Shorts Emerge Before The Earnings Season

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In his Daily Market Notes report to investors, while commenting on the emerging shorts before the earnings season, Louis Navellier wrote:

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Shorts May Try And Flush You Out Before Earnings Come Out

Don't get flushed out of the market just before earnings come out.  It's normal just before earnings season for shorts to try to flush everybody out. This is a game Wall Street plays four times a year and the shorts can get buried by the good sales, earnings, and guidance and markets will stabilize as earnings come out.

There's no doubt that the market was starting to lose its mojo last week. Small cap stocks were unusually weak and FANG stocks became an oasis again. And they were an oasis last year. So we had a bit of divergence and a concentration in leadership, but the institutional buying pressure definitely disappeared last week as the inflation data came out. Investors are trying to process inflation data.

A Not So Transitory Inflation

Inflation is not as transitory as the Fed is painting it out to be.  Now with that said, in defense of the Fed, OPEC just boosted its production. A lot of parts of the world are slowing down because of concerns over the Delta variant of COVID-19. And I do expect energy prices to fall in September when worldwide demand peaks. So there are going to be some transitory things associated with inflation. You'll see lumber prices have moderated, even though we're still in the building boom. And some of the inflation hedges and commodity-related stocks aren't as strong as you might think unless we're going to have great earnings. So that's one thing Wall Street's trying to grasp the impact of inflation.

The other source of concern is the COVID-19's Delta variant.

Still, the Atlanta Fed has our economy growing at 7.5% right now, that was the Friday revision, down from 7.9, but there is speculation that when all is said and done, the second quarter might show growth at just under 10%.

Unlimited Money Printing

The 10-year Treasury is falling. We're going down the path of unlimited money printing. It's called Modern Monetary Theory. It was adopted by Mario Draghi, who was the former Head of the European Central Bank. Now he's the Italian Prime Minister. You want to be a popular politician, just print a lot of money and hand it out to people.

This low-interest rate environment obviously creates a huge boom for real estate. It's very good for the stock market long term. All these strategists who say markets are overvalued aren't looking at it versus interest rates. When earnings go up, markets go up. So earnings season will be a time to fine-tune portfolios.

Let's not let the paranoia around the world scare us. The bottom line is the US is an oasis. The stock market's an oasis. Your residential real estate is an oasis. And let's enjoy earning season. It's going to be hot and heavy for the next two to three weeks.