Thursday, April 25, 2024
Stock Market

Inflation Is Easing | InvestorPlace

The CPI report comes in cooler than expected … avoid Big Tech next year … Louis Navellier says oil is going to $120 … a special event this afternoon to help you prepare you for 2023

 

We’re publishing early today to make sure this afternoon’s Early Warning Summit at 4 PM ET with Louis Navellier, Eric Fry, and Luke Lango is on your radar.

The event centers around what’s coming in 2023, and as importantly, how to prepare for it in your portfolio.

We’ll get to that in a moment. But first, the big news is today’s Consumer Price Index report.

This morning’s inflation reading came in lower than expected

Economists surveyed by Dow Jones had predicted a 0.3% monthly increase and a 7.3% year-over-year climb.

The actual numbers came in at a monthly increase of just 0.1% and a 12-month increase of 7.1%.

It’s another encouraging sign that inflation’s grip on our economy is weakening.

There’s more good news when we look at core CPI, which the Fed prefers. It strips out food and energy prices, which the Fed views as excessively volatile.

Though forecasts called for core CPI to rise 0.3% month-over-month and 6.1% on the year, the numbers came in at 0.2% and 6.0%.

When we look under the hood of the report, we find that much of the cooling was due to softer energy prices. However, there were hot spots – both food and shelter prices kept climbing.

Overall, the print takes pressure off the Fed to keep the pedal to the metal with its rate-hikes. After all, October’s cooler CPI reading could have been dismissed as a single data point. But with November’s CPI showing cooling as well, the Fed can point toward an encouraging trajectory showing up in the data.

In fact, the CME Group’s FedWatch Tool now puts nearly 80% odds on the likelihood that the Fed only raises rates by 50 basis points tomorrow.

So, what does this mean for 2023?

As we detailed in yesterday’s Digest, we’re in one of the most confusing markets in decades, with both bulls and bears arguing reasonable and logical points.

So, how will it play out in 2023?

That’s the focus of this afternoon’s Early Warning Summit at 4 PM ET.

The Fed… interest rates… inflation… recession risk… earnings… Louis, Eric, and Luke will cover all of it. After attending, you’ll walk away with a far greater understanding of the influences shaping 2023’s market – and more importantly, what to do about it.

To reserve your seat at today’s event, click here.

But to make this Digest as valuable and actionable for you as possible, let’s look at two specific sectors that are headed in opposite directions next year – Big Tech and oil and gas.

We’ll do this with Louis’ help. He recently sat down for an interview with our Editor-in-Chief, Luis Hernandez, to share his thoughts on how investors should handle these two sectors as we say goodbye to 2022.

Starting with Big Tech, Louis didn’t pull any punches:

It’s over. The party is over.

So, you’ve seen all these tech warnings – Amazon, Google, Meta, and even Microsoft. They have warned the strong dollar is going to hurt their future business.

What’s happened is that Big Tech, as a group, grew to 48% of the S&P 500 last year. And now it’s slowing shrinking.

There’s this thing on Wall Street called a “tracking manager,” which essentially is a closet indexer.

So, as technology shrinks as a percent of the S&P, it naturally incurs this selling pressure from the tracking managers.

There are stocks trying to buck the trend, like Apple and Nvidia, but as a group, tech is shrinking.

Even if you’re not directly invested in Meta, Amazon, or Google, you could be indirectly exposed to this “shrink” if you’re an ETF investor

As Louis just pointed out, these tracking managers engineer their portfolios to resemble the weightings of a particular index.

So, let’s say you want to invest in the broad market, so you put money into SPY, which is the SPDR S&P 500 ETF Trust. You might think this provides a well-diversified portfolio without an excessive weighting in Big Tech.

Think again.

Today, even after tech’s meltdown this year, five of your top 10 largest holdings are Apple, Microsoft, Amazon, Alphabet, and Tesla, accounting for more than 17% of your investment.

