The Big Question, 50 Basis Points In September?

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

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

50 Basis Points In September

The big news this week is that the euro is now near a 20-year low (since December 2002) relative to the U.S. dollar.  The fact that the U.S. dollar is strong is helping to put downward pressure on commodities prices since commodities are priced in U.S. dollars.

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We have also had a dramatic decline in Treasury bond yields since June 14th. The big question is, how much does the Fed have to raise rates to get in sync with market rates? 

I expect the Fed to increase 75 basis points on July 27th. And then on September 21st, if they do increase 75 basis points again, that will be the last one. That will get the Federal Funds rate to 3%. 

I think there is a possibility on September 21st that the Fed is only going to increase 50 basis points depending on where market rates are. But that's it. Then the Fed has to stop because the next meeting is right before the midterm elections since they don't like to interfere with elections. Any other rate increases or decreases they can do in the December FOMC meeting. They tend to use December as a sneaky way to increase rates sometimes.

Wait For Earnings

We are in an interesting conundrum since the Fed has pricked the inflation bubble and all the earnings are in all of those inflation stocks. Wall Street loves to try to spook investors out of the stocks that are going to have the best earnings before they come out. This game goes on every earnings announcement season.

For investors that are in these commodity-related stocks, whether it's energy, food, shipping, or fertilizer, I would recommend waiting until the earnings come out to sort it all out. Let's see what the guidance is.

It is a very odd market because we don't have this earnings recession. And the only reason a lot of these commodity stocks are getting hit is that they were strong. It's being cleaned out before a serious rally can ensue. 

A stock market rally can be sparked by the Fed, a new $2,000 folding 5G iPhone announcement, or even President Biden cheering up. A ceasefire and peace agreement between Ukraine and Russia right now would provide the biggest spark. 

I will be carefully watching the analyst community carefully this week. Since the analyst community continues to be positive, I'm largely sticking with a lot of my stock picks and will sell stocks that don't have positive earnings revisions.

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