In his podcast addressing the markets today, Louis Navellier offered the following commentary.
Wall Street Is Afraid Of China
There is one thing that Wall Street is more afraid of than China and Russian aggression, which is rising Treasury bond yields. During Monday’s big sell-off, the 10-year Treasury bond yield rose back above 3%. The higher Treasury yields soar, the more the Fed must raise key interest rates to get to “neutral.” The initial decline in Treasury yields since mid-June was caused by bond investors believing that inflation had peaked as well as a strong U.S. dollar attracting foreign capital that was pushing down Treasury yields.
Q2 2022 hedge fund letters, conferences and more
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Strong Dollar Upside/Downside
Well, the good news is the U.S. dollar remains stronger than ever, since the euro fell below parity, so I would expect that foreign capital will return and push Treasury bond yields lower. I should also add that a strong U.S. dollar also puts downward pressure on commodity prices, since commodities are priced in U.S. dollars, so inflation should moderate further in the upcoming months.
The only downside of a strong U.S. dollar is that approximately half of the S&P 500’s revenues are from outside the U.S., so multi-international companies will be fighting a currency headwind, which may lead to more analyst earnings estimate cuts. This is a good time to remind investors that the commodity stocks that are profiting from higher commodity prices, like food and energy stocks, are expected to remain an oasis for investors.
Reassuring Fed
Finally, Fed Chairman Jerome Powell will speak on Friday at the Kansas City Fed’s annual Conference in Jackson Hole, Wyoming. Every Fed Chairman tries to engineer a soft economic landing. Although I cannot remember when the Fed ever successfully engineered a soft economic landing, Chairman Powell strives to be reassuring, not shocking in any way.
Furthermore, Powell has already followed President Biden and Treasury Secretary Yellen by saying in unison that the U.S. is not in a recession, despite two straight negative quarters of GDP growth. Even more impressive, when Biden, Yellen and Powell were saying we were not in a recession, Wikipedia redefined what a recession was and cited the National Bureau of Economic Research that in the U.S. a recession is “a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” In other words, thanks to revisionist history, the U.S. did not have a recession in the first two quarters of 2022.
If and when the Ukrainian war ends, the stock market could surge 40% to the upside in a massive relief rally, but as of last Friday when the car bomb exploded in Moscow, all bets are off for a ceasefire.
The best investors can hope for is to hide in the food and energy stocks that are prospering from Russia’s bad behavior.
The other interesting development is that a severe drought that is impacting central Europe and China is now hindering economic growth since transportation of raw materials on rivers has become increasingly difficult. Normally, the weather does not impede economic growth for long, but until heavy rainfall fills up the major rivers in both Europe and China, more raw materials and goods have to be transported on trucks and rail cars. Naturally, these disruptions are impeding GDP growth, so the U.S. suddenly has a big advantage over both Europe and China.
Coffee Beans
The U.S. may have contributed the most to the defense of Ukraine via financial, humanitarian and military aid with a total of €44.5 billion. But when it comes to a country’s commitment in relative terms, Estonia comes out on top in the first six months of the war – its contribution of €250 million equates to 0.83% of the country’s GDP. The United States’ financial input up to this point was equivalent to 0.22% of its economic output. Source: Statista. See the full story here.