit pause, per the rising weekly claims data, then why are shares of Automatic Data Processing Inc. (ADP), the biggest staffing and employment services company in America, trading 10% higher than the June low?
  • If the biggest chipmakers in the world are collectively stating that they are reducing their capex spending on new equipment, then why did the VanEk Semiconductor ETF (SMH) vault 19% higher since it plumbed a yearly low on July 2?
  • And if manufacturing is tanking, per the Philly Fed report, then why did we see a 10% jump in shares of the Industrial Select Sector SPDR ETF (XLI) this past week?

The most logical answer to all of these questions is that investor sentiment had anticipated these events and had bottomed out as of the first week of July, and has been gradually improving over the course of the month, according to the most recent data from the American Association of Individual Investors.

While these sentiment numbers (below) are still well under the historical averages, this noted contrarian indicator registered extreme bearishness during the week of July 6 with 52.8% of those surveyed saying they expected the market to decline further over the next six months vs. only 19.4% seeing a rise. This was the same week the CBOE Volatility Index (VIX) was much higher, at 35.0, while today it sits at 23.0.

Navellier & Associates Inc. does not own Automatic Data Processing Inc. (ADP) in managed accounts.  Bryan Perry does not own Automatic Data Processing Inc. (ADP) personally.

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

Maybe the Fed will get its wish and see the rate of inflation decline sharply in the second half of this year. As the chart (below) shows, the CRB Index (CRB), which measures prices of 17 global commodities, has fallen 14.8% from its early June high, reflecting a sharp pullback in the price of oil, which is now being reflected in lower gasoline prices – the latest AAA national price for gas being $4.38 per gallon.

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

In a more telling sign of what may come to pass, Treasury yields plunged in reaction to recent economic data, with the 10-year T-Note yield closing the week at 2.78%. well below the 3.50% peak in early June, right around when the market hit its low for the year followed by the spike in bearish sentiment. From the chart below, this move lower in yield is a notable break in what had been a steady uptrend for the 10-year.

The yield curve remains inverted for a third straight week as the Fed readies to raise the Fed Funds Rate by another 75 basis points. But after this hike, the bond market is implying that this week’s rate hike might be the last, despite the almost uniform agreement that another rate hike in September is imminent.

As of last Friday, with this sudden move down in yield, that assumption is being called into question.

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

A look at the 5-year chart of the S&P 500 SPDR ETF (SPY) shows that the long-term primary bull trend line comes into play just above $350 (or 3,500 for the S&P 500 index). This line sits 11% below where the market closed last Friday. Depending on the tone of forward guidance by the 75% of the S&P companies yet to report second-quarter earnings, it stands to reason this line will hold.

Given the price action of the past week – a time when 10 of the 11 S&P sectors traded higher on two consecutive days – the market has sent a message that it might be time for investors to switch from selling into rallies and instead resume buying great stocks on any pullbacks.

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

From early second-quarter reports, it is very clear that inflationary forces, global logistical bottlenecks, Covid, and the strong dollar are material headwinds for many companies. But one theme keeps showing up from the leading companies that have reported their numbers – demand for their goods and services is healthy. America’s leading truckers and railroads are reporting solid demand, as are airlines and lodging firms. Steel producers posted record profits and gave an upbeat outlook as did energy services companies.

It seems clear at this point that economic growth is slowing, but a recession is looking less likely, at least one of any significance that will derail the stock market from violating its long-term uptrend line.

This base case will be much easier to calculate after this week’s Fed meeting and the ongoing parade of earnings that will either justify the current rally off the lows or send a message that a retest is in order.

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

Please see important disclosures below.

Also In This Issue

About The Author

Bryan Perry

Bryan Perry

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

Important Disclosures:

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 or by requesting a copy by emailing 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.