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No Inflation Relief In January

By Louis Navellier. Originally published at ValueWalk.

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In his Daily Market Notes report to investors, while commenting on inflation relief, Louis Navellier wrote:


Q4 2021 hedge fund letters, conferences and more

The Wrong Side of Bed

Now, the main reason that the stock market got up on the wrong side of bed this morning is that we had a disastrous retail sales report from the commerce department. Specifically, the commerce department announced that in December retail sales fell 1.9%. Economists were only expecting a 0.1% decline.

When we exclude vehicle and gasoline sales, retail sales dropped a more dramatic 2.5% in December. This is a disaster. There’s no way I can put lipstick on this pig. So, we are likely going to get a big downward revision in the fourth-quarter GDP estimate. Right now, the Atlanta Fed is estimating 6.8%. Later today, they’re going to revise that lower. They have to, probably closer to 5% GDP growth for the fourth quarter, but still very good.

In the big picture, the consumer sits in a strong position with savings and pent-up demand, the global reopening seems very likely sometime this year given pandemic indicators, and earnings forecasts remain solid. We may not see the same quick dips people have gotten used to but expect solid growth in 2022 and take advantage of weakness in names with solid profits and strong growth prospects as the market adjusts to the removal of the fiscal and monetary pandemic support and returns to a focus on fundamentals and earnings growth.

No Inflation Relief

Now, the Fed is withdrawing some of their quantitative easing. They’re still doing some, last I saw, about $90 billion a month. So, they’re still in there supporting the treasury bond yields, but although they tilted higher this year, it looks like they’re going to find equilibrium. And market rates are much, much more important than Fed rates. The Fed follows market rates. It’s as simple as that. But the Fed is going to artificially keep rates low because we can’t afford the interest on our $30 trillion deficit. It’s as simple as that.

So, we have some Fed folks saying there’s going to be up to four short-term rate increases this year. That is not going to derail the stock market because right now, inflation’s running a lot hotter than interest rates.

And just so you know how bad it is, the CPI, of course, is running at an annual pace of 7%. But the PPI, the producer price index, is running at a 9.7% increase. Ouch, ouch, ouch. And what happened is energy prices were actually falling when they did these reports. So, now, they’re rising again. So, guess what’s going to happen when we get the January consumer and producer price indices? So, inflation is the big news. This is why the Biden administration’s popularity is falling.

So, when we break down inflation, it wasn’t energy in December, but it will be in January. What was high in December, and the most shocking thing was a 1.7% increase in transportation warehousing. So, inflation’s becoming more structural with all these port bottlenecks that we have.

There’s a lot of chatter that tech stocks are going down because of interest rates. That’s not true. Tech stocks have nothing to do with interest rates. Nothing. Interest rates affect cyclical industries, housing, banking.  But the bottom line is right now, companies are going to announce very good earnings. The S&P’s earnings are supposed to be up 22% for the fourth quarter. They’ll probably be a little better with surprises, but they will be decelerating later this year because the year-over-year comparisons are getting tougher.

Regarding stocks, we are going into a funnel and there’ll be fewer leaders leading at the end of the fourth quarter announcement season. So, around mid-February, there’s going to be fewer leaders and it’s going to get more selective.

Coffee Beans

Otherworldly, delicate sand sculptures litter Lake Michigan beach this week, the largest being about 15 inches tall. The sand sculptures, which do not last very long, are formed when a combination of weather elements occurs simultaneously: wind, cold, and snow or rain. The wind erodes the frozen sand, which is slightly wet from precipitation then the cold air holds the delicate shapes in place. Source: UPI. See the full story here. 

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