Nasdaq Retests, Treasuries Yawn

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In his Daily Market Notes report to investors, while commenting on the NASDAQ being retested, Louis Navellier wrote:

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Treasuries Yawn

Inflation stays hot but it's not reducing growth estimates.  Despite the Consumer Price Index rising 7% year-over-year, the biggest jump since 1982, it was within expectations.

US Treasury interest rates did not react to the new inflation numbers, and the rally in the technology-heavy NASDAQ that began Monday afternoon continues on.

Perhaps the best news is that the market is successfully ignoring the soaring Covid numbers, and looks forward to a true reopening of both national and global economies in 2022.

Crypto also seems to have bottomed after a tough first week. Technology names such as NVIDIA Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD) should have the wind at their backs as the demand for their advanced products by crypto networks, gaming platforms, and cloud servers remains high.

Other evidence of reopening demand is seen in energy with crude oil above $82 a barrel, not seen in nearly a decade, as well as strength in industrial metals. It certainly won't be a straight line higher, there will certainly be bumps in the road as interest rates should drift higher as the Fed takes away the punch bowl and markets eventually demand "real" fixed income returns (higher than inflation) but equities should continue to be supported by strong growth prospects in 2022. 

Nasdaq Retests

The good news is that as painful as the start of the week was, essentially all that NASDAQ did was “retest” its December 3rd and December 20th lows intraday before re-surging on higher trading volume.  The subsequent resurgence in NASDAQ has been on higher trading volume which is a great sign of persistent order imbalances and that the current rally is likely sustainable.

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The only bad news is that when NASDAQ retested its December 3rd and December 20th lows, they were a bit lower on each retest, so some technical analysts may argue that the stock market is merely having a “relief rally” that may eventually fizzle.  I am not in the relief rally camp, since the stock market is now commencing to release another round of stunning quarterly earnings.  Already, many of my stocks, like InMode Ltd. (NASDAQ:INMD), have issued positive guidance, so they are re-surging accordingly.

The record cold weather in the Northeast and much of the Midwest is expected to send natural gas prices soaring.  Additionally, crude oil prices continue to meander higher.  In other words, even though energy inflation paused briefly in December, it is re-surging in January, which means that record inflation is expected to persist.

I should also add that robust economic growth is also causing “demand push” inflation.  Currently, the Atlanta Fed is estimating that fourth-quarter GDP growth was running at a robust 6.8% annual pace.

Cooling Real Estate

This is a good time to remind all investors that as inflation persists as the Fed raises interest rates that the dramatic appreciation in residential real estate is expected to continue to slow as higher mortgage rates and affordability issues curtail the annual pace of price appreciation.

I should add that Fed Chairman Jerome Powell on Tuesday before the Senate reaffirmed that inflation was now the Fed’s primary focus and that the Fed would be raising interest rates since the economy no longer needs emergency support.  This essentially means that the stock market is expected to remain your best inflation hedge, especially with growth stocks that are sustaining strong sales and earnings.

Coffee Beans

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