In his Daily Market Notes report to investors, Louis Navellier wrote:
Stocks tread water in front of Powell speaking Friday.
Interest rates and energy prices are grinding higher despite some clear problems going on in China and Europe due to severe drought issues causing hydroelectric shortfalls and river navigation. Fears of a global recession are being trumped by the coordinated monetary tightening by central banks trying to tame inflation.
Q2 2022 hedge fund letters, conferences and more
The housing market reported the first drop in prices in nearly 3 years, and while only -0.77%, it is the largest drop in July since 2010. Further drops are likely as the Fed starts rolling off bigger amounts of mortgage paper from their balance sheet next month putting upward pressure on mortgage rates.
Stressed Lower-End Consumers
Other signs of weakness today include Petco (NASDAQ:WOOF) which missed top and bottom and cut its outlook on higher costs, sending the stock down 5.5%. Brinker (NYSE:EAT) also reported a miss and guided down on higher costs, falling 8% but recovering to down 3%. Nordstrom (NYSE:JWN) beat top & bottom but reported falling foot traffic and swollen inventories, guiding down their full-year outlook and slamming the stock 18%.
Inside these numbers, we are seeing that the lower-end consumer is really being stressed by higher rents and food costs, and even utility costs where it was reported that 20 million homes are behind on energy bills. More solvent consumers are seen trading down which Walmart is seeing in a surge of higher-income shoppers in its grocery aisles.
Fed About-Face?
While expectations are for Powell to reaffirm his commitment to aggressive tightening until inflation comes down meaningfully in sequential months, it seems likely that there will be some caution to the uncertain impact of doubling up the rate of shrinking of the Fed balance sheet which may push longer-term interest rates higher.
It is also likely that if clear signs of a global recession develop that central banks will do a quick about-face and pivot back to QE despite the rhetoric of being willing to accept a slowdown as the price that must be paid to quell inflation.
Macro risks are rising, but strong earners remain the most attractive investment alternative and should be added to on pullbacks.
Coffee Beans
In terms of M&A investment value outside of the continent by African companies, 2022 has been a stand-out year so far. The energy, mining, and utilities sector saw the largest investment value ($7.7b) with African companies as the bidders in 2022. Pharma, medical, and biotech were somewhat behind in second place ($5.1b). Source: Statista. See the full story here.
