In his podcast covering today’s markets, Louis Navellier offered the following commentary.
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Table of Contents Declining consumer confidence
The Fed’s most popular inflation indicator is the Personal Consumption Expenditure ( ) Index. The Commerce Department said on Friday that PCE will run at a 6.1% annual pace through September, unchanged from August’s annual pace.
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However, core PCE excluding food and energy rose to an annual pace of 5.1% in September, versus an annual pace of 4.9% in August. This is the third straight month that core PCE has increased.
Economists expected core PCE to rise at an annual pace of 5.2%, leaving some market observers a sigh of relief after the September PCE report was released. Technically, it rose less than expected, but the Fed is still likely to hike rates further as it wants core PCE to cool.
The Commerce Department also said personal spending rose 0.6% in September, while personal income rose 0.4%. Anytime personal spending exceeds personal income, it’s good for GDP growth, so the third quarter GDP estimate may be revised upwards.
The Commerce Department said Thursday that its preliminary estimate for third-quarter GDP growth is at an annual pace of 2.6%.
Although consumers remain resilient, it has eased, and higher interest rates are hampering home sales and other interest-rate-sensitive parts of the US economy. Consumer spending rose just 1.4% in the third quarter, compared to 2% in the second quarter.
SPR manipulated GDP
What I find most amazing is that virtually all of the third quarter GDP growth was due to a smaller trade deficit, which contributed 2.77% of GDP growth through higher oil exports, mainly due to a release of 1 million a barrel day from the Strategic Petroleum Reserve ( ).
You can argue that the third quarter GDP was artificially manipulated by the SPR release. And obviously the Biden administration won’t be able to hold out much longer because the reserve is exhausted. Right now they have said they will release oil by December.
Energy stocks rise, technology stocks fall
This has been a great week for stock earnings announcements, with stocks such as (NYSE:ADM) and Enphase Energy (NASDAQ:ENPH) beating sales and earnings and trending higher.
However, Amazon.com (NASDAQ:AMZN), Google (NASDAQ:GOOG) and Meta Platforms (NASDAQ:META) all reported disappointing sales and earnings. Additionally, Microsoft (NASDAQ:MSFT) and Texas Instruments (NASDAQ:TXN) both beat sales and earnings but lowered their respective forecasts.
As a result, technology stocks remain very jittery and a leadership change is underway. It’s every stock on its own and the stock market is likely to tighten in the coming weeks.
I have one last remark. Wall Street is dominated by “tracking managers” who are not allowed to over-attribute industries in the US as most money managers are required to show a high correlation (R2) relative to their respective benchmarks.
I had an interesting call with a prospect this week where I had to explain that since my 60% weight in energy stocks is literally 10 times the S&P 500, I wouldn’t qualify for most investment platforms.
Most money management platforms do not allow overweights greater than 2 to 1, so the maximum energy weight in a tracking portfolio would be limited to 12%.
The reason I’m so confident that energy stocks will have a 30% weighting in the S&P 500, up from around 6% currently, is because the tracking manager crowd will be “systematically” forced to buy more energy stocks, when leading technology stocks falter (e.g. Amazon.com, Google, Meta Platforms, Microsoft etc.) while leading energy stocks post great gains and continue to climb steadily.
Just to put things in perspective, a year ago it was less than 2%, while technology was about 48%. I project that energy stocks will account for 30% of the S&P 500 in early 2025 and technology stocks will fall to about 32%.
In other words, the tracking managers will be systematically buying energy stocks and net sellers in technology stocks as S&P 500 sector weights change for at least the next few years.
The Labor Department said Thursday that jobless claims rose to 217,000 last week from 214,000 the previous week. Jobless claims last week rose to 1.438 million from a revised 1.383 million.
The 4-week moving average of weekly and rolling jobless claims is now rising, and if this continues, it will ultimately prompt the Fed to taper interest rate hikes in 2023.
Speaking of interest rates, the European Central Bank (ECB) raised interest rates by 0.75% on Thursday, bringing its 1.5% interest rate to its highest level since 2009.
Both French President Emmanuel Macron and Italian Prime Minister Giorgia Meloni criticized the ECB’s interest rate hikes.
The ECB is lagging other central banks, but after a weak eurozone PMI over the past four months, the eurozone is almost certainly in recession now, so Macron and Meloni’s ECB criticism could escalate.
Inflation numbers in Europe are truly shocking, leaving the ECB with its hands full as political criticism mounts.
After economics, abortion is the second most frequently cited concern by US voters, followed by gun policy, education and immigration. The issue of Russia’s invasion of Ukraine is very important to 47% of Democrats versus just 25% of Republicans.
While 66% of Republican voters saw immigration as an important issue this month, only 38% of Democrats thought the same. Source: Statistics.