May 22, 2018

The “leading indicators” are so named because they tend to lead the economic news. They are primarily business indicators that predict the future direction of the GDP. On Thursday, the Conference Board announced that its leading economic index (LEI) rose 0.4% in April as eight of the 10 LEI components improved. Furthermore, the March LEI was revised up to a 0.4% increase, up from 0.3% previously estimated. In the past six months, the LEI has risen a robust 3.3%. Only building permits and stock prices were negative in April and these components are expected to be positive in May, so the LEI is expected to remain strong. This indicates that the GDP for this quarter and the next should be robust.

Backing up this verdict, the Commerce Department announced on Tuesday that retail sales rose 0.3% in April, in-line with expectations. March retail sales were also revised up to a 0.8% gain, up from the 0.6% previously estimated. Overall, the retail sales report was positive, especially the March upward revision, but economists are worried about how higher gasoline prices will impact consumer behavior in the future.

The one dismal note last week was when the Commerce Department announced on Wednesday that new housing starts declined by 3.7% in April to an annual pace of 1.29 million, down from a revised 1.34 million in March, but the fact that April was the coldest in 20 years may have impacted housing starts. So far, higher mortgage rates have not derailed housing starts, but affordability issues may eventually emerge. Overall, the housing market remains healthy due primarily to tight inventories and rising prices.

Oil Prices Are Up Due to Concerns over Iran and Venezuela

Iran’s defiance is temporarily putting upward pressure on crude oil prices. Light sweet Brent crude oil futures briefly hit $80 per barrel on Thursday on concerns over Iran’s oil supply. France’s Total warned that it might abandon a multi-billion natural gas project in Iran if it could not secure a waiver from U.S. sanctions, which cast further doubts that European countries could salvage the Iranian nuclear deal.

The other wildcard potentially impacting the crude oil market is Venezuela, where incumbent President Nicolás Maduro won a second six-year term in a sham election held on Sunday. The Wall Street Journal reported on Friday that discontent in the military is at an all-time high due to shortages of food and evaporating salaries that are causing troop desertions. As a result, the Venezuela military is not happy with President Maduro, so a coup is increasingly likely, despite Sunday’s Presidential election. The WSJ reported that an Army captain that fled to a foreign country said, “The Venezuelan military is a time bomb, a pressure cooker,” and added that “It could explode at any time because everyone is unhappy.”  President Maduro has arrested many officers in a military purge that encompassed at least 124 servicemen that were imprisoned in January and February on rebellion, mutiny, espionage, and other charges.

Many Venezuelan citizens are urging the military to take matters into its own hands and are encouraging a coup. Senator Marco Rubio via Twitter said, “I think the world would support the Armed Forces in Venezuela if they decide to protect the people and restore democracy.”  President Trump’s top adviser on Latin America, Juan Cruz, told a conference on hemispheric security in Miami in April that “There has never been a key moment in Venezuelan history that has not involved military participation.”  The food shortage is so acute in Venezuela that the military can no longer feed its own troops. Obviously, the current situation in Venezuela is dire, so it is just a matter of time before a military coup occurs.

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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.*

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