The biggest glitch now impacting financial markets is that both food and energy inflation have been soaring based on the Producer Price Index (), as well as the highest imported prices in four years. The March figures for food and energy inflation are expected to be hideous, so many economists are now anticipating over a 4% annual pace of . This has already influenced Treasury yields after lackluster bid-to-cover ratios at a recent Treasury auction. Due to this inflation “bubble” and higher Treasury yields, hopes for more key interest rate cuts have been squelched.
However, a poor March on Friday and/or private credit default could coax the to cut key interest rates sooner than later, despite the food and energy bubble that has emerged. Fed Chairman Jerome Powell is speaking at Harvard University this week, and it will be interesting if he is still talking about how the private sector has stopped creating jobs and if the Fed will have to cut key interest rates to stimulate the job market.
Due to the fog of war, there are a lot of things that can go wrong, and many investors want to remain on the sidelines. It has always been my experience that the stock market resurges when war concerns diminish.
Fundamentally superior stocks bend but do not break because of their strong underlying forecasted sales and earnings growth. As an example, on a day when the Dow Industrials declined 793 points, surged 37.91% after announcing that its fiscal fourth quarter sales rose 12.7% to $262.1 million compared to $232.5 million. During the same period, the company’s earnings rose 56.3% to $49.2 million or $3.47 per share compared to $31.4 million or $2.22 per share. The analyst community was expecting sales of $255.3 million and earnings of $1.98 per share, so Argan posted a 2.7% sales surprise and a 75.3% earnings surprise. Since Argan is a data center-related stock, it is now helping to lift other data center stocks that continue to exhibit relative strength.
In case it is not obvious yet, the U.S. is expected to control world energy markets with its influence on Caribbean, North American, and now Middle Eastern energy producers. Lowering energy prices in the U.S. is imperative to President Trump after windfall profits for many LNG, natural gas, refineries, and crude oil producers. Due to an anticipated glut of crude oil in the upcoming months, I am reluctant to add many energy-related companies, except for tanker stocks, unless the analyst community dramatically boosts their forecasted earnings.
In conclusion, the U.S. is the economic growth engine of the world, and international investors are expected to continue to gravitate to the U.S. due to stronger GDP growth as well as an improving U.S. dollar.