by Louis Navellier
November 12, 2024
The Fed’s 0.25% rate cut last Thursday may be its last cut in this cycle, since the Fed does not like to fight market rates. My favorite economist, Ed Yardeni, is now calling for the Fed to pause its rate cuts.
The Fed’s Federal Open Market Committee (FOMC) statement, last Thursday, said the U.S. economy was expanding at a “solid pace,” even though labor markets “generally eased.” The FOMC statement also said, “The committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate.” Translated from Fedspeak, “roughly in balance” means that the Fed may start curtailing its rates cuts at its December FOMC meeting and in 2025, depending on what the FOMC “dot plot” says.
Fed Chairman Jerome Powell’s press conference after the FOMC statement was closely scrutinized. In it, Chairman Powell largely stuck to the FOMC’s talking points, but he confirmed that Fed policy was “still restrictive” and the FOMC would be moving to a “neutral” level, implying that the Fed would still cut rates at least one more time. Whether that cut would come in December or in 2025 is not yet clear. Powell also stated that he will not resign if President-elect Trump asked him to step down, saying “no” twice.
Ironically, many of the bond vigilantes who anticipated the Trump win are trading from Europe, where the “Trump trade” was initiated, soon after the Fed’s September rate cut. So, what did Europe see that we couldn’t yet see so clearly in the U.S.? Primarily, Europe has already seen a dramatic right-wing shift from the farmer protests that were caused by the European Union forcing farmers to comply with the Paris Climate Accord by forcing them to: (1) retire 30% of farmland to its natural state, (2) cull herds of cattle to reduce carbon dioxide, and (3) shift from chemical to organic fertilizers. The primary reason that European farmers protested these measures is that it is hard for them to make money under these rules, as they could not compete against imported crops from countries that did not comply with these strict rules.
Europe (Especially Germany) is Falling into Chaos
While optimism is rising in America, storm clouds have appeared over Europe, especially in Germany, where the German statistics agency, Destatis, announced that industrial production declined 2.5% in September, much worse than economists’ consensus estimate of a 0.9% decline. Furthermore, Germany’s exports declined 1.7% in September, so its trade surplus declined by 17 billion euros ($18.24 billion).
Germany’s chaos is also political, as Chancellor Olaf Scholz’s ruling coalition collapsed on Wednesday after Scholz’s Finance Minister, Christian Lindner, was dismissed, so a snap election is now anticipated, since Lindner’s Free Democrats party has effectively left Germany’s three-party ruling coalition.
Scholz’s SFD party and the Green party now make up the remaining two-party coalition government, but both did poorly in recent regional elections, with only 16% and 10% of the vote, respectively. As a result, Scholz is expected to be ousted as Chancellor after Parliament holds a “no confidence” vote. Scholz favors a new election in March, but leaders in Parliament are now pushing for a January election instead.
Germany’s Green Party has been increasing electricity prices, undermining Germany’s industrial output and global competitiveness, but with a Trump 2.0 administration threatening higher tariffs on Germany’s auto exports – unless they lower their tariffs on U.S. vehicles – German business confidence is sinking.
Another big European economy in trouble is Britain, so the Bank of England cut key interest rates 0.25% last Thursday, the same day our Federal Reserve cut rates by 0.25%. These central bank rate cuts are occurring before new government budgets are drafted and passed. While the U.S. and much of Europe is shifting right, Britain is shifting left, proposing big tax hikes, which may hinder its economic growth.
The EV transition in Europe is also hurting automotive manufacturers, as VW Group is about to shut down manufacturing plants, instituting mass layoffs and pay cuts. As a result, more and more European Union (EU) citizens are questioning EU regulations emanating from Brussels. In Europe, nationalistic right-wing parties have been on the rise, so European bond traders saw the U.S. going through a similar transition and bid up bond rates. Similar to European farmers revolting against EU regulations, Donald Trump was re-elected last week because workers and business owners alike questioned many of the regulations emanating from Washington DC, as well as foreign policy mistakes igniting major wars.
Can Trump Revive the Manufacturing Sector – Plus GDP Growth?
If Trump 2.0 can help the manufacturing sector expand, partly via tariffs against unfair competitors in Europe and Asia and lower interest rates (with the Fed’s help), plus cheaper energy prices – giving the U.S. a natural advantage – then in theory the U.S. should experience a manufacturing boom next year, especially if the natural gas industry booms and helps expand the U.S. utility grid over the next decade.