By the way, yesterday, Bloomberg published research mirroring Louis’s perspective:

…History shows that market leaders of one era almost never dominate the next one.

There are early signs that a shift is already under way: Growth has slowed or evaporated for Netflix and Meta, while the sheer size of Amazon, Apple and Alphabet means they’re unlikely to provide the huge returns in the future that they did in the past. 

“We think it is unlikely the FAANG will lead the next tech bull cycle,” Richard Clode, a portfolio manager at Janus Henderson Investors, said by phone, adding that he has reduced his holdings of those stocks “very materially.”

“We are at our lowest exposure to FAANG that we’ve been since the acronym was created.”

To what degree is Big Tech a heavy allocation in your portfolio?

Given its downward trajectory heading into 2023, is some rebalancing appropriate today?

Shifting to energy, oil prices have been cratering, Louis says don’t expect that to last in 2023

For the first half of 2022, oil was the only place to be. Oil and gas investors were handsomely rewarded as inflation pushed prices at the pump to record highs.

But since the summer, the price of oil has fallen off a cliff. And as recessionary fears grow, oil continues trading lower. The price of the U.S. benchmark, West Texas Intermediate Crude, has fallen from $122 a barrel in June to just $75 as I write Tuesday morning. Earlier this week it was as low as $71.

If those predicting a recession are correct, won’t that economic slowdown add to the selling pressure on oil prices?

Perhaps, but there are other influences that will push oil prices higher. Netting out these influences, Louis cautions that this is not the time to sell your energy stocks.

Here he is with more:

As far as fossil fuels are concerned, we’re very confident they will soar in the new year for a variety of reasons.

One, we expect the Biden Administration to stop draining the Strategic Petroleum Reserve. That’s a million barrels a day they’ve been releasing.

To make sure we’re all on the same page, last March, President Joe Biden decided to release oil from the Strategic Petroleum Reserve to bring down prices at the gas pump.

Since the beginning of the summer, the Biden administration has released about eight and a half million barrels per day to take pressure off drivers.

Today, the nation’s reserve stockpile is down to just 390.5 million barrels, the lowest level since March 1984.

But as Louis pointed out, Biden can’t continue this due to the exhausted level of reserves today. So, when Biden stops the releases, it will remove a macro influence that’s been pushing prices lower.

And it’s not just the ending of these releases that will impact oil’s price, President Biden has promised to refill the Reserve at a ballpark price of $70. In other words, we’re going to have a macro influence pushing prices higher. At a minimum, it will be a stabilizing effect on oil prices at this level.

Let’s return to Louis for his next two points for why oil is headed higher.

Second, we expect China’s demand to pick up. And thirdly, we have normal seasonal pressure.

You can already see in America, we’re very short on diesel. Supplies are tight and the inventories of gasoline are also very low.

So, unfortunately, we’re going to be at $120 for a barrel of oil in the spring. And there’s nothing we can do about. We’re not drilling enough. And it’s as simple as that.

This only scratches the surface on what to expect for 2023 and what it means for your portfolio

While we’ve given a cursory look to Big Tech and oil today, what about the rest of the market? Will we see double-digit gains as some analysts predict? Or will an earnings recession lead to another double-digit leg lower?

On a more granular level, which sectors should you avoid? Which sectors will grow your wealth?

These are the core questions that Louis, Eric, and Luke are diving into today at 4 PM.

As we pointed out in yesterday’s Digest, it won’t simply be market commentary. Louis, Eric, and Luke will also introduce their Power Portfolio 2023.

This is a collection of hand-selected stocks that have passed all of Louis’, Eric’s, and Luke’s strict selection criteria, presented all at once. Think of it as a holistic, diversified portfolio, engineered to compound your wealth based on 2023’s market conditions.

Best of all, simply for being a part of today’s event, our analysts will give you three hand-selected stocks that they believe will soar next year – yours free.

Bottom line: It appears we’re at or nearing a market inflection point. Join us today to find out what to do about it in your own portfolio.

Have a good evening,

Jeff Remsburg

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