In his podcast addressing the markets today, Louis Navellier offered the following commentary.
We are now in the midst of the second quarter earnings announcement season. Already, many stocks are exhibiting relative strength, which is a sign that money is gravitating to those companies that will post the strongest quarterly results and guidance.
We are in the midst of a “rolling recovery” as our favorite economist, Ed Yardeni, likes to say. There are essentially four improving industry sectors where we can find stocks, namely (1) semiconductors/cloud computing, (2) oil refining/integrated energy, (3) consumer discretionary and (4) homebuilding.
AI Glitch
There is no doubt that the AI craze is very viable in the wake of Nvidia (NASDAQ:NVDA) and Super Micro Computer (NASDAQ:SMCI)’s positive guidance. The only glitch is the Biden Administration wants to restrict China’s access to AI via cloud computing, but we suspect that will fail since China is pretty good at outsmarting its trading partners.
Energy Wildcard
The recent boom in energy stocks is due largely to margin expansion. The refiners are benefitting from high seasonal demand and wide crack spreads. In the meantime, integrated energy companies have boosted their production and no longer need high crude oil prices to improve their earnings.
Finally, Russia remains a wildcard in the world energy market and it is widely perceived that their production will systematically decline when winter arrives. I should add that Russia’s seaborne crude oil exports have fallen substantially in recent weeks and are now running at the lowest level this year.
As far as the consumer is concerned, we have to follow where they are spending money, which lately seems to be home improvement, restaurants, travel and entertainment. The service sector is responsible for virtually all the economic growth in the U.S. since the manufacturing sector is sputtering.
The Conference Board on Tuesday announced that its consumer confidence index surged to 117 in July, up from 110.1 in June. Both the Conference Board’s expectations and present situation components rose in July, which is a very good sign. Overall, consumer confidence is now at its highest level in over two years (since July 2021), which bodes well for strong retail sales.
The homebuilding sector remains strong due to the fact that the inventory of existing homes remains suppressed since homeowners with low mortgage rates are reluctant to sell. As a result, homebuilders have to build more homes to meet demand in growing areas. I should add that due to cooling inflation, mortgage rates are anticipated to continue declining in the upcoming weeks.
Rising Credit Card Debt
Auto repossessions are rising, so used car prices will likely be falling as these vehicles are resold. There is no doubt that consumers remain pinched since credit card debt continues to rise, which is causing banks to increase their loan loss reserves. Typically, credit card companies expect a 1.5% default rate on credit card debt, but based on new higher loan loss reserves, banks seem to be anticipating a 3% or higher default rate.
Interestingly, consumers are even more grumpy in Europe, due largely to inflation from green policies, so right-wing parties are rising. Spain just elected a far-right party that will now wield its influence for the first time since the Franco dictatorship ended in 1975. Italy is led by an anti-immigration and pro-traditional family Prime Minister, Giorgia Meloni, that has widely rejected many European Union (EU) reforms.
In Germany, the support for the far-right Alternative for Germany (AfG) is now at a record 22% and undermining Chancellor Olaf Scholz’s ruling coalition of three parties. Growing discontent over issues ranging from record immigration, persistently high inflation, and costly climate-protection measures have fueled the rise of AfG.
The movement in Germany is similar to the rise of the BoerBurgerBeweging (BBB) in the Netherlands, which is a farmers’ citizens movement that won 15 of the 75 seats in the Senate back in March and is now blocking legislation to seize more farmland since the Netherlands was striving to have 30% of its land in a “natural state” to comply with EU’s climate goals.
The bottom line is going green is expensive, which causes higher prices for food and electricity, so big groundswell revolts are underway within Europe.
Coffee Beans: Barbenheimer
Greta Gerwig’s Barbie has dominated the box office, pulling in $155 million domestically over its first weekend, which makes it the leading debut for a female director. That same weekend, Christopher Nolan’s Oppenheimer also hit the big screens, raking in some $80.5 million. Source: Statista. See the full story here.
