A quick trip through the headlines … Louis’ prediction for stocks this summer… the best way to sail through any market bumpiness
Summer is here! So, what will that mean for the stock market?
Today, let’s find out, courtesy of one of the most respected experts in the business.
Yesterday, legendary growth investor, Louis Navellier sent his Accelerated Profits subscribers their weekly Profit Guide issue. In it, he outlined what he expects for stocks as we navigate the summer months.
We’ll get to that in a moment, but first, let’s do a quick pass at a few headlines impacting your portfolio.
***People are taking to the skies again
U.S. air travel is kicking into higher gear. And read also CPI Aero shares fall after receiving delisting notice
The TSA screened more than 1.9 million people at U.S. airports on Friday and Monday (a slightly lower amount on Saturday and Sunday). That’s still 22% lower than Memorial Day 2019, but it’s a pandemic high.
Compared to Friday of 2020, Friday 2021’s TSA figures showed a 499% increase. It’s yet another sign that we’re edging closer to normalcy.
Increased vaccination rates are helping push this return to the skies. From our macro specialist, Eric Fry:
As the chart below shows, a rapidly growing percentage of Americans have received a vaccination dose.
That uptrend is helping to produce a similar uptrend in “traveler throughput,” according to Transportation Security Agency data.
The connection between a rising vaccination rate and rising travel activity is obvious and direct. This connection explains why air travel in the United States has been improving at a faster rate than the rest of the world.
Most travel-related stocks reflect this buoyant trend. Southwest Airlines Co. (LUV) stock, for example, has climbed all the way back to its pre-COVID levels.
Expect this resurgence to continue with vaccination numbers increasing as the summer continues.
By the way, though Eric likes various airline plays, there’s one in particular on his radar. When he profiled it to his Investment Report subscribers in May, it was still languishing 40% below its pre-pandemic price – even though its business is on the upswing. To learn more as an Investment Report subscriber, click here.
***Meanwhile, oil just jumped to a two-year high
Oil prices have climbed more than 30% this year…and more gains could be coming.
From The Wall Street Journal:
The global oil-price benchmark closed above $70 a barrel for the first time in two years Tuesday on investors’ optimism that improving demand and a dwindling supply glut may mean the market can absorb any additional production from OPEC and its allies.
Members of the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, on Tuesday agreed to continue relaxing curbs on oil production, signaling their confidence in improving oil demand and a drop in the global supply glut.
Yesterday, Big Oil investors got a nice bump out of the news. XLE, which is the SPDR Energy Select ETF, popped roughly 4% on the day.
It’s continuing to climb as I write Wednesday morning, pushing back toward its highs in 2019, as you can see below.
Though the oil trade continues to make money for now, keep in mind that renewables are where the big money will be this decade.
On that note, our CEO, Brian Hunt, sent around an article yesterday reporting that global electric vehicle battery sales more than doubled in the first four months of 2021.
***Finally, another day, another cyberattack
Yesterday, meatpacking company, JBS – the biggest meat producer in the U.S. – had to cancel shifts at its U.S. and Canadian meat plants after it was hit by a cyberattack over the weekend.
JBS, the world’s largest meatpacker, said on Tuesday night it had made “significant progress in resolving the cyberattack.” The “vast majority” of the company’s beef, pork, poultry and prepared foods plants will be operational on Wednesday, according to a statement, easing concerns over rising food prices.
The hacker collective known as REvil Group is allegedly behind the attack. REvil is thought to be a Russian operation, believed to have ties with the Russian government.
This latest cyberattack comes just weeks after a similar ransomware attack on Colonial Pipeline, which is the largest fuel pipeline in the U.S.
We’ve called cybersecurity an “inevitable” trend here in the Digest, noting that demand for protection against these types of attacks will only increase in the future…which is a massive tailwind for top-tier cybersecurity companies.
We’ve pointed toward the ETF, HACK, as an easy way to play this. Below, you can see HACK offering a slight discount to its recent highs back at the beginning of the year.
With that trip through the headlines behind us, let’s turn to Louis Navellier and his forecast for the summer.
***What we can expect over the next few months
Here’s how Louis introduced his summer forecast:
I personally deem the next three months as the “bumpy summer months.”
