Energy Stocks Reassert Their Market Leadership
In his podcast addressing the markets today, Louis Navellier offered the following commentary.
Energy Stocks Lead
Energy stocks are now reasserting their market leadership after gasoline prices in August rose 10.5% in the CPI and a whopping 20% in the PPI. This is due to an acute inventory decline. Furthermore, there is a diesel shortage again, especially in Europe, so the U.S. is exporting more distillates (i.e., diesel, heating oil, jet fuel, etc.), which is causing the trade deficit to decline and boost GDP growth. Naturally, since gasoline prices are high, Joe Biden’s popularity is plunging in the polls. Saudi Arabia is controlling crude oil prices and appears to be striving to defeat President Biden.
Specifically, candidate Joe Biden said that he found “very little social redeeming value in the present government in Saudi Arabia” and promised that, as President, he would make the Saudi government an international “pariah.” Furthermore, if that was not insulting enough, candidate Biden then went on to insult the entire Saudi Royal Family. So I think it is obvious that Saudi Arabia is keeping crude oil prices high to help defeat Joe Biden in the 2024 Presidential race. With $4 gasoline prices ($6 per gallon in California) and soon the be 4% unemployment from an 11-month manufacturing recession, it should not be surprising that Joe Biden is almost 10% behind candidate Donald Trump in a recent ABC News/Washington Post poll.
There is a lot of labor unrest as the UAW strike has demonstrated. If I was a UAW worker, I would want as much money as possible now, since I may not have a job in the upcoming years if the Biden Administration continues with its EV mandate. It will be interesting to see how the UAW negotiations commence, but profit sharing from the Big 3 may be the only long-term solution. However, as China and Mexico increasingly dominate battery and EV production in North America, the Big 3 may soon have to make a Chinese alliance to stay competitive in EVs, just like VW Group recently paid $700 million for a 5% stake in China’s XPeng Motors.
Due to food and energy inflation, consumers are not happy. The war against fossil fuels is failing, especially against natural gas, since in America, we are blessed to have the cheapest natural gas in the world. More pipeline projects are now reemerging as natural gas prices meander higher. This is a good time to remind you that natural gas prices are very sensitive to the weather and ideally like hot miserable summers (for peaker power plants) and very cold winters (for heating). Last November, natural gas prices plunged 50%, due to a disruption at a big LNG port as well as unusually warm weather in the Northeast. This winter is forecasted to be much colder for both Europe and North America due to an El Nino weather pattern, which bodes well for higher natural gas prices.
Presidential election years are typically good for the stock market since the leading candidates promise everything and anything, which helps to boost consumer confidence. Joe Biden’s reelection pitch is supposed to be launched in Super Bowl ads, while candidate Donald Trump clearly wants to restore lower gasoline prices, shore up the U.S. southern border and end the war in Ukraine. If the relentless litigation against Donald Trump eventually hurts his campaign, there are other qualified candidates to step in.
The primary reason that elections are good for the stock market is that the leading candidates are eager to promise us everything and anything. Powerful foreign influence from Saudi Arabia is expected to influence the 2024 Presidential election since they are effectively controlling gasoline prices. Russian Foreign Minister, Sergey Lavrov, wants to settle the Ukraine war on “the battlefield” due to waning support for Ukraine among NATO nations. Russia is also being increasingly isolated and Foreign Minister, Sergey Lavrov, recently said “No matter what they say, they (the United States) control this (Ukraine) war” and added, “They supply weapons, ammunition, intelligence data, data from satellites, they are waging a war against us.”
All the money going to Ukraine has become a contentious issue, especially after Poland abruptly ceased all military aid to rebuild the Polish military readiness. I should add that Poland has been leading a ban on Ukrainian wheat to protect its farmers, so tensions between the two countries remain high. However, Poland may be increasingly worried that Russia will invade if Ukrainian defenses fail.
All this international chaos is expected to keep crude oil prices high. Furthermore, Joe Biden is going to have to defend spending billions to fund the war in Ukraine, while disaster relief in Maui and East Palestine, Ohio, is widely believed to be lacking. Since some Ukrainian generals have bought villas in Spain and are driving fancy sports cars, there is also a big concern that there are some serious leaks with the aid to Ukraine.
Amidst this chaos, plus ongoing labor unrest in the U.S. with the UAW being the biggest of several strikes this year, American consumers remain grumpy, but continue to spend up a storm as their credit card bills grow to record levels. However, due to a strong U.S. dollar, the price of imported goods should continue to decline as falling EV prices have demonstrated, because the U.S. has been importing deflation from China.
Invest In The Best Economic Hot Spots
As a result of a lot of chaos and distractions, our best defense remains a strong offense of fundamentally superior stocks. In addition to all the refinery and energy stocks, I am also recommending (1) the best AI stocks, (2) the drug companies profiting from the booming demand for weight loss medication, (3) the strong demand for cruising/travel demand, (4) a potato shortage, and (5) resurging semiconductor demand. In other words, be invested in the best economic hot spots with improving sales and exploding earnings.
The earnings environment is poised to steadily improve in the next four quarters. There is no doubt that a strong U.S. dollar may hinder the earnings of some big multi-international companies since approximately half of the S&P 500’s revenue is outside of America. The growth stocks I am recommending are not expected to be inversely impacted by a strong U.S. dollar. Furthermore, due to positive analyst earnings revisions in recent months, I am expecting another round of big earnings surprises. In other words, we remain “locked and loaded” for another earnings announcement season.
I expect inflation, excluding energy, to continue to ebb. Furthermore, due to the anticipation of 4% unemployment due to expanding UAW strikes, I am anticipating that the Fed will cut key interest rates at its December FOMC meeting. I am optimistic about the upcoming third-quarter earnings announcement that will commence in mid-October. Looking further out, easy year-over-year comparisons will propel our growth stocks higher through next summer.
Strong Finish
Overall, higher Treasury bond yields have masked the fact that key inflation components are cooling off. Furthermore, most of the recent inflation is tied to higher energy prices that we are poised to profit from. The rest of the world is struggling with higher food and energy prices, so economic growth is slowing outside of North America. The bottom line is the U.S. is an oasis and despite an 11-month manufacturing recession, the American consumer continues to propel the U.S. economy, plus surging energy exports.
Amidst all this uncertainty, an investor's best defense remains a strong offense of fundamentally superior stocks. The overall earnings environment is improving fast. We are also now in the strong time of year since October has been seasonally strong in the past three decades (post-October 1987). Furthermore, November is even seasonally stronger, since Americans tend to be in a good mood as the holiday season commences. I still think the Fed should cut key interest rates at its December FOMC meeting due to improving inflation components, so I am expecting a strong finish to the year.
Coffee Beans: Message in a Bottle
The caretakers of a historic Michigan lighthouse are offering free stays at the landmark in an unusual contest involving messages in bottles tossed into the Great Lakes. The messages feature various offers for a free stay for one, two, or up to five people. Source: UPI. See the full story here.
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