Stock market outlook: ‘We’re going to get an explosion to the upside’ in January, strategist says

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Navellier & Associates Founder & Chief Investment Officer Louis Navellier joins Yahoo Finance Live to discuss the low volume market rally in the final trading week of 2021 and which stocks could be attractive in 2022.

Video Transcript

I do want to bring in our markets guests here, Louis Navellier. And Louis comes from Navellier and Associates. He is a founder and chief investment officer. So thank you for joining us here today.

You’ve been listening to our markets discussion. I’m just wondering what your overall impression is. This is typically a low-volume period of time, but people are thinking ahead to the new year. Just wondering what’s grabbing your attention today.

LOUIS NAVELLIER: Well, we’re melting up. The small caps had a very, very serious correction. It started the Friday after Thanksgiving. They bottomed on December 3.

They retested those lows a week ago today. And they were rallying last week, but now, they’re rallying again on very light volume. So we’re gonna have a very strong January effect in January. Because if we can rally on light volume, we’re gonna get an explosion to the upside when the volume increases in January.

And I wanted to ask you, Louis, what do you make of the bond market? It just isn’t moving. So what does that bode for stocks going into 2022?

LOUIS NAVELLIER: Well, I think the big news in the bond market is twofold. One is before the Fed meeting, we had very successful Treasury auctions with great bid to cover ratios, and 69% of the buy-in of the 10-year was international. And you can see today, we have a very strong dollar.

We have a very soft Europe. They’re taking omicron a little bit more seriously and that’s slowing their economy down. And– and all this international money just pours in to shove our Treasury yields lower.

And we saw after the FOMC statement and Jerome Powell’s press conference yields drop. So people have to realize that they’re never going to raise rates significantly. We have a $30 trillion deficit.

The interest is already more than the Defense Department. They can’t raise rates. Our– our government’s doing something called modern monetary theory, which is what Europe pioneered, unlimited money printing. So in this inflationary environment they’re creating, we just have to buy stocks. I mean, that’s the oasis.

And you mentioned the a dolalr a minute ago. I want to call up the Wi-Fi interactive here where we’re looking at a three-month chart of the DXY. That’s the US dollar index.

Heavily trade-weighted toward the euro, admittedly, but we did see this big rise in November. We got to some technical levels, and we’ve just kind of petered out and gone sideways for a month. Given your thesis with respect to the Fed that they can’t raise rates that much, what does that say about your expectations for the US dollar?

LOUIS NAVELLIER: Well, the dollar is gonna be strong for three reasons. One, it’s liquid. Second, we have a stronger economy than the rest of the world. And third, we’re a more entrepreneurial country than other countries.

Really, what makes America great is we have 50 states trying to compete with each other. And no matter who we elect, we’re gonna grow and prosper regardless. So we just have a better model than other countries.

You know, Scotland isn’t raiding Wales for business, you know? So we just have a better model. And we’re the envy of the world. And we also do have orderly immigration.

I know that’s a sore subject, but we have a lot of legal immigration. I’ve heard of the talented people that come here. So it’s just a place to be successful. And so the dollar is gonna be strong for a long time.

And so then, in your opinion, you sound quite bullish on the next year. What sectors are you looking at to invest in?

LOUIS NAVELLIER: I’m loaded in semis. I have more than I can name. But I mean, obviously, I have Nvidia. United Microelectronics I really like.

On the consumer end, we love Crocs at this moment. It dropped last week after an Italian acquisition, but it’s a great buy now. Dillard’s, Kohl’s has also showed up. And we like special situation monopolistic companies that dominate their business, and– but the semis are phenomenal.

I also have tons of shipping companies, obviously, profiting from the port bottlenecks. I have logistic companies, like expediters, helping to get things around. Trucking companies like TFI International. That’s a Quebec company, but they truck all over North America. So there’s a lot of– we have a lot of good companies to invest in.

The year/year comparisons are going to get a little more difficult as we go in the new year. And you’re going to find the few stocks that can sustain earnings momentum with a margin expansion are going to be the oasis. I do expect the market to get more narrow as 2022 continues.

So would it be fair to say that it’s maybe becoming more of a stock-picker’s market? I’m just wondering, when you see the– when you hear the debate of active versus passive, how do you see the market evolving over the next year? Is it gonna be rewarding investors who just put their money in an S&P 500 fund, or do they have to get a little bit more creative here?

LOUIS NAVELLIER: Well, first of all, I started in indexing. I’m from Berkeley, California. And I was taught that we’re all [AUDIO OUT] index because we would create social unrest if we tried out earn each other.

And so I used to build tracking portfolios. And I was a failure because I kept finding stocks that were beating the market. So I don’t believe that. I don’t believe in indexing.

But the truth of the matter is indexing is powering these FAANG stocks. It’s now powering NVIDIA. It’s supporting Tesla. So once you get added to these big indices, it’ll support you. I was shocked that NASDAQ added Lucent, OK? Because when a–

Me too.

LOUIS NAVELLIER: –company goes public, you know– you know the VCs are gonna cash out, you know the insiders are gonna cash out. And then, of course, they had the little SEC investigation in the SPAC. So I mean, I’m not saying Lucent shouldn’t be in the NASDAQ 100, but it got added too early, OK?

And obviously, everybody loves the car. In fact, I’ll be in Arizona tomorrow where they make it. And– but it’s just– it’s gonna be a stock-picking market. And you can already see that Google and Nvidia are better than some of the other components, the FAANG components right now. So I’m a stock-picker, and I always have been, and that’s what I enjoy.

Louis, not much more time to go, but want to get your assessment. Exactly one year ago where you– from where you were sitting, did you think the S&P would be hitting 4,700 today at the end of the year? And then, where do you see it going next year?

LOUIS NAVELLIER: I actually thought it would go up a little bit more. We’ve had a lot of PE compression. The market is not going up as much as earnings. And that’s normal.

You know, I’m a growth guy, so if I have a stock that has 60% earnings growth, I expect it to maybe go up 30% due to PE compression. But I think the fear of higher rates has– has held that back. But when investors increasingly realize that we’re never gonna have really high rates, then I think you’ll see a bigger explosion in stocks.

So I’m not sure when that realization is gonna occur, but high multiples are gonna be here for a long, long time because interest rates are so low and stocks are the best inflation hedge. By the way, the strong dollar is creating windfall profits for the S&P. Half the sales are outside of America.

All right, we will have to leave it there. Louis Navellier, Navellier and Associates founder and chief investment officer. Thank you so much for your time and insight today, and wishing you a very happy New Year.