As a result, I expect that the manufacturing sector will dramatically improve in the upcoming months. Furthermore, a domestic energy boom would also help onshore manufacturing, as well as fuel the AI cloud computing boom. That makes 4% annual GDP growth possible, if manufacturing can recover.
The U.S. manufacturing sector has been in a recession for over two years. The Institute of Supply Management (ISM) recently announced that its manufacturing index declined to 46.5 in October, down from 47.2 in September, as six 11 of the 16 manufacturing industries reported contracting in October. Any index number under 50 connotes contraction, and manufacturing has been contracting since 2022.
Right now, the utility grid needs to double over the next decade – just to meet rising domestic demand, including the extra power to fuel AI and cloud computing. Although Amazon, Google and Microsoft are seeking “zero carbon” sources of electricity, like hydroelectric and nuclear, the fastest and easiest way to expand electricity output is simply to fire up more natural gas turbines to generate electricity.
Since the U.S. is currently flaring a lot of natural gas (like in North Dakota, with no major natural gas pipeline) and allowing methane to leak from capped natural gas wells on federal land (like in the New Mexico Permian Basin), it makes sense to utilize this natural gas that is currently just being wasted.
One other development that is necessary to fuel GDP growth is to resolve the conflicts in the Middle East and Ukraine so that the U.S. and the rest of the world can experience a “peace dividend,” which fueled the Clinton boom in the 1990s. We are already moving toward war’s end in Ukraine. At the recent BRICS Conference in Russia, Vladimir Putin was embarrassed by pressure from China and other BRICS nations to end the war in Ukraine as well as in the Middle East. If the U.S. re-engages a “peace through strength” policy and helps to police the seaways and trade routes, then even 5% annual GDP growth is possible.
In the meantime, the U.S. economy is being powered by a strong service sector. The Institute of Supply Management (ISM) announced on Tuesday that its non-manufacturing (service) index rose to 56.0 in October, up from 54.9 in September, which was well above economists’ consensus estimate of 53.7. This was the fourth straight monthly rise in the ISM service index. The suppliers’ deliveries component surged to 56.4 in October, up from 52.1 in September, which indicates rising backlogs, and 14 of the 16 service industries ISM surveyed reported an expansion in October, up from only 12 industries in September.
Many pundits are predicting a potential rise in inflation due to Trump’s tariff threats, but I recommend that you not worry about U.S. tariffs, which the Biden administration actually increased. Any new tariffs would mostly be designed to try to level the playing field and treat our trading partners like they treat us.
For instance, if the U.S. imposes higher tariffs on Germany and other EU countries that impose high tariffs on U.S. exports, then these trading partners may move their manufacturing to the U.S., since the U.S. has much cheaper electricity and abundant labor. Furthermore, since each state is an innovative economic laboratory, they will compete for this new business, boosting U.S. productivity in the process.
So, essentially, the time has come for investors to stop worrying and hold out some hope! Thanks to AI, I believe the U.S. is leading a worldwide productivity boom. Unlike the rest of the world, the U.S. is food and energy independent and has several other natural advantages as well. A resurgence in the U.S. energy sector is now likely. The bottom line is that the time has arrived for a “new sheriff” to take over and inspire more innovation without being impeded by government roadblocks. The fact that Elon Musk is willing to lead a federal government efficiency purge is just one indicator of how fast things are changing.
Navellier & Associates owns Microsoft (MSFT), Alphabet Inc. Class A & C (GOOGL), and Amazon (AMZN in some managed accounts. We do not own Volkswagen AG Unsponsored ADR (VWAGY). Louis Navellier and his family own Microsoft (MSFT), via a Navellier managed account, and Amazon (AMZN), in a personal account. He does not personally own Alphabet Inc. Class A & C (GOOGL), or Volkswagen AG Unsponsored ADR (VWAGY).
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Did We Just See the Fed’s Final Rate Cut?
Income Mail by Bryan Perry
A Compelling Case for Convertible Debt
Growth Mail by Gary Alexander
The Market Implications of a Republican Sweep
Global Mail by Ivan Martchev
What the Post-Election Collapse in Volatility Means
Sector Spotlight by Jason Bodner
We Got the Decisive Election the Market Craved
View Full Archive
Read Past Issues Here
Louis Navellier
CHIEF INVESTMENT OFFICER
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.
Important Disclosures:
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 a 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.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.
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 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 holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and 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 every investor. 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. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.
ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:
- ETF shares may trade above or below their net asset value;
- An active trading market for an ETF’s shares may not develop or be maintained;
- The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
- The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
- Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.
Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.
Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.
This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.
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 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.
FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.