July 2, 2019

The big news last week was that Fed Chairman Jerome Powell said on Tuesday that the economic outlook has become cloudier since early May, with rising uncertainties over trade and global growth causing the central bank to reassess its next move on interest rates. Specifically, in a speech at the Council of Foreign Relations, Powell said the Fed is now grappling with the question of whether those uncertainties will continue and said that the Fed will “closely monitor incoming data and be prepared to act as appropriate to sustain the expansion.” Powell also added that “the crosscurrents have remerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy.” Finally, Powell concluded by saying “the question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation.” Translated from Fedspeak, the Fed is now expected to cut key interest rates 0.25% at its upcoming Federal Open Market Committee (FOMC) meeting in late July.

The reason that I am so confident that the Fed will cut key interest rates at its July FOMC meeting is that the economic news last week was very weak. First, the Conference Board on Tuesday announced that consumer confidence plunged to 121.5 in June, down from a revised 131.1 in May and reaching the lowest level in almost two years (since September 2017). This was a massive surprise, since economists were expecting 130.4 for June consumer confidence. The most notably weak details in the report were the “present situation component,” which declined to 162.6 in June (down from 170.6 in May), the “outlook for the next six months,” which declined to 94.1 in June (from 105 in May), and the percentage of Americans who said that “jobs were hard to get,” rising to 16.4% in June (from 11.8% in May).

The other negative surprise on Tuesday was that the Commerce Department announced that new home sales declined 7.8% in May to an annual rate of 626,000, down from 679,000 in April. For the first five months of 2019, new home sales were off 3.7% vs. the same period a year ago. The problem seems to be related to high-tax coastal states that have more expensive homes, since May new home sales plunged 35.9% in the West and 17.6% in the Northeast, while sales rose 4.9% in the South and 6.3% in the Midwest, where home prices are more affordable. In the past 12 months, median home prices have declined 2.7% to $308,000 as lower priced, more affordable homes are selling better than expensive ones.

On Wednesday, the Commerce Department announced that durable goods orders declined 1.3% in May, the third decline in the past four months, a decline largely caused by Boeing’s order cancelations due to its grounded 737 Max commercial plane. Excluding transportation orders, durable goods orders rose 0.3%. Orders for autos rose 0.6%. Core durable goods orders rose 0.4%, indicative of improving business investment. April’s durable goods report was revised down to a 2.8% drop, down from 2.1% initially reported but overall, the Fed is likely concerned about the drop in durable goods orders in recent months.

The Current Debate – A Recession Ahead, or 2% GDP Growth?

Economist Gary Shilling who has successfully predicted recessions in the past four decades, now believes the U.S. economy is in a mild slump. Specifically, Shilling said “I think we’re probably already in a recession, but I think it will probably be a run-of-the-mill affair, which means real GDP would decline 1.5% to 2%, not the 3.5% to 4% you had in the very serious recessions.” It is important to note that Shilling is at odds with the vast majority of economists, who expect the U.S. economy to grow by a solid 2.0% to 2.5% this year after expanding by about 3% last year and in the first quarter. Nonetheless, this kind of recession warning and the latest economic data will likely cause the Fed to cut rates in late July.

Speaking of GDP growth, the Commerce Department on Thursday left its first quarter GDP estimate at 3.1% after revising business investment higher and trimming consumer spending. Business investment was revised up to a 3% annual pace, from 1% previously stated. Consumer spending was trimmed to a 0.9% annual pace, down from its previous estimate of 1.3%. This is the slowest growth for consumer spending in a year and is of concern, since consumer spending is responsible for 70% of GDP growth.

The other interesting details in the GDP revision was that U.S. exports rose at a 5.4% annual pace (up from 4.8% previously estimated), while imports decelerated to a 1.9% annual pace (down from 2.5% previously estimated). As the trade deficit shrinks from booming domestic energy production as well as the Chinese trade tiff, GDP naturally improves. The Atlanta Fed now sees second quarter GDP growth at a 1.5% annual pace, while private economists see 2.4% annual growth, based on a MarketWatch survey.

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