In his podcast addressing the markets today, Louis Navellier offered the following commentary.
If you wish to listen to this commentary, please click here.
Nvidia’s Earnings
Nvidia (NASDAQ:NVDA) is unquestionably the new market leader. Nvidia posted massive sales and earnings surprises, of 20.9% and 29.2%, respectively, plus raised their guidance 37.5% above analyst estimates. Wow, I think we can all agree that AI is hotter than hot and Nvidia is the leader.
For the record, Nvidia posted a 101.6% annual sales increase ($13.51 billion vs. $6.7 billion) and a 429.4% annual earnings increase ($2.70 per share vs. 51 cents per share). I am proud that Nvidia is the largest holding in my managed accounts and that I have been recommending Nvidia for several years. After NVDA, the next leader is Super Micro Computer (SMCI).
Diversify In Energy
I can tell that many investors are over-concentrated in AI stocks and do not have energy stocks. I remember telling investors that energy stocks benefit from a seasonal surge in demand in the summer months, but apparently, some did not believe me, even though this seasonal demand has happened every year I have been alive.
Energy stocks have emerged as market leaders and exhibited tremendous relative strength in August. You may be aware that I do not like August since it is a month characterized by light trading volume and some seasonal shenanigans. The latest shenanigans are “zero-day options” that can cause sharp sell-offs or short-covering rallies. Zero-day options expire the same day they are created.
Amazingly, zero-day options now account for 43% of all options, up from only 6% back in 2017. This essentially means that the “tail likes to wag the dog” as hedge funds and other active investors rush for cover. Internally, we like to call the option gyrations “Skynet” after the Terminator movies when AI takes over the world.
The last two months have been my strongest relative performance compared to the S&P 500 since last October and November since we have been benefitting from both AI and energy-related stocks. So as long as you remain diversified, you can invest confidently. I should add that I do not have exposure to financial or insurance stocks that can suffer from higher interest rates as well as natural disasters, from earthquakes, fires, hurricanes, and tornados.
If you have a diversified portfolio of fundamentally superior stocks, you can invest confidently and not worry about all the distractions that can derail a fundamentally superior stock portfolio.
Shipping Stocks Continue To Perform Well
I should add that shipping stocks continue to perform well due to the fact that ships are at sea longer than normal. Initially, that is because energy is being shipped all over the world and the trips are longer than ever. Another glitch is the Panama Canal is suffering from a drought, so there is a big backlog since some ships have to unload some of their cargo due to low water levels.
Cargo ships have priority in the Panama Canal, which is causing ships transporting LNG and refined products to have to wait longer to travel through the canal. I should add that the Rhine River in Germany is at a seasonal low and the Mississippi River has not fully recovered from last year’s low levels, so river traffic is backing up and resulting in shipping delays.
Treasury Limit Conundrum
Meanwhile, the recent spike in Treasury bond yields raised fears that the U.S. may finally be borrowing more than it can afford, now that the 10-year Treasury bond has risen to as high as 4.36% intraday. Fortunately, the 10-year Treasury bond yield declined to 4.2% on Wednesday. Clearly, the $1.03 trillion Treasury refinancing this month is still having aftershocks as the realization that the interest burden on over $32 trillion in national debt may be unsustainable.
The fact that Treasury bond yields were rising as inflation cools means that demand push pressure is now effectively driving Treasury bond yields higher. The only thing that can possibly fight the Treasury limit conundrum would be market intervention and possibly more quantitative easing by the Fed. It will be interesting if this growing evidence of a Treasury limit conundrum is discussed at the Kansas City Fed Conference at Jackson Hole this week.
All Eyes On Jackson Hole
Speaking of Jackson Hole, Fed Chairman Jerome Powell on Friday is expected to outline the Fed’s updated plan to tame inflation in his speech. Chairman Powell is expected to caution about easing until the Fed’s 2% inflation target is achieved. The more Powell talks about the Fed being “data dependent,” the more dovish his speech will be interpreted.
Looking forward, I expect that as the U.S. imports some Chinese deflation, key interest rates will likely decline to the Fed’s 2% annual target range in the upcoming months. This will allow the Fed to begin cutting key interest rates by its December FOMC meeting. I also expect further Fed cuts in early 2024.
As the Presidential election approaches, the Fed usually likes to crawl into a hole and hide, since it does not want to be part of the Presidential debates. Overall, I expect the breadth and power of the stock market to steadily improve thanks to healthy consumer spending.
The Presidential debates commenced on Wednesday. During the debate, Vivek Ramaswamy called for ending the proxy war between Ukraine and Russia, which triggered a big crowd reaction. When Chris Christie tried to defend spending money to aid Ukraine, the crowd started to boo. Clearly, the billions of dollars being sent to Ukraine while major U.S. cities decay and Maui struggles to recover is a very contentious issue.
Amazingly, the Ukraine war in the past year has cost the U.S. more in the past year than 20 years of occupation in Afghanistan. Russia has pivoted to Northeastern Ukraine and is trying to retake territory that Ukraine recaptured last fall.
Complicating matters further, the Biden Administration this week is now urging U.S. citizens to flee Belarus immediately and warned against any travel. Officially, the State Department categorized Belarus as a Level 4 risk. There is also a growing chance that Russia may try to invade Ukraine via Belarus.
Coffee Beans: Got Milk
According to the National Consumer Panel, 41% of U.S. households purchased plant-based milk alternatives in 2022 and 76% of these customers turned out to be repeat purchasers. This is despite the fact that plant milks were on average 87% more expensive than traditional cow’s milk that year. Source: Statista. See the full story here.
