by Bryan Perry
October 24, 2023
Last Tuesday’s release of September retail sales showed a monthly increase of 0.7%, well above the 0.3% consensus, plus an upwardly revised +0.8% (from 0.6%) increase in August. Excluding auto sales, retail sales were up 0.6% month-over-month, compared to a forecast of 0.2%. Excluding gasoline, retail sales were still higher by 0.7%, so the consumer is continuing to spend more than the Fed seems to prefer.
The report is a two-edged sword, in that while strong retail sales data bodes well for third-quarter GDP forecasts, it weighs on future Fed policy – supporting their “higher for longer” narrative, which is the currently accepted path for monetary policy. Industrial production for September also came in above forecasted levels, rising 0.3% versus consensus of 0.0%, and that includes the auto strike within the data.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Bond yields rose in reaction to these strong data points, which in turn kept pressure on stocks. That and further uncertainty about the Israel-Hamas situation is keeping the market on edge. Even though bond yields are ticking higher, the market is trying to shrug off the “yields up, stocks down” syndrome. At some point – as in a strong earnings season – good economic data will be good news for the stock market.
Fluid events within the wars in the Middle East and Ukraine, coupled with new export restrictions on semiconductors headed to China, and shaky bond auctions reflecting the rising intolerance of unchecked federal spending, will keep the caution flag up for the bulls, until the bulk of good news from the current earnings season can replace some of the widespread geopolitical and bond market angst.
There is no easy, short-term solution in these situations, but as history has shown, as long as these events remain outside the U.S., the stock market can still trade higher. This is a very tough trading landscape that requires some extra attention to manage investing capital when fear is running so high. The market will eventually overcome these short-term concerns, but until then we must resolve to “buy time.”
Both the bond and stock markets are under severe pressure now, as the reality of entrenched wars in two theatres is taking a toll on investor confidence. The costs of the war in Ukraine have been priced-in long ago. The net impact of Putin’s invasion on the financial markets was in the form of an interruption in the sale of wheat and corn, driving up the price of food and pushing U.S. and European inflation rates higher.
Oil rallied short-term, but that came from OPEC+ (which includes Russia) limiting the supply of oil to the world, and yet selling discounted oil to China and India. Violence by Iranian-funded Palestinian groups is fueling new calls for the U.S. to choke off that revenue stream. “Without oil, they have no money,” said Senator Lindsey Graham of the Iranians, and “without money, terrorism loses its biggest benefactor.”
Iranian oil exports have increased as a consequence of relaxed U.S. sanctions enforcement. (Ernesto Vargas/AP)
Now that Iran is literally getting away with murder in Israel, a full-blown blockade of Iranian oil should be considered as a military option if Hezbollah invades Israel. Energy analysts say that Iran’s exports have increased four- to five-fold since 2020, with China emerging as its dominant buyer. That increase has come during a time when Biden has sought to ease tensions with Iran. Former House Speaker Kevin McCarthy told reporters at the Capitol, “They’re using that wealth to fund terrorism.” (Source: Politico)
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Clearly, the current policy of appeasement to negotiate a nuclear deal with Iran, and lax enforcement of sanctions is not working, and is in fact backfiring against Israel and our long-term U.S. interests. Not knowing all the back-channel negotiations, it is clear that the U.S. must consider reimposing sanctions.
Until there are bolder initiatives advanced to thwart Iran, investors seeking geopolitically sensitive income that stays ahead of inflation may want to seek (or expand) their exposure to high-yield energy income-producing assets. In addition to the Fed’s current policy statement about “higher-for-longer” interest rates, one can argue that energy prices will also remain “higher for longer.”
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
War News Dominates Global Concern, and More Deficit Spending
Income Mail by Bryan Perry
A “Hot Mess” In the Middle East and Strong Growth at Home Has the Market Tied in Knots
Growth Mail by Gary Alexander
Wall Street Often Seems Darkest Before the Dawn…of November!
Global Mail by Ivan Martchev
The 10-year Treasury Rate is at the Brink of 5%
Sector Spotlight by Jason Bodner
When Will This October Market Start to Deliver for Us?
View Full Archive
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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