Powell wants more stimulus for the economy … Trump punts on it until after the election, maybe … Louis Navellier’s thoughts looking forward
Yesterday morning, Federal Reserve Chairman, Jerome Powell, said we face “tragic” risks if the government doesn’t spend more to prop up the economy.
A few hours later, President Trump tweeted that he is rejecting Nancy Pelosi’s economic stimulus package, priced at $2.4 trillion.
Stocks fell off a cliff on the news.
As you can see below, the Dow gave up 440 points to end the day down 1.3%.
The time of Trump’s tweet — 2:48 PM — coincides exactly with the plummet.
Then, an hour or so after that, Trump signaled a reversal, tweeting:
If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now.
As I write Wednesday morning, the markets have rallied on hopes for more stimulus, with all three indices up over 1%.
***Yesterday’s wild ride began in the morning with Powell speaking at a virtual conference of private-sector economists
The expansion is still far from complete.
At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship.
Even if policy actions ultimately prove to be greater than needed, they will not go to waste.
Stocks took the comments in stride. A few bumps, but the market edged up as trading continued throughout the day.
That changed with President Trump’s tweet:
Nancy Pelosi is asking for $2.4 Trillion Dollars to bailout poorly run, high crime, Democrat States, money that is in no way related to COVID-19.
We made a very generous offer of $1.6 Trillion Dollars and, as usual, she is not negotiating in good faith.
I am rejecting their request, and looking to the future of our Country.
I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.
As noted above, Trump’s follow-up, hours later, helped Wall Street open on a positive note this morning.
But the reaction reveals something else …
***Wall Street has been pricing in additional stimulus money
Yesterday’s selloff brings to mind the old Warren Buffett gem, “Only when the tide goes out do you discover who’s been swimming naked.”
It also points toward an important truth …
If your stocks require a stimulus package to be passed to perform well, it doesn’t sound like your portfolio is rooted in strength.
To drive this point home, let’s look at the opposite reaction to yesterday’s news.
We’ll do that by eavesdropping on legendary investor, Louis Navellier, and his comments to his Platinum Growth Club subscribers.
Yesterday afternoon, Louis recorded a special market-update podcast in response to the market fireworks which was nothing short of bullish. That’s because Louis is focused on one thing — it’s not the election, a stimulus package, or Trump’s health …
It’s the upcoming third-quarter sales and earnings announcements.
Back to Louis:
I’m looking at a lot of our stocks today and we’re fine. We’re absolutely fine …
A lot of companies (in Louis’ portfolios) are still issuing positive guidance and positive sales revisions.
And that’s all we need.
We don’t need to worry about politics. We don’t need to worry about the election.
We just have to hunker down and wait for the earnings to come out.
Now, we’ll return to why Louis is confident in his stocks shortly. But let’s continue with his general thoughts on the market from his special podcast update.
Back to Louis:
Obviously, everyone is hyper-political right now.
President Trump wants the aid to go directly to the consumer. And Nanny Pelosi has been fighting for aid for selective states like New York, and California …
After the election it will be easier to get a stimulus package done, because hopefully it won’t be political.
Louis touches on Fed Chair Powell’s comments from earlier in the day. He notes that Powell wants more coordinated guidance with Congress given his concerns over the lingering effects of the coronavirus on the US economy. This is why Powell would rather over-stimulate the economy now than under-stimulate.
Despite this, Louis points toward encouraging data:
The bottom line is the economy is recovering. We’re still in the midst of a V-shape economic recovery.
The Atlanta Fed is at 34.6% annual growth for the third quarter. And it looks like we’re going to steadily recover.
***There continues to be risk to the economy — additional shut-downs
While Louis is upbeat on the markets, he does express concern about the possibility of additional shut-downs, which ties into the upcoming election:
And as far as the election is concerned, we’re about to have a “health” versus “wealth” debate.
We’ll see if it’s worth the risk of shutting down the economy again.
But when they did shut down the economy back in March and April, they really also hurt our health care system — the hospitals, the doctors, all those elective surgeries.
So, the cost of an economic shut-down is devastating.
I don’t think the Federal Government has the resources just to pay us all to sit, and I think it’s also against human nature for us all to sit.
But we’ll be able to vote on that soon.
Louis then quickly pivots back to his core narrative of earnings, saying “as far as I’m concerned, it’s all about earnings, earnings, and more earnings. So, hang on, and enjoy the ride, folks.”
***The market-approach that gives Louis confidence
Though Louis certainly follows politics and trends for his own awareness, they’re not what drives his investment decisions.
For that, he looks exclusively at numbers — and this is what’s behind his confidence, despite what’s happening in the news today.
Now, by “numbers,” I mean quarterly earnings, net profits, gross profits, sales, P/E, return on equity, tangible assets, stock price momentum, analyst revisions, trading volume, and relative strength.
Louis then runs this data through his own powerful, computer algorithms, sifting and sorting to identify a select few stocks characterized by one thing …
I’m a numbers guy. Always have been. Since I was a kid, I’ve loved math and I knew that math was the right way to understand the world.
Said another way, I depend on evidence for my decisions.
I depend on an objective set of criteria that signals what I should buy, when I should buy it, and when I should sell and collect the profits.
One of the biggest benefits of this approach is there’s no “gut feel” involved.
There’s no room for our emotions to trip us up — like, perhaps, how we feel about presidential candidates.
It’s an objective approach rooted in cold, impartial numbers as well as one fundamental belief — mathematics and computers offer a tremendous advantage in the investing world.
If you’re not a subscriber to Louis’ newsletters, fortunately, he offers a free tool which you can use as a diagnostic for the earnings strength of your own stocks — his Portfolio Grader. It evaluates a stock according to the same variables just identified.
Give your stocks a spin through it and see what it turns up.
Bottom line — when you have a portfolio rooted in financial strength, it changes how you view shorter-term volatility like what we’ve been seeing recently.
On that note, let’s return to Louis’ podcast, noting the bullish manner in which he wraps up.
***Looking ahead toward the end of the year
Louis tells his listeners that it will help to get the election out of the way.
As you’ve likely heard, Wall Street hates uncertainty. In fact, Wall Street would be happier with the landslide election of either candidate more so than an unclear outcome that drags into December or 2021.
But barring a delayed-result outcome, here’s Louis feeling optimistic:
I feel very comfortable and confident that between now and (Q3 earnings season) is the best time to buy a lot of our good stocks on dips.
And we’ll just count on those stocks to announce better than expected results and good guidance, and then we’re going to finish the quarter on a very strong note.
I expect the fourth quarter will be very good.
We’re also in a seasonally strong time of year. October is a seasonally strong month in the last 30-plus years, and November is even stronger …
Don’t worry about the bumps, cause any little dip is a good buy for our stocks.
Do you feel this way about your stocks?
If your portfolio is getting pushed around by the status of stimulus dollars or political talking points, perhaps it’s time to adopt a sturdier approach to the markets — one rooted in earnings strength.
To learn more about Louis’ system, and how it might help your returns, click here.
Have a good evening,