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A Feels Good Bounce In The Market

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In his Daily Market Notes report to investors, while commenting on the bounce in the market, Louis Navellier wrote:

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Q4 2021 hedge fund letters, conferences and more

The 10-year yield of US Treasury bonds has softened to 1.83% after briefly hitting 1.90% yesterday. Tech stocks opened strong, primarily the mega tech and names that had been hit particularly hard lately.  Semiconductors are not participating fully yet. Gold continues grinding higher and crude oil is holding above $85, keeping inflation concerns on the front burner. Industrial metals across the board are rising, both a reflection of inflation and reopening expectations.  

The earnings results keep rolling in with winners being rewarded less than losers are being punished.  The reopening plays are being pushed back a couple of months as airline bookings are feeling the pinch of the spike in Omicron cases along with some tough winter storms.

Feels Good Bounce

Today's bounce in the market feels good, but it would feel even better without the support of the pullback in interest rates. Near-term strength will come from further earnings announcements and in particular bullish guidance, which needs to be strong enough to offset the uncertainty of the Fed's focus on fighting inflation. New estimates are now for a possible 50 basis point increase in Fed Funds in March. While this is more than previously expected, it should ultimately be seen as insignificant in the face of strong earnings growth on the back of above-average GDP growth. By the time earnings season is over, today's prices will seem cheap for many names. 

The bad news is that the NASDAQ Composite “cracked” its 200-day moving average this lows week and its recent lows were a bit lower, so if you chart the four NASDAQ lows since December 3rd, this flagship index is meandering lower due to a lack of leadership.

Small-Cap Death Cross

Complicating matters further, Bespoke Investment Group on Wednesday issued a report entitled “Small-Cap Death Cross” because the Russell 2000’s 50-day moving average crossed its 200-day moving average. The good news is that this “death cross” has happened 21 times since 1980 and the subsequent median return of the Russell 2000 is 0.42% (1 week), 1.42% (1 month), 3.18% (3 months), 5.82% (6 months) and 11.90% (1 year), so it appears that you now have a great buying window to pick up small-cap stocks at a discount.

Well, you've probably heard that when you see the stock market on the mainstream news that it's in a bear market, it's time to buy.

Every Stock For Itself

The other good news is Alcoa (NYSE:AA) this week helped to kick off the fourth-quarter announcement season by announcing 39.6% annual sales growth.  The company posted a 1.5% sales surprise and a 22.5% earnings surprise.  Alcoa also provided positive guidance.  This is essentially the first of wave after wave of better than expected fourth-quarter results that I am expecting to “drop kick” and propel explosive growth stocks higher.

It's going to be every stock for itself here in the next few weeks. Sell in the strength if you have to sell, but I would rather you wait till earnings come out. There are going to be a lot of stocks just bouncing because it's time to bounce.

And if you're looking for an inflation hedge, it's the companies that can raise their prices. That was evident with Procter & Gamble Co (NYSE:PG)'s earnings. Their sales were up largely due to a strong dollar boosting international sales, and they were able to raise prices. It's a sign that earnings work.

China Cuts Its Loan Prime Rate

China surprised financial markets on Thursday when the People’s Bank of China cut its 5-year loan prime rate to 4.6%  and its 1-year loan prime rate to 3.7%.  This is the first time China has cut key lending rates since April 2020 when Covid-19 impacted world economies.  China’s GDP officially rose 8.1% in 2021, but decelerated to a 4% annual pace in the fourth quarter, which is the slowest pace since the second quarter of 2020 with the Covid-19 lockdowns.  Although China has “locked down” some of its provinces to stop the spread of new variants of Covid-19 ahead of the Winter Olympics, China’s GDP growth has also been impacted by the real estate bust triggered by Evergrande and other troubled property developers.

Another big surprise was that the Labor Department announced on Thursday that new weekly unemployment claims surged to 286,000 in the latest week.  Continuing unemployment claims also rose to 1.635 million.  This was a big disappointment.  The severe winter weather in the Midwest, South and the Northeast hopefully contributed to this unemployment surge.  Otherwise, the Fed has to “rethink” its policy if unemployment continues to rise. 

Coffee Beans

Missouri residents received alerts from highway patrol Tuesday warning citizens of "Gotham City" to be on the lookout for a purple and green 1978 Dodge 3700 GT with license plate number "UKIDME" -- a description that matches the vehicle used by Jack Nicholson as the Joker in the 1989 film Batman. The agency said the message was meant to be "a routine test of Missouri's Blue Alert system." During the test, an option was incorrectly selected, allowing the message to be disseminated to the public. Source: UPI. See the full story here.

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