WealthWise Financial CEO Loreen Gilbert and Navellier & Associates Founder-CIO Louis Navellier examine investor sentiments amid the Fed's interest rate hike cycle heading into the midterm elections, as well as inflation and energy prices.
- And that closes out today's trading action. Again, selling here in the final hour of trading. The Dow closing just off the lows of the day, down 173 points. S&P closing off just over 1%. NASDAQ off another 1 and 1/2% a today. Let's talk about all this and what we can expect going forward. We want to bring in Louis Navellier. He's the founder and chief investment officer of Navellier and Associates. We also have Loreen Gilbert, WealthWise Financial CEO.
Loreen, let's start with you. Just in terms of the volatility that we've seen over the last couple of trading days, the rally leading up into the latest inflation report, and then, of course, the selling that we've seen this week. What do you make of the action? How does this set us up heading into the Fed meeting next week?
LOREEN GILBERT: Well, I think in the summer months, everybody was the fun of summer and having a good time and thinking the stock market would continue to rebound. And then reality hit as we've seen these inflation numbers, which tells us that the Federal Reserve has to keep it going and keep it going up. And so we know that most likely it's 75 basis points. We're still holding to 75 basis points, even though the market has started to discuss 1% at this time. But I think 75 basis points is most probable. And I think investors have to get used to this year being as many down days this year as we had up days last year. And that's just part of investing for investors to take the long-term approach.
- And Louis, how would you characterize how the investor is feeling based on what you're seeing with every economic data point that tends to come out?
LOUIS NAVELLIER: Well, investors aren't happy campers. And, obviously, the Fed's going to have to increase rates to 3.75. So they got to raise rates another 1 and 1/2% from here. So they're not happy. And they've already killed the housing market. And they're going to start to kill other interest rate sensitive industries.
But I think the other thing that's going on is, since July, the analysts have been cutting their estimates. And the S&P is going to have negative earnings in the third and fourth quarter. A lot of that's the strong dollar hurting the multinationals. So outside of the energy sector, you have massive earnings estimate cuts. Although, energy stocks will be an oasis in the next couple of quarters.
- Louis you recommend the Fed does go that jumbo route 1% hike. Why? Did you feel that way prior to the CPI print?
LOUIS NAVELLIER: Well, because market rates went up so much. I mean, obviously treasuries not only erased their mid-June rally, but short-term Treasury yields are at the highest level since 2007. And I think the Fed normally doesn't raise rates in November just before midterm elections.
But they're so far behind getting to neutral I think they should probably do 100 and then probably will raise rates six days before the midterm elections. And they can further fine tune things in December. But Powell wants to get rates up, wants to get neutral, wants to be data dependent. And then he'll observe what's going on. So let's just hurry up and get it over with because I don't like this Chinese water torture.
- Loreen, if, in fact, we do see the Fed hike by 100 basis points, how do you think the market's going to react?
LOREEN GILBERT: Well, I think there's more downside in the markets, at least in the short term, given what we're seeing with these rate hikes. Basically the market's continuing to reprice. But we were already expecting 75 basis points and then another 50 and maybe two more 25's. So as Louis said, we know the trajectory. We know what's going to happen.
The question is, how fast does it happen? And does, in fact, the Fed actually let this take hold into the economy? The big risk, of course, with the Fed is, does it take hold of the economy in a substantial way that causes us to go into recession? And none of us want that. But the likelihood of a hard landing versus a soft landing is increasing by the day, as the Federal Reserve has to combat these high inflation numbers.
- So Louis then, as you were mentioning there, when you couple what Loreen was just saying there with, as you mentioned, the strong dollar exposure from multinational companies, what looks attractive to you in this sort of environment?
LOUIS NAVELLIER: Oh, definitely you want to be more domestic. And you want to be energy. So I like all the commodity bets. So, obviously, I have natural gas. I have crude oil. I have fertilizer. I've got food. I still have some shipping stocks. I've sold some. I do like some semiconductor equipment companies. The main thing is when we go into every earnings season, we go in locked and loaded. And we have to make sure we have the strong sales and earnings, even if the market doesn't. So there is an oasis, a silver lining out there to follow. And that's where we're at. But it's, basically, you got to buy the stocks that are profiting from inflation.
The nice thing that's happened this week other than Putin behaving badly, which helps energy, and then we have the border skirmish with Armenia and-- I can't say the-- Abidjan-- I can't say the name of the country. But 99 soldiers died in that border skirmish. But the other thing is it was reported that the Biden administration might start to fill the Strategic Petroleum Reserve if oil falls below $80 a barrel. That was great news for the energy patch because that essentially puts a floor under everything.
They've been taking $1,000,000-- excuse me, a million barrels a day out of the SPR. And it's now at the lowest level since 1984. So they got to do something. And I think energy is going to be a lot less seasonal, a lot less volatile. And I think we're in good shape. Plus, Europe's needs energy for next year. And they'll need it even faster if they have a big cold front. I know they think they have enough natural gas for winter. But we'll see.
- Boy, we haven't heard a whisper about refilling that Strategic Petroleum Reserve. It's a good point. Loreen, the Atlanta Fed tracks the GDP now. It's showing now 0.5% gain for Q3 that's down from 1.3% earlier this year. Further indication that we might face a looming recession late this year, early next?
LOREEN GILBERT: Yeah. I don't think it's in the cards for this year in 2022. But it's certainly looking at 2023. And I think what investors have to remember is that recessions are a normal part of the economic cycle. And when it comes to investing, there's still places to look for investing going into a recession and coming out of a recession.
Specifically, we're looking at value stocks. Stocks that pay dividends. Those tend to be shorter duration assets. So that tends to be good in a higher inflationary environment and where people are turning. And I think that's where the focus for investors on the equity side should be.
- All right. A big thank you there to Loreen Gilbert and Louis Navellier for joining us for our market panel this afternoon. Have a good day, everyone.