How earnings are shaping up … the influence on the market of the Fed and Biden’s tax proposals … Louis Navellier’s market outlook

Folks, it’s every stock for itself right now.

It’s not going to be a sector market. It’s going to be “what have you done for me lately?”

That comes from famed growth investor, Louis Navellier.

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Yesterday, Louis sent his Platinum Growth Club subscribers a Flash Alert that included a podcast commentary on the market.

For newer Digest readers, Platinum Growth Club is Louis’ premium investment service. Members get access to all of Louis’ newsletters, plus a model portfolio comprised of what Louis considers the “best of the best” of all his recommendations.

In terms of what “best of the best” actually means, so far in 2021, Louis has closed out 24 double-digit winners and 14 triple-digit winners in his Platinum Growth Club service.

Returning to his market commentary, Louis touched on a number of subjects yesterday: the current earnings season, the Fed’s FOMC statement from Wednesday, President Biden’s tax plan, and what Louis believes is in store for the market over the coming weeks.

Today, let’s get into all these details, and find out why Louis is telling his subscribers “I just think that things are looking awfully-good here, folks.”

Let’s jump in.

***“Stunning” earnings results

Louis begins his podcast where anyone who knows Louis would expect – earnings.

Regular Digest readers know that Louis is one of the early pioneers of using predictive algorithms to scour the markets for quantitatively-strong stocks. Forbes even named him the “King of Quants.”

For decades, Louis has used this numbers-approach, with earnings strength at its core, to produce triple-digit winners for his private clients and subscribers.

So, what is Louis seeing in terms of the numbers coming out this earnings season?

From Louis:

A lot of the FANG stocks are reporting stunning results and beating both sales and earnings expectations, and giving positive guidance.

A lot of companies are pointing out that this is peak earnings, and they won’t grow quite as fast in the future. Sometimes those stocks get hit with profit-taking, but then they bounce right back.

We saw this profit-taking yesterday with Apple.

The tech giant reported that its sales soared 54% during the quarter, with each of its product categories enjoying double-digit growth. It also announced it would increase its dividend by 7%, and was authorizing a $90 billion share buyback plan.

Yet Apple’s stock closed the day down 0.07%.

Back to Louis:

You’re going to get some good stocks that have dips here, that are great buying opportunities. But by and large, earnings are now overpowering the market.

We’re over 30% through the first-quarter announcement season and the average revenue surprise is over 3% for the entire market, and the average earnings surprise is over 22%.

It won’t always be this good because good earnings come out early and bad earnings come out a little later, but it’s stunning.

Louis notes that this earnings strength isn’t happening across the board. Whereas there was a mean-reversion rally beginning last September that led to many rallying stocks even though they weren’t posting strong earnings, we shouldn’t expect that anymore:

Folks, it’s every stock for itself right now.

It’s not going to be a sector market. It’s going to be “what have you done for me lately?”

So, this is part of the market getting more narrow and more fundamentally-focused.

***How the Fed and Joe Biden will impact the markets

After touching on earnings season and the narrowing nature of today’s market, Louis turns to the government’s impact on the markets.

Here he is, beginning with the Fed:

Obviously, the Fed had the FOMC statement on Wednesday. No surprises there, other than Chairman Powell made it extra-clear that they’re not even going to consider tapering. They need to let all the economic tea leaves come out.

He also reiterated they want all the sectors of the economy recovering – not every sector is recovered.

That means we’re going to be in this goldilocks environment of low interest rates and strong growth for a while…

So, this is as good as it can possibly get economically. This is peak sales and earnings momentum. And we are in the midst of robust economic growth right now.

But to what extent could President Biden’s tax plan, if adopted, kneecap this goldilocks environment?

To make sure we’re on the same page, Biden wants to increase the top tax rate for wealthiest Americans to 39.6%, up from 37%.

That 39.6% tax rate also would apply to capital gains and dividends for households that earn more than $1 million – basically doubling it from today’s 20%.

Add on the existing 3.8% net investment income tax, and that would bring the top capital gains rate to 43.4% (and then tack on individual state capital gains taxes).

Biden has promised that no one making $400,000 or less would see increased taxes, but there’s skepticism.

From CNBC:

Some experts wonder whether his sweeping plan can keep to that pledge.

“I challenge you to find an economist who will say that is even possible,” said William McBride, vice president for federal tax and economic policy at the Tax Foundation.

The reason, according to McBride, is that everyone in the economy is connected.

“If you raise tax on this taxpayer here, good luck in isolating that effect to just that taxpayer,” McBride said. “It’s not actually possible.”

So, to what extent is Louis worried about this tax plan impacting investors and the market?

Back to his Flash Alert:

(Wednesday) night President Biden addressed Congress… His proposed tax increases didn’t get the applause that you might think would normally happen.

The cameras were looking at Senator Joe Manchin of West Virginia who was sitting in the back, looking at his phone, kind of ignoring everything. Senator Manchin is a swing-vote on taxes.

So, President Biden is asking for a lot but he’s not going to get a lot. The taxes on dividends and capital gains are pretty sacred in Congress. They are double-taxed, so they usually get a favorable rate.

So, whatever Joe Biden is asking for, he’s not going to get. It’s as simple as that.

Joe Manchin has already – for lack of a better word – blocked the Biden administration’s proposed corporate tax increase from 21% to 28%. I think Joe Manchin is at 25%.

We’ll see where he is on dividends and capital gains.

Louis also points out that any potential tax hikes would hit next year, which is a mid-term election year. Many politicians may shy away from raising taxes with their re-elections on the line.

Here’s how Louis sums up taxes:

I know government wants to increase taxes, but it’s just not happening as fast as everybody wants…

I think a lot of the fears on taxes are going to get watered down quite a bit.

So, I think we should basically ignore the calls for higher taxes and just enjoy the profits while they’re here.

***What does Louis expect for the markets in the weeks ahead?

Looking forward, Louis is bullish – for the right kind of stock, that is.

As noted earlier, Louis doesn’t believe we’re in a “all stocks rise” environment. Fundamentally-strong companies are distancing themselves from weaker companies.

But for those strong companies, Louis sees a slew of bullish influences converging:

They’ve thrown so much money at municipalities, at people directly with stimulus payments in March, now the question is “will the velocity of money pick up?”

And based on the consumer confidence we got this week, which was stunning, yeah, it’s picking up… I just think that things are looking awfully-good here, folks.

We’re going to have easy year-over-year comparisons. The Fed is going to keep interest rates in check. All that money they pumped into the system – the money supply literally going up 40% in the past year – it means a lot of money sloshing around that’s helping buy our treasuries and keep yields in check.

I think it looks awfully good here, folks.

Things appear so good to Louis that today, he’s recommending five new buy-recommendations in his Growth Investor service.

From Louis:

If you want to profit in the current economic environment, your defense remains a strong offense of fundamentally superior stocks.

Take the five new stocks I’m recommending today for my Growth Investor subscribers in my May Monthly Issue. They are all leaders in their respective industry and will play a key role in returning the U.S. and the world to a better, brighter, new normal.

And Wall Street is predicting that each and every one will post double-digit earnings and sales growth in the coming quarter.

All five are High-Growth Investments, and all earn an A-rating in my Portfolio Grader, making them a “Strong Buy.”

To learn more, click here.

We’ll wrap up today with Louis telling us what to expect through May:

We have another couple of weeks of phenomenal results being announced…and then we’ll probably get some profit-taking, some consolidation around the third week of May…

I think the profits will continue for the next couple of weeks and then it will be time to burp just a bit.

So, enjoy the ride.

Have a good evening,

Jeff Remsburg

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