The Long-Term Interest Rates Are Rising Globally

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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.

Global Interest Rates Rising

The big news is long-term interest rates are now rising around the globe. The US 10-year Treasury bond yield is 3.69% today. The German 10-year yield is 2.29%, the Italian 10-year yield is 4.47%, Spain’s 10-year yield is 3.4% and Britain’s 10-yield is 3.62%. But the real surprise is Japan. Japan’s 10-year bond yield is now 0.42%, up from 0.26% yesterday.

So the Bank of Japan is now going to allow rates to rise as it is trying to defend the yen because it’s been very weak due to the rates being very low. Other central banks are raising their rates to follow our Fed to defend their currency.

Housing Green Shoots

The Commerce Department on Tuesday announced that housing starts declined 0.5% in November to an annual pace of 1.43 million. In the past 12 months, housing starts have declined 16.4%. Building permits declined 11.2% in November to an annual pace of 1.34 million. In the past 12 months, building permits have declined 22.4%.

The good news is that homes completed in November rose 10.8% from October to a 1.49 million annual pace. In the past 12 months, the number of completed homes has risen 6%. The housing industry is showing some “green shoots” based on completed homes and was likely aided by the fact that mortgage rates moderated a bit in the past several weeks as Treasury bond yields declined.

Power of Indices

The other big development is that major indices are now boosting their energy weights, so institutional managers are now net buyers since they traditionally like to “track” indices.

One example is that the NASDAQ 100 in its annual rebalancing is adding Diamondback Energy, Baker Hughes, Costar Group, Global Foundries, Rivian Automotive and Warner Brothers Discovery, while removing Baidu, DocuSign, Match Group, NetEase, Skyworks Solutions, Splunk and VeriSign. In other words, two of the six stocks being added to the NASDAQ 100 are energy stocks, while no energy stocks are being removed.

Speaking of index changes, on Thursday, Super Micro Computer (NASDAQ:SMCI) is being added to the S&P 400, while Steel Dynamics (NASDAQ:STLD) is being added to the S&P 500. There is no doubt when indices are being updated that companies with strong sales and earnings are being added, so hopefully, more fundamentally superior stocks will be added to leading indices.

In the case of the S&P 500, energy stocks have surged to approximately 6% of the index, up from barely 2% a year ago. In the upcoming years, I expect that energy stocks will rise to approximately 30% of the S&P 500 as the institutional blowback against ESG investing spreads.

The ESG blowback will spread in the new year as many University Endowments and pension funds have to explain to their trustees why they avoided investing in fossil fuel companies for ESG reasons. The folks at S&P Global have muddied the definition of what ESG is when they booted Teala from its ESG index back in May and added Exxon Mobil.

Just to demonstrate how powerful indices are, when S&P Global kicked Tesla out of its flagship ESG index to buy Exxon Mobil back in May, Tesla’s stock has since been crushed, despite record sales.

Now the NASDAQ 100 is following S&P by adding energy stocks and removing some popular technology stocks. We are now in an energy renaissance where the world had rediscovered the importance of fossil fuels as the G7 strives to break away from Russian energy.

Crude Oil Prices To Rise

The jury is still out on the G7’s $60 price cap on Russian oil. All I can tell you is my tanker stocks “gapped” up in the more aggressive services, so I suspect crude oil transportation is picking up. The LNG business is also now robust, now that a cold front enveloped Europe and natural gas demand is soaring.

The easiest way for Russia to get around the G7 $60 price cap is to just sell crude oil to China, India, Saudi Arabia & UAE, who can refine the Russian crude and sell it as refined products, like diesel, heating oil and jet fuel.

The primary reason that I expect crude oil prices to rise in the New Year is due to the fact that the Biden Administration is expected to stop draining a million barrels a day from the Strategic Petroleum Reserve (SPR), since is down to the lowest level since 1980 and the new Republican House is expected to be very critical of the SPR releases.

Furthermore, China is reopening and crude oil demand is expected to steadily rise. Finally, crude oil prices traditionally rally in the spring due to increasing seasonal demand. In my opinion, crude oil prices could easily rise above $100 per barrel in the upcoming months and eventually hit $120 per barrel during peak demand.

Coffee Beans

Messi took to the pitch for his 26th time in a World Cup tournament, making him the new record holder as the professional soccer player with the most appearances in a FIFA World Cup. Messi is also now the second-oldest scorer in a World Cup final at 35 years and 177 days, and the player with the most goal assists in World Cup tournaments with 8 assists. Source: Statista. See the full story here.