The bull case as we head toward summer … datacenter demand continues growing … why the oil market has been sliding … all eyes on the Fed tomorrow
As I write near lunch, the market appears to be holding its breath, waiting for tomorrow’s Federal Reserve policy announcement and subsequent remarks from Chairman Jerome Powell.
What Powell says, or doesn’t say, will likely determine near-term market direction.
We’ll report on the outcome in tomorrow’s Digest; but in the meantime, some of our analysts are already making their bull case as we look toward the summer.
Let’s jump to our hypergrowth expert Luke Lango and his recent Daily Notes in Early Stage Investor:
We think [the recent rally] is just getting started.
Our forecast calls for a series of bullish catalysts to unfold over the next few months:
- In May: Expect trade deals with allies like India, Japan, South Korea, and Vietnam.
- In June: Look for a dovish pivot from the Fed thanks to those trade deals easing reinflation fears, culminating in a rate cut at their June meeting.
- Late June to Early July: A framework for a U.S.-China trade agreement.
- Early July: Passage of a major tax cut package in D.C.
- July to August: A blowout earnings season, as Q2 results benefit from rebounding macro clarity (trade deals, rate cuts, tax cuts, etc).
That’s a packed pipeline of positive news.
If those dominos fall into place — and we believe they will — we’ll have all the ingredients for a multi-month stock market melt-up.
But what about the tariff war and higher consumer prices that might eventually weigh on earnings and corporate hirings? Is there any credible recession risk?
Luke believes those risks are overstated. He points to last week’s payroll report in which the U.S. economy added 177,000 jobs in April, handily beating expectations for 138,000. But what he found even more encouraging was wage growth.
Back to Luke:
Wages rose 3.8% in April, while inflation (as measured by the Cleveland Fed) ran at just 2.3% for the month.
That puts real wage growth at +1.5% — and historically, when wages outpace inflation, recessions just don’t happen.
Turning to the Fed, while Luke doesn’t expect a cut at tomorrow’s FOMC meeting, he believes the set-up for a June cut remains on the table. If we get that set-up, a market rally is in the cards.
Luke is also bullish on a coming tax cut package that includes extensions and expansions of the 2017 Tax Cuts and Jobs Act, potentially, as early as July.
Back to Luke:
[Such a tax package could include] full expensing, lower corporate rates, and more incentives for domestic growth.
Just like in 2017, that could ignite a powerful rally.
Put it altogether and Luke is unequivocally bullish.
As to what he’s buying today in preparation for a summer rally, no surprises here: top-tier AI-stocks – specifically, “physical AI” leaders.
Last week, Luke held a live event that detailed today’s buying opportunity in robotics and bleeding-edge AI. If you missed it, you can catch a free replay here.
Here’s Luke’s bottom-line:
The market’s recent win streak was more than a bounce. It was the early phase of what we believe could be a historic summer rally… and the clock is ticking.
That’s exactly why I recently hosted an urgent market briefing, breaking down everything you need to know about what’s to come over the next few months, including the names and ticker symbols of seven AI stocks that could be the biggest winners of this buying panic.
If you haven’t watched it yet, here’s your chance.
AI continues to prove it’s a market juggernaut
How do we power AI?
As we’ve highlighted repeatedly in the Digest, AI consumes enormous volumes of energy. This demand will only increase as AI continues to integrate seamlessly with our day-to-day lives. We’ve urged investors to get exposure to the broad AI datacenter ecosystem that powers this demand.
Now, in recent months, some analysts suggested that datacenter demand was waning. Expectations were too high. We’d gotten ahead of ourselves.
Not so much. Here’s CNBC from last week:
Data center demand is not slowing down in the world’s largest market centered in northern Virginia, executives at Dominion Energy said Thursday.
Dominion provides electricity in Loudoun County, nicknamed “Data Center Alley” because it hosts the largest cluster of data centers in the world. The utility works closely with the Big Tech companies that are investing tens of billions of dollars in data centers as they train artificial intelligence models.
“We have not observed any evidence of slowing demand from data center customers across our service area,” Dominion’s chief financial officer, Steven Ridge, told analysts on the company’s first-quarter earnings call…
Data center customers have not paused spending on new projects in Dominion’s service area and they have not shown any concerns about economic uncertainty, Dominion CEO Robert Blue said.
And here’s research shop Bespoke last week on X:
Data center investment added a full percentage point to GDP in Q1; a record.
