In his podcast addressing the markets today, Louis Navellier offered the following commentary.
August has been a seasonally weak month for the stock market. However, this time around, much of the cash on the sidelines continues to pour into the stock market. Stocks with high yields, plus good earnings growth, like Alliance Resource Partners, L.P. (NASDAQ:ARLP), CONSOL Energy (NYSE:CEIX), and Dorian LPG Ltd. (NYSE:LPG), have been fairing especially well.
Naturally, the AI craze continues, which is continuing to boost Extreme Networks (NASDAQ:EXTR), Rambus (NASDAQ:RMBS), and Super Micro Computer (NASDAQ:SMCI). Semiconductor-related stocks like Aehr Test Systems (NASDAQ:AEHR), Allegro MicroSystems (NASDAQ:ALGM), and Shoals Technologies Group (NASDAQ:SHLS) continue to prosper.
Soft Landing Achieved
The Fed is now done raising key interest rates and successfully engineered a soft economic landing for the first time that I can remember. Consumer inflation is running at only a 3% annual pace, based on the Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) index.
Wholesale prices are now running at a 0.1% annual pace based on the Producer Price Index (PPI) since the price of finished goods has fallen 4.4% in the past year. I expect that as consumer inflation cools and gets near the Fed’s 2% target, the Fed will commence cutting key interest rates by its December FOMC meeting.
The other interesting development is that low market volatility is now apparently hindering algorithmic trading firms. Specifically, Virtu announced a 23% drop in net trading income in the second quarter, so its earnings declined 49.3% to $0.37 per share, down from $ 0.73 per share in the same quarter a year ago.
Citadel Securities, which is a private company, announced that trading revenues declined by 29% in the second quarter according to the Financial Times. Both Citadel and Virtu are active in options trading. Now that there are daily as well as weekly options, these new options are not apparently boosting the bottom line for Citadel and Virtu, despite very obvious algorithmic trading programs, especially on Fridays when weekly options are expiring.
Overall, the stock market is being “re-liquefied” as more stocks and sectors benefit from a gradually expanding economic recovery. Trading volume is notoriously light in August as both Europe and many Wall Street executives go on extended holidays. So I expect some market consolidation in the upcoming weeks.
However, many of our dividend and growth stocks have emerged as market leaders and are exhibiting relative strength. Furthermore, our big energy bet is paying off now that we are in the midst of peak seasonal demand for crude oil. So I remain very positive about our dividend and growth stocks.
The Impact Of Green Policies And Mandates
The most amusing central bank news is that the Bank of England asked former Fed Chairman, Ben Bernanke, to review its economic forecasting after it came under heavy criticism.
Bank of England’s Governor, Andrew Bailey, said that Bernanke’s review would allow the central bank “to take a step back and reflect on where our processes need to adapt.” Governor Baily back in May said that there were “very big lessons to learn” after the Bank of England failed to forecast high and persistent inflation.
Frankly, I am shocked that Governor Baily will not say the obvious, which is that Britain’s green push has permanently raised electricity rates and Europe’s green war on chemical fertilizers is causing food prices to rise.
Furthermore, the fact that Ireland has to kill 200,000 dairy cows to comply with EU carbon dioxide emissions further demonstrates why food prices are spinning out of control.
So if I was writing Ben Bernanke’s report, I would tell the Bank of England to “look into the mirror” and adjust their inflation forecasts upward for more expensive food and energy due to “green policies and mandates” increasing costs.
Struggling EU And China
Eurostat reported this week that the EU grew at a 0.3% (1.2% annual pace) in the second quarter, due largely to a 3.3% surge in Ireland’s economic growth due to shifts in intellectual property by U.S. technology companies and pharmaceutical giants.
Inflation declined in 15 of the 20 EU countries and is now running at 5.3% annual pace. However, core inflation, excluding food and energy, is running at a 5.5% annual pace and has not significantly declined since March. A 6.1% decline in energy prices in the EU in July provided much of the EU inflation relief.
Food inflation remains an acute problem in the EU. The green agenda, the chaos in Ukraine, and protectionism are causing global food prices to rise. Energy prices are expected to remain firm, simply because there are too many global uncertainties. In the U.S., we are fortunate to be food and energy independent.
While the Western world is trying to slay inflation, in China they are apparently slipping into a deflationary environment. The Wall Street Journal reported that prices charged for products from Chinese factories have been falling for months.
Consumer inflation in China declined to 0% in June, which is a 28-month low. Annual producer price inflation has been negative in China for nine straight months but declined to an all-time annual low of -5.4% in June, which is its lowest level since December 2015.
The primary reason that U.S. wholesale goods prices fell 4.4% in the past 12 months through June is due to lower import prices from China and other Asian countries. As a result, I expect that the July PPI will now be negative as the U.S. continues to import deflation from China and other Asian countries.
I should add that Chinese semiconductor imports are declining due to the Biden Administration’s chip restrictions. As a result, Chinese companies are struggling to obtain key components and machinery.
The threat of additional U.S. restrictions, including restricting China’s access to cloud computing, which is being upgraded by Super Micro Computer to also include AI chips on smart servers, is expected to be announced in October in conjunction with export control numbers according to The Wall Street Journal.
General Motors’ Q2 Earnings
General Motors Co (NYSE:GM) announced that its second-quarter results were hindered by a $792 million extraordinary charge related to the recall of its Bolt electric vehicle (EV) to replace its LG battery packs. Excluding this extraordinary charge, GM posted strong sales and operating earnings.
The average vehicle that GM sells now trades at around $52,000, up 3% for the first quarter, so GM is moving increasingly upscale with its vehicles. Due to GM’s strong operating earnings, I suspect the UAW will play hardball and go on strike if its demands are not met.
There is an interesting observation regarding GM’s transition to EVs. Specifically, GM’s new Ultium platform is having acute supplier problems, so its battery packs are being manually assembled. CEO Mary Barra called the situation with the Ultium platform supplier problem “disappointing” and that she is “personally been reviewing the lines.”
Barra added that “We’ll get this behind us” and hopes the situation will be resolved by the end of the year. In the meantime, GM has only delivered 49 Hummer EVs this year due to the Ultium platform manufacturing problems.
Consumers Aren’t Excited About Ford’s F-150 Lightning
Ford recently acknowledged the lack of consumer excitement about the F-150 Lightning, which are sitting on dealer lots and being discounted, so its executives quickly pivoted and said they will be focusing on making many new hybrid models, which they hope consumers will be more likely to purchase. Obviously, a hybrid F-150 can offer the electric hookups for power tools and tailgating, but not have the “range anxiety” that may be hindering the F-150 Lightning sales.
In the second quarter, Ford’s EV business lost $1.08 billion in the second quarter, so its EV business is not profitable at the present time. Ford said that it expects its EV business to lose $4.5 billion in 2023 and lowered its EV production forecast to 600,000 per year, which it hopes to achieve sometime in 2024. Interestingly, Ford backed off of its previous goal of 2 million EVs per year in 2026, apparently due to lackluster consumer demand.
Coffee Beans: Free Loot
A Virginia woman received more than 100 Amazon packages she didn’t order, including headlamps, glue guns and binoculars. Amazon officials said some vendors are having packages shipped to random addresses in order to remove unsold merchandise from Amazon fulfillment centers because it’s just cheaper for them to do so. Source: UPI. See the full story here.