Straight to your inbox from Keith himself!

*Trusted by tens of thousands of savvy investors and traders around the world every day

☕ 3 reasons stocks could rally, inflation and why NOT Home Depot

Aug 12, 2024

Gooooood morning! 👋

Futures were green when I first got up today but then I noted that the US 10-year treasury yield was down ever so slightly. That's a sign that traders aren’t yet in a buying mood.

I am not surprised that conditions are mixed in the early going with both the Dow and the S&P 500 in the red but the tech-laden Nazzy ever so slightly in the green. You shouldn’t be either.

Remember... headlines are a distraction.

Watch the US 10YR if you want to know where the markets are heading next.

That’s the “tell.”

If yields are rising, that tells you – pun intended – that demand for US10YR Treasuries is falling which generally accompanies or slightly precedes rising stock prices.

If yields are falling like they are as I type, that suggests traders are in search of safety so demand for US10YR Treasuries is increasing while stocks sell off because the appetite for risk decreases.

If your head is spinning, no worries – that's normal. Hang in there, eventually this relationship will become intuitive. 😊

Here’s my playbook

1 – 3 reasons stocks could rally, inflation and why NOT Home Depot

The markets need one of two things to get moving again... better growth or better clarity. Plus, my take on why stocks could rally from here, to what level and why I like Walmart but NOT Home Depot. (Watch)

2 – Eli Lilly’s big reset

Lilly hit a home run last week when it reported and, not surprisingly, there are a slew of sell-side analysts falling all over themselves to raise targets. (Read)

Morgan Stanley, for example, calls it a “top-pick”

JP Morgan projects “significant upside”

MBO capital which notes Lilly has “healthy” raises in both revenue and guidance

Wells Fargo said the company's obesity and diabetic dugs represent a “$100B global opportunity”

Shares are up 53.91% YTD as I type.

I don’t own LLY (because I prefer another choice) but have repeatedly suggested that people who do may do very well. If you are one of ‘em, hooyah!!

I can see $1,000 without much trouble within the next 12-24 months, after taking out its 52-week high of $966.10.

Tactically speaking, I suggest a few LowBall orders first though.

LLY is an expensive stock.

The big money will want to create the liquidity needed to make the push (which they’ll probably do by flushing the weak money out first to the downside). I see, for example, a bunch of open interest at $800 or so. $850 is another logical steppingstone.

If this kind of information/thinking is interesting or helpful, you may enjoy becoming a member of the OBA Family, where we have real conversations about real stocks, real tactics and the investors who love ’em for all the right reasons.

If you’re covered, excellent!

3 – Inflation is the wrong bogeyman

As I noted earlier this morning, I expect inflation to come in at 0.2% - 0.5% when the numbers hit this week. Longer term, I submit the Fed is still as wrong about rates and labor as the day is long.

Invest in the world’s best companies (because they’re capable of beating inflation) if you’re worried about it. Ignore the rest.

The markets continue to change rapidly but, inexplicably, apparatchiks in the Fed’s Ministry of Whitewash haven’t changed their calculations one bit. Not surprisingly, this means inflation data is highly unreliable, profoundly inaccurate, and incredibly politicized.

Keith’s Investing Tip: Contrary to popular opinion, we actually live in a deflationary world at a time of unprecedented level of innovation, production and automation. That’s why we want to invest in companies capable of producing all three – a view I share with Dr. Mark Mobius who’s played a key role in my thinking over the years. Read his book The Inflation Myth and the Wonderful World of Deflation for more.

4 – I knew I liked Chevron for a reason

Unka B. likes his Occidental.

I prefer Chevron.

It’s got a cleaner balance sheet, better management, better divvies and a considerably higher True Shareholder Yield of 9.11% versus Occidental’s 2.65%.

The company is also far more innovative to my way of thinking.

Chevron, for example, recently achieved a first of its kind technological breakthrough and pumped oil at extreme sub-sea pressure. (Read)

This opens up previously untappable resources at previously unimaginable margins for decades to come.

You know what to do.

5 – The biggest mistakes you make as an investor

One of the things I love most about the incomparable Suze Orman is that she cuts right to the point in simple, understandable language.

When she wants you to know something, guess what?

You will.

Noriko and I are huge fans of her podcast for Women & Money ... and anybody smart enough to listen.

This week Suze spoke about the importance of navigating turbulent markets.

And much to my surprise as we listened along, she mentioned me! But that’s NOT why I want you to listen.

I think her words ring truer than ever.

That's the key takeaway and why I hope you’ll pay attention.

MyPOV: People bailed outta the markets last week at the fastest pace since COVID according to Duetsche Bank which means they have failed once again to grasp the most fundamental of all investing lessons... investing in optimism beats cowering in pessimism every time.