Interestingly, though, June is a decent month and July is historically a strong month for the stock market; it’s the month of August that gives the summer months a bad name on Wall Street.
So, this week, let’s consider what we can expect from the stock market in June, as well as July and August.
Louis begins by pointing out that June is one of the weaker months of the year, but not nearly as weak as September.
He highlights research from the group, Bespoke, that shows the Dow posting an average gain of 0.41% in June over the past 100 years.
However, in the past 50 years, the Dow has risen just 0.12% in June, with gains 52% of the time.
If we narrow to just the past 20 years, the Dow has actually posted an average decline of 0.71%.
So, if we go by more-recent history, we shouldn’t get our hopes up about how we’ll begin the summer.
***For a specific kind of stock, June can be quite strong
Before identifying this type of stock, I’ll explain for newer Digest readers that Louis is a quant investor. This just means he has strict investment rules that are rooted in cold, impartial numbers. In fact, Forbes even named him the “King of Quants.”
So, when looking at a potential investment, Louis goes straight to the numbers – metrics such as earnings growth, operating margin growth, return on equity, and so on.
An additional metric that’s important for Louis is institutional buying pressure. Here, we’re talking about the massive money managers – perhaps endowments, sovereign wealth funds, or maybe a pension fund. They’re what Louis has referred to as “elephants.”
Here’s Louis with more:
Just one large institutional investor can manage over $10 billion in assets. So even a wealthy individual with $5 million in assets is a mouse compared to an elephant (in this case, the elephant is 2,000 times larger).
One rich individual investor, or even a group of individual investors, can’t move a stock price significantly. But institutional investors invest so much money that just a few can send a stock’s price soaring hundreds of percent higher.
So, what does this have to do with this coming June?
Well, as we get later into the month, these elephants will feel pressure to reposition their portfolios to make them look good for their second-quarter performance (which ends on June 30).
Back to Louis for more details:
If you’ve been an Accelerated Profits member for a while now, then you may recall that the second half of June is typically characterized by quarter-end window dressing.
Simply put, at the end of every quarter, institutional investors will want to make their portfolios “pretty” before the end of June, and smart beta and equally weighted ETFs are also rebalanced every 90 days.
Together, these two events create forced buying pressure under our Accelerated Profits stocks, simply given their strong forecasted earnings and sales growth, as well as their recent outperformance.
If you’re not an Accelerated Profits subscriber, I’ll give you the next best thing – Louis’ free Portfolio Grader. I won’t get into all the details here, since we profiled this powerful diagnostic tool in the Digest last week.
But, in short, Louis’ Portfolio Grader can help you identify whether or not a particular stock shares the same quantitatively-strong metrics that often make them the targets of elephants.
Bottom-line, June might be bumpy. But for stocks rooted in quantitative strength, look for a tailwind coming the second half of the month.
***What about July and August?
Back to Louis:
As we move into July, I expect investors to be in a positive mood.
Similar to how the stock market rallied heading into the Memorial Day weekend last week, the stock market will likely climb higher ahead of the Fourth of July, too. Wall Street and Main Street simply love their long holiday weekends.
After that, the second-quarter earnings announcement season will kick off, and it will be another few weeks of wave-after-wave of stunning quarterly results.
So, I look for July to live up to historical precedence as being one of the strongest months of the year.
Once the second-quarter earnings announcement season winds down, though, we’ll be entering the bumpy month of August.
Personally, I hate August. The light trading volume leaves the market susceptible to unscrupulous short sellers, and we often experience wild swings in August.
But there is some good news.
Louis writes that as the stock market grows bumpier in August, there’s often a flight to quality. It’s a narrowing in the stock market when investors grow more selective in their stock choices.
This typically means investors turn to stocks with accelerating earnings and sales momentum – which are two required metrics for any Accelerated Profits recommendation (they’re also part of Louis’ Portfolio Grader from earlier).
Here’s Louis with his sum-up:
Overall, we’ll likely experience some bumps this summer, but if we remain fully invested in the crème de la crème, we’ll weather the typical summer bumpiness as our Buy List stocks emerge as an oasis and lead the market higher.
We’ll keep you updated as we move deeper into the summer.
Have a good evening,