by Louis Navellier
June 11, 2024
As I have long said, the rest of the world is starting to cut rates in June – even if the Fed doesn’t follow suit. The Bank of Canada cut its key interest rate by 0.25% to 4.75% last Wednesday. Then, on Thursday, the European Central Bank (ECB) cut its key interest rate by 0.25% to 3.75%. Other major central banks that have cut key rates recently include Brazil, Chile, Mexico, Sweden and Switzerland. The Bank of England will meet on June 20th. They originally talked of cutting rates in June, but due to the fact that an election has been declared there, a rate cut may be postponed so the central bank will not appear partisan.
The Fed was originally planning on joining that group by cutting rates in June, but after inflation started rising again, the Fed decided to postpone its first cut until July or even September 18th. Since our Fed will now be lagging Europe in rate cuts, that means our rates will be higher, so “carry trades” are expected to increase. That’s where foreigners put money in the U.S. dollar, seeking higher yields in a strong currency.
That’s good news for us, since if these carry trades approach a trillion dollars or more, they could actually drive Treasury yields lower and encourage the Fed to cut key interest rates sooner rather than later. As a start, last week, the 10-year Treasury bond yield declined to an intra-day low of 4.272% on Thursday, after these rate cuts overseas, and after weak manufacturing and early job news caused interest rates to decline.
However, in the wake of Friday’s stronger-than-expected payroll report, the 10-year Treasury yield rose back to 4.439%. Specifically, the Labor Department announced that 272,000 new payroll jobs were added in May, which was substantially higher than the economists’ consensus estimate of 180,000. Job gains were broad based in most categories, led by healthcare (68,000 jobs), government (43,000) and leisure & hospitality (42,000). The unemployment rate rose to 4% in May, up from 3.9% in April and 3.7% a year ago, as more people joined the workforce. Average hourly earnings rose by 14 cents (+0.4%) to $34.91 per hour. There were minor downward revisions to the March (5,000) and April (10,000) payrolls. Overall, the strong May payroll report will likely cause the Fed to hold steady on key interest rates.
In the other major jobs report, ADP reported on Wednesday that private payrolls rose 152,000 in May, which was below economists’ consensus estimate of 175,000 and the smallest monthly increase this year. The manufacturing sector lost 20,000 payroll jobs, the most since January, which is an alarming sign. The JOLTS (job opening data) on Tuesday came in at the lowest level in over three years. ADP’s chief economist, Nela Richardson, said “The labor market is solid, but we’re monitoring notable pockets of weakness tied to both producers and consumers.” Treasury bond yields meandered lower on this news.
Any Collapse in Ukraine During the Upcoming Debates Could Embarrass President Biden
If interest rates were not a big enough wild card for the stock market, the fall of Ukraine’s second biggest city (Kharkiv, with over 1.4 million people) may be imminent. Russia is striving to cut off power to Kharkiv and make the city unlivable. Britain and the U.S. have supplied Ukraine with long-range missiles that can strike deeper into Russia, so the fighting is no longer just a border skirmish, but has escalated into a major proxy war funded by NATO. France is sending military advisors to assist Ukrainian troops, which are increasingly using drones to fight Russian troops. With the U.S. and NATO funding a proxy war with Russia, the probability of escalating into World War III is rising. Now that Ukraine is essentially out of troops and recruiting prisoners to fight, hopefully a cease-fire and peace agreement could ensue.
President Biden was in France last week to give a speech on the 80th anniversary of D-Day in Normandy. Next week, Vice President Kamala Harris and National Security Advisor Jake Sullivan will attend a peace summit in Ukraine that will be held in Lucerne, Switzerland. I suspect that a more serious peace deal between Ukraine and Russia will ensue in the upcoming months since, otherwise, the death toll from the fighting will be intolerable. Ukrainian President Volodymr Zelensky recently warned Donald Trump that he could be a “loser president” if he imposes a poor peace deal, and insinuated that that a bad deal could end America’s role as a global power. That means President Zelensky needs to make a peace deal soon with the Biden Administration, since he may not have any other leverage unless NATO joins the fight.
The Wall Street Journal on Tuesday had an article entitled “Behind Closed Doors, Biden Shows Signs of Slipping.” The WSJ interviewed more than 45 people who cited lapses in the President’s attention span or cognitive fitness, so the upcoming Presidential debate on June 27th could prove to be a big turning point.
