Energy Stocks Are Profiting From Inflation

Energy Stocks Peak Inflation Bitcoin Volatile Days impact of coronavirus stimulus checks on inflation

In his podcast addressing the markets today, Louis Navellier offered the following commentary.

Jobs > Workers

Although the number of job openings recently declined, the unemployment rate is still expected to remain low since there are more jobs than workers available. The Labor Department on Friday announced that 372,000 payroll jobs were created in June, which was substantially higher than economists’ consensus estimate of 265,000.   The Labor Department on Thursday also announced that weekly jobless claims rose slightly to 235,000 in the latest week.  Continuing unemployment claims rose to 1.375 million in the latest week.  The four-week average of unemployment claims has been slowly rising since hitting a low in early April. 

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Improving Deficit

The Commerce Department on Thursday announced that the U.S. trade deficit narrowed for the second straight month in May.  Specifically, the trade deficit declined 1.3% in May to $85.5 billion, down from a revised $86.7 billion in April.  Exports rose 1.2% in May to $255.9 billion due to higher exports of crude oil and natural gas, while imports rose 0.6% to $341.4 billion.  The improving U.S. trade deficit is just another reason that the U.S. dollar remains strong since a smaller trade deficit typically causes economists to revise their GDP estimates higher.

Energy Stocks Profit from Inflation

Further, the euro is now near a 20-year low (since December 2002) relative to the U.S. dollar. A weak euro exaggerates inflation for the EU since commodities are priced in U.S. dollars.

The core rate of inflation in the US on both the consumer and wholesale level has been steadily declining since March.  The fact that the U.S. dollar is strong is also helping to put downward pressure on commodities prices, like metals and lumber, which have declined substantially in recent months.

I believe a lot of the risk has been run out of the market. And I can tell you that the commodity plays, such as food, energy, fertilizer, and shipping are going to have the best earnings.

Energy stocks are going to have the best earnings for the next three quarters since they are profiting from inflation. It doesn’t matter whether oil is $115 a barrel or $85 a barrel. The year-to-year comparisons are very good, the P/E ratios are very low, and most of them have good dividend yields as well. 

Food stocks are also soaring because we have food inflation. I think it is important that we profit from inflation versus getting scared out of the market.  

Coffee Beans

The poorest share of the world population will likely rise by as much as 1% if no policies are undertaken to curb the impacts of climbing prices for necessary commodities. Considering the expanded poverty lines of $3.20 and $5.50 a day for lower-middle and upper-middle-income countries, more than 71 million more people could be facing unprecedented personal hardships around the world. Source: Statista. See the full story here.

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