June 18, 2019

The news on the inflation front was very encouraging last week. On Tuesday, the Commerce Department announced that the Producer Price Index (PPI) rose only 0.1% in May, in-line with economists’ consensus estimate. The wholesale cost of goods declined 0.2% in May, while wholesale gasoline prices declined 1.7%. Interestingly, wholesale food prices declined 0.3% in May and have declined in four of the past five months, despite devastating floods in the Midwest. But despite all this evidence of deflation, the core PPI, which excludes food, energy, and trade services, rose 0.4% in May, due largely to the cost of trade services, which is a new component that many economists are trying to get a better handle on. The core PPI has increased 2.3% in the past 12 months, up from 2.2% in April and down from a peak of 3% last summer. In the past 12 months, the PPI has increased 1.8%, down from 2.2% in April and down from 3.1% last summer, so overall, economists seem pleased that wholesale inflation continues to decelerate.

On Wednesday, the Commerce Department announced that the Consumer Price Index (PPI) rose only 0.1% in May, in line with economists’ consensus estimate and the smallest monthly increase since January. Food costs rose 0.3% in May, while gasoline prices declined by 0.5%. The core CPI, excluding food and energy, also rose only 0.1% in May. In the past 12 months, the CPI has risen 1.8%, down from a 2% annual pace in April, while the core CPI has risen 2%, down from a 2.1% annual pace in April. Overall, as long as inflation continues to decelerate, the Fed will be inclined to cut key interest rates, since it wants to make sure that deflation does not spread. According to the CPI, wages have only risen 1.3% in the past 12 months, so the Fed might want to also cut key interest rates in order to stimulate wage growth.

Reducing the chances for further inflation, crude oil prices continued to meander lower and hit a 5-month low Wednesday after the Energy Information Administration (EIA) announced that crude oil inventories rose by 2.2 million barrels in the latest week. The EIA also reported that gasoline inventories rose by 800,000 barrels in the latest week. The fact that both crude oil and refined products are rising during peak demand in the summer months demonstrates that as the U.S. continues to boost its crude oil production, it is putting downward pressure on crude oil prices and helping inflation to continue to decelerate.

Then on Thursday, crude oil prices temporarily surged after two oil tankers were attacked in the Gulf of Oman, near the Straits of Hormuz. Both tankers were abandoned while the U.S. Navy and a nearby ship rescued crew members. Naturally, these attacks, plus the missile attack on Wednesday at a Saudi Arabia airport by Iranian-backed rebels in Yemen that injured 26 civilians is causing Mideast tensions to rise.

In the meantime, the Fed reported that its Survey of Consumer Expectations says that consumers expect the lowest pace of inflation in almost two years. The Fed previously expected inflation to reaccelerate. However, in the wake of the Fed’s own consumer expectation survey, the PPI, the CPI, and low crude oil prices, the Fed may change its perception that inflation will reaccelerate. As a result, the upcoming FOMC statement will be closely scrutinized for any change in the Fed’s inflation perception language.

Other Economic Indicators That the FOMC Will Watch Closely This Week

On Friday, the Commerce Department announced that retail sales rose 0.5% in May, which was below economists’ consensus estimate of 0.7%. However, the good news was that April retail sales were revised up substantially to a 0.3% increase, from a 0.2% decline previously estimated. Online sales were especially strong and rose 1.4% in May and electronic store sales rose by an impressive 1.1%. Auto sales rose a robust 0.7% and a strong automotive sector was a major reason that industrial production rose 0.4% in May, which was significantly higher than economists’ consensus estimate of 0.2%. Overall, retail sales have now risen for three straight months and the April upward revision was a pleasant surprise.

Wall Street’s obsession with the Fed has replaced any trade and tariff fears, so last week’s news on trade fell under the radar. On Thursday, the Labor Department reported that import prices declined 0.3% in May, led by a 1% decline in imported fuel prices. Excluding fuel imports, import prices still declined 0.3%, which virtually eliminated any concerns that the 25% tariffs on $200 billion in Chinese goods are showing up on the consumer level. I should also add that export prices declined 0.2% in May, so deflationary forces are alive and well. A continued strong U.S. dollar continues to push down commodity prices and a weak Chinese yuan also reduces the cost of imported goods. Due to falling import and export prices, the concerns about tariffs and trade wars have obviously been grossly exaggerated.

The G-20 finance ministers and central bankers met in Japan last week and concluded their meeting by pledging to try to protect global growth. Specifically, in a joint communiqué, the G-20 acknowledged that geopolitical tensions were “intensifying” and said that “We will continue to address these risks and stand ready to take further action.” Furthermore, the G-20 communiqué also said that “We reaffirm our commitment to use all policy tools to achieve strong, sustainable, balanced and inclusive growth, and safeguard against downside risks.” Clearly, the G-20 wants to continue to promote global trade, which helps to reduce inflation, since free trade benefits the lowest cost and most efficient exporters.

About The Author

Louis Navellier

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.


Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

Marketmail Archives