Source: Bespoke
Next up, there’s Jonathan Gray, CEO of private equity giant Blackstone. Yesterday, he said that he sees huge demand coming for AI datacenters.
From Gray:
I think this trend is powerful. I think it will continue…
Overall, we still see a ton of demand.
And let’s not forget Microsoft’s earnings announcement last week.
For this, let’s go to the May issue of AI Revolution. This is our AI-themed research project from InvestorPlace’s three leading analysts: Eric Fry, Louis Navellier, and Luke Lango. Together they created an AI model portfolio that represent the “best in class” stocks for the AI Revolution.
From their latest issue:
Microsoft has continued its heavy investments in AI infrastructure this quarter. During the earnings call, [Microsoft CEO] Nadella said that the company opened data centers in 10 countries on four continents.
And earlier this year, the CEO said that Microsoft plans to spend $80 billion in fiscal 2025 on construction of data centers designated for AI workloads.
AI isn’t going away…which means datacenter demand isn’t going away. Invest accordingly.
The oil market continues to crash
Yesterday, the price of West Texas Intermediate Crude (the U.S. benchmark) fell below $56.00. Brent crude (the European benchmark) also cracked into the $50s. Overall, oil prices have fallen roughly 20% this year.
Why?
- Fears of a global economic slowdown lowering demand
- OPEC+ waging war on oil-producing countries that have been cheating on production
On that second point, let’s jump to Bloomberg:
Saturday’s decision [from Saudi Arabia] to push more output into an already-cratering oil market suggests Riyadh is doubling down on a radical strategy shift: after spending much of the past decade curtailing output to shore up the market, it’s now willing to drive down prices as it seeks to punish members who have cheated on their quotas…
[The supply increase] threatens to stoke fears of a price war within the cartel and squeeze the state budgets of producers including the Saudis themselves.
The targets of Saudi Arabia’s supply acceleration are primarily Kazakhstan and Iraq. Kazakhstan in particular has been publicly defiant of OPEC+’s attempted restrictions, stating that its oil revenues are needed to support its population.
But this morning, Bloomberg reported that Kazakhstan is considering options to comply with OPEC+ production cuts. Prices will slide further if they don’t.
Back to Bloomberg:
Russia, which jointly leads OPEC+, cautioned attendees that it — alongside the Saudis and the United Arab Emirates — has considerable unused production capacity to deploy, and urged fellow members to respect their quotas.
So, what’s the action step?
If you’re already holding oil stocks, brace yourself. Lower prices aren’t off the table, despite today’s relief rally (oil is up nearly 4% as I write).
This is why legendary investor Louis Navellier recently recommended his Growth Investor subscribers sell their position in Exxon (XOM).
Instead, Louis has been zeroing in on emerging opportunities in AI. I won’t get into those details today, but his latest research tackles how AI is no longer growing at a steady pace. It’s growing at a speed we humans can barely wrap our heads around – a speed scientists call “double exponential.” This has significant investing implications. You can check Louis’ free research video on the subject here.
If you’re not holding oil stocks but have been watching from the sidelines, get your dry powder ready and consider a “scaling in” process.
No one knows when or where oil will bottom, but prices just hit four-year lows – which means stock prices are likely in for more pressure. But that’s great news for longer-term investors.
Tying this back to AI, don’t forget why the future is bright for fossil fuels – in this case, natural gas.
Let’s return to Blackstone’s CEO Jonathan Gray. From CNBC:
[Gray] believes the electricity needs of this data center growth will be met, though considering all sources of power such as renewables and natural gas is imperative.
“It’s a global issue. I mean, everywhere there are constraints,” he said about electricity demand.
“Big companies are recognizing this, and I think the investments will come, and importantly, the government recognizes it, and so it is the gating factor on this sort of technological revolution we’re on.”
Remember, with our inability to perfectly time the bottom, the wiser question is usually: “Is today’s price one that’s likely to make me a solid return in the future?”
For patient investors, we believe the answer is a resounding “yes.”
Finally, all eyes are on tomorrow…
As noted earlier, tomorrow, the Federal Reserve concludes its May FOMC meeting.
While traders aren’t anticipating the Fed to cut rates, everyone will be watching Federal Reserve Chairman Jerome Powell in his live press conference for clues about June.
If Powell sounds dovish, hinting at a June cut, we could be in for fireworks in the market.
We’ll report back.
Have a good evening,
Jeff Remsburg
