Tech stocks hold up in spite of horrific economic news … California does its best to fuel inflation … a new offering from our Omnia service … gold nears a critical support level
Yesterday, something important happened.
The June consumer-price index (CPI) data came in blazing hot, crushing forecasts, and how did stocks respond?
In fact, tech stocks actually spent much of the day in positive territory. This is telling us something.
As a quick recap, the CPI data came out before the markets opened.
In the wake of the nosebleed inflation print (a 9.1% surge, the most since 1981), it appeared we’d have a stock bloodbath. Futures for all three indexes fell more than 1%.
But not long after the bell, the indexes began climbing. The Nasdaq turned positive and spent much of the day in the black. It ended the day down just 0.15%.
***The fact that tech stocks didn’t completely melt down is significant
To better understand why this is significant, below is the content of a text from Luke Lango which he sent to our CEO Brian Hunt, our Editor in Chief Luis Hernandez, and myself:
On a day when CPI breaks 9% and smashes expectations, the market reasonably falls – yet ARKK and many spec tech stocks rise as part of a continuation of a bullish descending triangle pattern.
For anyone less familiar, ARKK is the ARK Innovation ETF from Cathie Wood. It holds a basket of top-tier hypergrowth tech stocks.
Below is its’s one-year chart. You can see how it’s trying to carve out a base, having tested and held the $36ish level three times.
Chart showing ARKK carving out a base after months of falling
Source: StockCharts.com
***In our Monday Digest, we discussed the timing of market cycles versus economic cycles
The takeaway was that stocks bottom first, but then rally first.
And within the broad stock market, technology stocks tend to lead the way.
After highlighting the recent performance of a handful of top-tier tech-fueled growth stocks, we concluded:
…while the broad bear market for the S&P might be approaching halfway done, the bear in tech-based growth stocks is likely closer to being completely done…
What we saw yesterday supports this idea. When truly awful economic news only mildly rattles tech stocks, something is going on.
Keep your eyes on this.
***Meanwhile, over in the “Seriously, they’re doing this?” file…
Here in the Digest, we stay out of politics. The only exception is when policy impacts the economy and/or our portfolios.
On that note, here’s a quick headscratcher from my home-state of California. And frankly, it’s less about politics and more about politicians not seeming to understand actions and consequences.
As regular Digest readers are very aware, inflation occurs when too many dollars are chasing after the same volume of goods.
In recent years, we’ve had too many dollars thanks in large part to government-sponsored “free money.”
This fuels an inflationary spiral.
If you keep giving people free money to alleviate pain from inflation, they’ll continue paying higher inflation-adjusted prices, which keeps demand elevated, which results in even higher prices.
This is especially true when the free money is going to people who are already relatively secure financially. I’m talking about people who don’t need these dollars to pay, say, a $100 electricity bill.
Now, as you know, in the wake of the pandemic, our government “made it rain” with free dollars, which is a major contributor to today’s inflation.
In an attempt to drain all the excess, problematic dollars from the economy, the Fed has been raising rates this year and has recently begun letting its balance-sheet holdings run off.
And that brings us to California…
***How is the Golden State working to bring down inflation?
By flooding the state with even more dollars!
This fall, “inflation relief” checks will be going out to 23 million California taxpayers (nearly 60% of its population), some of which will be as high as $1,050.
The phrase “digging yourself out of a hole” comes to mind.
Now, I’m in favor of helping those most impacted by today’s hideous inflation. But when we dive into the details of California’s inflation checks, it raises an eyebrow.
Beyond help for low-income Californians, as you’d expect, these payments will also be going to some not-so-low earners.
From MarketWatch:
The payments are structured into three tiers, as reported by The Mercury News…
So, if you and your spouse are making half-a-million dollars per year, there’s help on the way!
Of course, it won’t be help for bringing down inflation…
***Moving on to more serious matters: If the market has you nervous and you’re looking for a medium-risk, medium-term portfolio, check this out
For newer Digest readers, Omnia is InvestorPlace’s service that combines all of our published works from Louis Navellier, Eric Fry, Luke Lango, and John Jagerson and Wade Hansen. Think of it as a one-stop-shop for everything from our top analysts.
Plus, as an Omnia subscriber, you’ll receive any new services or portfolios these analysts create in the future.
Well, we just launched a new Omnia portfolio.
Thomas Yeung, CFA has been instrumental in coordinating this portfolio. Here he is describing it:
The Omnia Portfolio is a collection of the best stocks from InvestorPlace.
Thomas dives into details about the various sectors and investment styles represented in the portfolio, concluding with:
Ultimately, the point is to create a portfolio with middle-of-the-road risk… but also the potential for market-beating gains.
If you’re looking for the best risk-adjusted, medium-term plays from our expert analysts, all in one place, here it is. To learn more, or just to learn more about an Omnia subscription, call our team at (800)-211-6357.
***Finally, gold investors need to watch this critical level
You would think that the worst inflation in 40 years would turbocharge the price of gold.
Not so much. It remains on vacation.
After a strong run earlier this year that saw gold’s price approach its March 2020 all-time high of $2,074, the yellow metal has fallen 15%.
More importantly, it’s rapidly approaching a critical long-term support level. If it doesn’t bounce off this level, watch out below.
Here’s gold’s three-and-a-half-year chart with the support line added:
Chart of gold showing its price is nearing a critical support level
Source: StockCharts.com
This support level comes in at roughly $1,680.
As I write on Thursday, gold trades at $1,735. So, only about 3% higher.
If you have significant exposure here, be aware of what’s happening.
