July 16, 2019

Our friends at Bespoke last week reported that the third year of a Presidential election cycle has historically performed the best since 1928, with an average 12.8% gain for the S&P 500. For lack of a better word, consumers tend to be happy when Presidential candidates are running around and promising everything imaginable. Free healthcare and eliminating student loan debt sounds wonderful, but I suspect that these promises will have to fade away in time, since they are too expensive to implement. In the meantime, consumers still feel better, even if many of these big promises will never be implemented.

Interestingly, a large donor on the Democratic side, namely Tom Steyer, decided to enter the 2020 Presidential race last Tuesday. His Democratic opponents may be reluctant to criticize Steyer, since they still want his money – if they survive the primary process. Steyer is a big environmental activist and most famous for his opposition to the Keystone Pipeline, and other pipelines. This is a bit ironic, since the U.S. continues to flare massive amounts of natural gas in North Dakota, West Texas, and other regions due to a pipeline shortage. Furthermore, putting crude oil on railroads is expensive and dangerous, especially after the Lac-Megantic, Quebec tragedy, which killed 47 people in 2013. Had the U.S. suffered its own Lac-Megantic tragedy, there would be far less opposition to pipelines, which are a much safer way to transport crude oil and natural gas. In the meantime, crude oil rail car derailments are all too common all over the U.S., especially in the winter months when the rail tracks freeze and can shrink. Fortunately, most of our natural gas is shipped via pipelines in the U.S., but pipeline opposition continues, thanks to Tom Steyer.

President Trump has called Steyer “a crazed and stumbling lunatic,” so I suspect that the Presidential race has just become much more interesting. Steyer has also been leading the impeachment push for President Trump via his website. I expect that the news media will relentlessly cover Steyer’s campaign, since his outlandish comments will be great for ratings. In the event that Trump and Steyer ever debate each other, I suspect it will be the highest-rated debate ever and the Secret Service may have to intervene if it gets out of hand! Based on entertainment value alone, the 2020 race may be the most memorable in our lifetimes.

Fed Chair Powell is Now Clear About the Next Rate Cut

The biggest news last week was Fed Chairman Jerome Powell’s prepared statement on Wednesday before his semi-annual report to Congress, when he said that uncertainties “continue to weigh” on U.S. economic outlook and that the Fed “would act as appropriate to sustain an expansion.” Powell also made it clear that the economic outlook has not improved in recent weeks, which is a clear sign that a rate cut is coming.

I should add that since the Treasury yield curve has been inverted for over 30 days, the Fed wants to “un-invert” the yield curve, since it is bad for the banking industry, which the Fed regulates. Powell adds that “a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling and Brexit.” He also seems worried about the lack of inflation, saying, “There is a risk that weak inflation will be even more persistent than we currently anticipate.” (Previously, he had signaled that inflationary pressure was “transitory.”) It is clear to me that the Fed intends to cut rates in an attempt to get inflation to reaccelerate to its 2% target based on the Personal Consumption Expenditure (PCE) index.

The inflation data came out late last week, confirming the Fed’s position. On Thursday and Friday, the Labor Department announced that the Consumer Price Index (CPI) and Producer Price Index (PPI) each rose 0.1% in June. In the past 12 months, the CPI and PPI have risen 1.8% and 1.7%, respectively, but the Fed follows the Personal Consumption Expenditure (PCE) index, which is up only 1.6% annually. Clearly there is not enough inflation or inflation expectations to keep the Fed from cutting rates on July 31.

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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.


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