The U.S. is still in a manufacturing recession. The Institute of Supply Management (ISM) announced that its manufacturing index declined to 48.7 in May, down from 49.2 in April. Since any reading below 50 signals a contraction, the U.S. manufacturing sector remains in a recession. The new orders component plunged to 45.4 in May, down from 49.1 in April. The backlog of new orders plunged to 42.4, down from 45.4 in April. Seven of the 14 manufacturing industries that ISM surveyed reported contracting in May.
In contrast, ISM announced last Wednesday that its non-manufacturing (service) index surged to 53.8 in May, up from 49.4 in April. The hottest sub-sector in the ISM survey was its business activity component, which surged to 61.2 in May, up from 50.9 in April. Also encouraging was its new orders component, which rose to 54.1 in May, up from 52.2 in April. Fully 13 of 18 service industries that ISM surveyed reported an expansion in May. Overall, the ISM service sector report was very encouraging.
Due to this bullish ISM service survey, the Atlanta Fed raised its second quarter GDP growth forecast to a 2.6% annual pace, up from 1.8% in the previous week. Inventory rebuilding and energy exports have been responsible for most of the GDP growth. If consumer spending perks up, GDP estimates should continue to rise. The real problem with the U.S. economy is that the consumers in the top 20% of income (mostly Baby Boomers) are in good fiscal shape due to the appreciation of stock market and housing assets, while the bottom 20% of income (mostly young people under 30) are struggling. This frustration among young voters is also expected to have profound implications on the upcoming Presidential election.
Bloomberg reported on Tuesday that almost two-thirds of middle-class Americans said that they are facing economic hardship and do not anticipate a change for the better for rest of their lives, according to a poll of 2,500 adults by the National True Cost of Living Coalition. Ouch! This mass insecurity is not a good development for President Biden if he wants to get re-elected. The pollsters, the National True Cost of Living Coalition, said that 65% of those surveyed were 200% above the federal poverty level, which represents households earning at least $60,000 per year. This survey also showed that households making over $150,000 per year also worry about paying their bills! The poll also showed that about 40% of survey respondents were unable to plan beyond their next paycheck, and 46% didn’t have $500 saved.
Right or wrong, this feeling of financial insecurity does not augur well for President Biden’s re-election.
Jamie Dimon Warns that the Private Credit Market Poses Great Risks
For several weeks, I have been writing about the looming risk in the private credit market. Well, now JP Morgan CEO Jamie Dimon agrees, saying that he expects problems to emerge in the booming private credit market, warning that “there could be hell to pay.” For example, Vista Equity Partners bought Pluralsight, Inc., a workforce development company, in 2021 for about $3.5 billion. This leveraged buyout was supported by over $1 billion of debt financing by direct lenders. Unfortunately, Vista Equity Partners recently wrote off the entire equity value of Pluralsight as its debt service costs soared.
In an effort to make a $50 million interest payment coming due, Pluralsight moved its intellectual property into a new subsidiary and used those assets to obtain additional financing from Vista Equity Partners. Whether or not this private debt Band-Aid will hold is highly questionable. The syndicate leaders behind the $1+ billion of debt supporting the Pluralsight leveraged buyout are a “who’s who” in private credit, including Ares Management, Benefit Street Partners, BlackRock, Blue Owl Capital, Goldman Sachs Capital Management, and Oaktree Capital Management.
In my opinion, the 11% yields that the private credit industry pays investors are not sustainable, and as Pluralsight demonstrates, bad loans could potentially “prick” the $2 trillion private credit bubble. The Fed may have to rescue the private equity industry if one big failure causes a run on private equity assets.
In the meantime, due to rising credit risk, I recommend that you avoid private credit sold by companies like Ares Management, Benefit Street Partners, BlackRock, Blue Owl Capital, Goldman Sachs Capital Management, and Oaktree Capital Management.
Navellier & Associates does not own Ares Management (ARES), Benefit Street Partners (FBRT), BlackRock (BLK), Blue Owl Capital (OWL), Goldman Sachs Capital Management (GS), and Oaktree Capital Management (OAK), in managed accounts. Louis Navellier does not own Ares Management (ARES), Benefit Street Partners (FBRT), BlackRock (BLK), Blue Owl Capital (OWL), Goldman Sachs Capital Management (GS), and Oaktree Capital Management (OAK), personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Overseas Rate Cuts Could Help Lower U.S. Yields This Summer
Income Mail by Bryan Perry
Non-Leveraged High Yield Asset Class Pays Double-Digit Yields
Growth Mail by Gary Alexander
High Tech Stocks Can Create (or Crater) Fortunes
Global Mail by Ivan Martchev
Fresh All Time Highs, Now What?
Sector Spotlight by Jason Bodner
Why Do You Invest? To Hoard Wealth, or Spend It?
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.