In his Daily Market Notes report to investors, while commenting on volatile days, Louis Navellier wrote:
The high inflation numbers did make a difference - for a few hours. After a modest impact yesterday morning, the surprisingly high CPI numbers managed to have a meaningful impact as the day wore on. Today, only gold is continuing higher, along with other traditional commodities.
Historically, modest inflation is not bad news for the stock market as long as growth continues. If we can avoid a stagflation situation of low growth with high inflation, stocks are actually even more attractive than fixed-income investment alternatives whose returns can see price erosion consume most or even more than the coupon income generates. That said, as long as inflation numbers stay uncomfortably high expect to see more volatile days ahead for high P/E growth stocks in sectors found in tech and consumer discretionary names and more stable days for much lower multiple sectors such as financials, materials, and energy. As inflation numbers wane, growth will reassert its leadership role.
Inflation Until 2023
On Tuesday, former Fed Chairman and Treasury Secretary Janet Yellen said on National Public Radio that “I’d expect price increases to level off, and we’ll go back to inflation that’s closer to the 2% that we consider normal” as the pandemic fades. In defense of Yellen and other central bankers, inflation on a trailing 12-month basis is expected to decelerate in June 2021, based on some big monthly gains falling off. However, with the resurgence of inflation in October, inflation may not be dissipating as fast as they previously hoped, so I would not be surprised if central bankers kick the “transitory” inflation argument to 2023 and beyond.
The National Association of Realtors on Wednesday announced that median home prices rose 16% to $363,700 in the third quarter compared to the same quarter a year ago. Austin, Texas was the fastest appreciation home market in the U.S. where median home prices surged 33.5% in the past 12 months. Naples, Florida was number two with 32% annual appreciation, and Boise, Idaho was number three with 31.5% annual appreciation. Due to a tight inventory of existing homes for sales, median home prices are expected to continue meandering higher.
The Labor Department also announced on Wednesday that weekly unemployment claims declined to 267,000 in the latest week. Continuing unemployment claims actually rose slightly to 2.16 million. Although weekly unemployment claims are now at a post-pandemic low, both weekly and continuing claims were a bit higher than economists’ consensus expectations. However, weekly claims can be volatile, especially as the holidays approach.
Unachievable 2040 Goal
The most interesting outcome of the COP26 conference in Glasgow, Scotland is that four of the world’s largest auto manufacturers, namely Hyundai-Kia, Renault-Nissan, Toyota and VW Group, have not agreed to eliminate emissions by 2040. On the other hand, China’s BYD, Germany’s Daimler, as well as both Ford and General Motors agreed to eliminate emissions by 2040. Naturally, eliminating all emissions by 2040 is a very high goal that many companies cannot afford and may never be able to achieve. Interestingly, countries with abundant hydroelectric, like Canada and Chile, agreed to no emissions by 2040, but China, Germany and the U.S. did not agree to eliminate emissions by 2040. Clearly, some countries are blessed by abundant hydroelectric resources, while others will still remain dependent on fossil fuels.
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Heard & Notable
Despite the continued U.S. involvement in overseas conflicts, older veterans remained the norm in the U.S. As of 2019, more than half were over the age of 65. The number of U.S. vets is expected to further decline as the largest group among them remain the older Vietnam vets. Source: Statista