It’s All Going To Be About Earnings Guidance

Published on

In his podcast addressing the markets today, Louis Navellier offered the following commentary.

If you wish to listen to this commentary, please click here. 

Strength Under The Surface

The market looks pretty grumpy on the surface, but under the surface, I like what I see. The inflation hedges, the energy, fertilizer, food, and shipping stocks are bucking the trends.

The big news this week is the Labor Department announced that its Consumer Price Index (CPI) rose 1.3% in June, which is higher than economists’ consensus estimate of 1.1%.  Energy prices soared 7.5% in June as gasoline prices rose 10.4%, while food prices rose 1%.  In the past 12 months, the CPI is now running at 9.1%, which is the fastest pace in almost 41 years.

Get Our Activist Investing Case Study!

Get The Full Activist Investing Study In PDF

Q2 2022 hedge fund letters, conferences and more

Find A Qualified Financial Advisor

Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals, get started now.

Light at the End of Tunnel

The core CPI, excluding food and energy, rose 0.7% in June and 5.9% in the past 12 months.  In May, the core CPI was running at a 6% annual pace, down from a peak of 6.5% in March. The core rate inflation is cooling off and we are starting to see light at the end of the tunnel. As long as the core CPI continues to decline, the Treasury bond rally that has been underway since mid-June should persist.

We are going to get the PPI tomorrow, the wholesale inflation, and then the retail sales report on Friday. What you want to see on Friday's report is that retail sales are going faster than inflation.

Speaking of Treasury yields, Bespoke Investment Group recently issued a fascinating report that illustrates that in the previous 17 times the 3-month to 10-year yield curve flattened by 100 basis points in 50 trading days since 1971, the S&P 500 over the next three months, six months and year improved by a median 0.27%, 4.26% and 16.07%, respectively.  In other words, if history repeats, the S&P 500 may essentially tread water until early October and then stage a nice year-end rally that should continue in 2023.

All About Guidance

I expect good earnings to come since the analyst community is not cutting their estimates. We may be having a recession, but we're not having an earnings recession and we're not having an unemployment recession. We are fortunate because the US is still the oasis. The dollar remains strong and at parity with the euro right now.

Speaking of earnings, it's all going to be about guidance: the order backlogs, and the state of the consumer, among others. Our P/E ratios are very low. Our earnings are very strong. Our dividend yields are good. So I'm just not too worried here.

Coffee Beans

A look at the five-year rolling averages of acres burned by wildfires in California in the past decade shows that, despite a quiet 2019, the average area of destruction is growing and the cost of mitigation has been rising quickly - from $61 million in the 1990s to more than $400 million in the 2010s. Source: Statista. See the full story here.

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!