In his podcast addressing the markets today, Louis Navellier offered the following commentary.
China surprised the world this week with another key interest rate cut in response to weak retail sales (up 2.7% in July vs. 5% consensus estimate), industrial production (up 3.8% vs. 4.6% consensus estimate), and a staggering 19.9% youth unemployment (between 16 to 24 years old). The Covid-19 lockdowns in China have hurt employment, especially among technology workers.
Q2 2022 hedge fund letters, conferences and more
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Furthermore, home prices continue to decline in China, so the People’s Bank of China continues to cut key interest rates to try to re-stimulate its battered housing sector. The Chinese yuan naturally declined against the U.S. dollar, since China continues to cut key interest rates, while the U.S. is raising key interest rates.
Energy Still Dominates
Due to China’s ongoing economic woes, crude oil prices have settled down and should fall to between $80 to $85 per barrel in the fall as worldwide demand ebbs from seasonal pressures. Despite this anticipated drop in crude oil prices, energy stocks will continue to have the best earnings growth of any sector for the next couple of quarters.
Furthermore, many energy stocks are returning money to their shareholders at a fast pace, so as an example, Devon Energy (NYSE:DVN) has a 9.46% annual dividend yield. Energy continues to dominate, especially since the analyst community has become more cautious and cut earnings estimates for companies in other sectors.
Velocity of Money Picks Up
The good news is the soft landing in energy prices means that inflation will continue to gradually cool, which helped to boost the University of Michigan’s preliminary consumer sentiment index to 55.1 in August, up from 51.5 in July. The University of Michigan’s consumer sentiment index hit all-time lows a few months ago, so the improvement in this index is a great sign for improving GDP growth.
This is a good time to remind everyone that approximately 70% of U.S. GDP growth is attributable to consumer spending. Although consumers can be fickle, they are still spending, but where they spend has been changing.
The bottom line is the “velocity of money,” which is how fast consumers are spending appears to be picking up, which is great news for economic prosperity and improving GDP growth.
Coffee Beans
More than half a billion people in China will be paying with phone applications at a point-of-sale this year – a penetration rate of 40.4%, the highest included in the survey of 44 countries. Yet, the overall annual transaction value per customer is higher in the U.S and several European countries, with the average Chinese consumer projected to spend almost $4,000 with payment apps in 2022, compared to more than $14,000 in the UK and almost $13,000 in the United States. Source: Statista. See the full story here.
