The Best Way To Sidestep A Slowdown In Growth

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In his Daily Market Notes report to investors, Louis Navellier wrote:

The market keeps clawing its way up a steeper wall of worry.

The market volatility continues, swinging from red to green and back, and yesterday finding a way to end in the green. Today feels much the same. No new bad news is good news.

Today, the news that mortgage demand has fallen to a 22-year low was no surprise given rising mortgage rates, yet home prices are holding firm on low inventory. Forecasts that macro growth rates are falling are feeding stagflation fears but are far from recession numbers.

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Interest rates are edging higher but still well below the highs for the year on longer maturities. The US dollar is off its high as other central banks play catch up in raising rates.

The persistent concern is inflation, making Friday’s CPI number ever more important.  It’s clear that energy costs will likely continue to drive the headline numbers but core inflation may give confirmation that we’ve seen peak inflation, which would be very bullish for stocks.

Transitory Retailer Issues

Target Corporation’s (NYSE:TGT) inventory issues have brought concerns of similar problems that may come to light in other retailers but those are seen as transitory.  In general, retailers report that store traffic is good and consumers are spending, in fact, they added $38B to credit cards in April after adding $47B in March. This is being seen as both a sign of confidence and a result of higher prices.

High earners are buying more luxury goods, and lower-income consumers are trading down to cheaper essentials. The high rate of savings during the pandemic, aided by the stimulus payments, put consumers in a better position for higher spending this year.

Sidestepping Growth Slowdown

Growth concerns will only become serious if we see a round of earnings estimates cuts, which bears say is inevitable but has yet to happen. The other great uncertainty is the impact of the Fed shrinking its balance sheet on interest rates, but recent Treasury auctions have seen plenty of foreign buyers at current rates. The best way to sidestep a slowdown in growth is to be overweight in companies with strong organic earnings growth, like energy.

If stagflation is coming, it will be a stock-picking, not an index buyer market. Second-quarter earnings will be more important than ever.

Coffee Beans

Earth Overshoot Day will land on July 28 this year. This means that only seven months into 2022, we will have already used up all of the resources that the world can regenerate in a year. If the whole planet consumed resources at the pace of the U.S, we would hit our 2022 threshold by March 13. Source: Statista. See the full story here.

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