6-14-22: “Where Does the Pain Hurt Most?”

by Jason Bodner

June 14, 2022

Sometimes when you’re visiting the doctor, it hurts in so many places you don’t know where to start…

What’s the biggest pain point for Americans right now? There are a lot of candidates: inflation, interest rates, pandemics, guns, foreign wars, political scandals. Which one pushes our pain levels the highest?

That might depend on when you last filled up your gas tank.

With consumer confidence in the pits, NASDAQ dropped 3.5% on Friday and the S&P lost 2.9%. Why? As I write this (on Friday), the Consumer Price Index number was just released. I’ve laid out some of the details below. They are downright ugly. I highlighted and bolded any inflation figures above 5%.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It is clear to see that the real culprits ruining the party are food and energy costs – the two items subtracted from the CPI to yield the “core” rate of inflation, but most consumers buy food and gasoline every week – and not a lot of the other goods and services on the list – so let’s focus on those two.^[1]

First let’s look at the energy facts: The average working American spends 27.6 minutes driving one way to work each weekday.^[2] That translates to an average of 42 miles a day driven to and from work, or over 10,000 miles a year for work alone. The average U.S. car is driven 14,263 miles a year.^[3] The sobering truth about this is that there are costs associated with the time commuting.

The average worker starts working at around 22 years of age. The average retirement age is 62^[4]. Forty years of commuting works out to about 386 days of time in the car. (I’d suggest you get some good books on tape!)

Then there’s the hard cost… And herein lies the problem today. It should come as no surprise that gas prices have surged to 30-year highs. In May, the average price per gallon of all grades of gas was $4.55.^[5]

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

That’s over $70 for a 16-gallon tank. Just hearing that makes me cringe, but for the average American this cost is “highway robbery.” Let’s contextualize that in terms of real cash flow. The average American car gets fuel economy of 25.4 miles per gallon.^[6]  That seems generous, based on what I get from my cars, but let’s go with it anyway. I summarized the data below: the average cost to fill up your car is $2,750 a year:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Next, let’s look at food. In the U.S., the monthly cost of feeding one person is about $342.11.^[7] There are an average 2.52 people per household.^[8] That means it costs the average household $10,345 a year to eat.

So, we’re over 13 grand a year just to eat and drive. Of course, most activities are derivatives of eating or driving. If you want to eat at a restaurant, you must drive there. All cars eventually go to heaven, so we need to buy new ones. But there’s vicious inflation there too! Hopping on a plane costs way more than it used to due in no small part to the higher cost of energy. In fact, airfares are up 37.8% in the last year.^[9]

In 2022, the average salary in the U.S. is $53,490 per year.^[10] On average what’s left after taxes is 77.6% of pay ^[11] or $42,362, so after food and gas, over 30% of net income is gone. The average housing cost is$1,437 per month as of 2019 data.^[12] Add that $17,244 a year to food and gas, and 72% of net income is spoken for before accounting for anything else, like clothes, phones, internet, entertainment, college savings, retirement savings, and on and on… Needless to say, these are just averages. There may be a second wage earner at home, but that also means a second car and all the same costs for commuting, so when food and fuels costs spike the way they are doing, it’s a real squeeze on the average American.

What’s the Fed Doing to Ease (or Worsen) This Pain?

The Fed turned hawkish at the end of last year and made numerous allusions to aggressive rate hikes. That language persists to this day. As mid-year approaches, the target Fed funds rate remains low, at 0.75% to 1.00%. With all the talk about 50 basis point hikes in the next three meetings, that may sound aggressive, but I’d like to point out that the Fed funds rate in 2019, just prior to COVID, was 2.25%.

I still believe the Fed is enacting a policy I call ghost tightening. In short, that involves using scary and aggressive language to shock markets into doing most of the heavy lifting for the Fed. That way when the economy finally cools, the Fed will not have had to raise rates as aggressively as it had once threatened.

There are two very convenient places for inflation to run rampant and squeeze the consumer into spending less elsewhere. Those two areas are food and energy. And we now see that playing out in real time.

So, as markets react daily to what the Fed might do in terms of raising rates, the smart money has been betting on what they have not yet done. Specifically, there have been huge amounts of buying in energy stocks since the beginning of the year. In fact, 24.3% of all unusual buying has been in energy.^[13]

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

We can also see that in the chart below, on the left. The blue bars show unusual buying in energy stocks plotted against the deep blue XLE (S&P 500 Energy Sector Tracking ETF). We see that it has been relentless.

On the right we see some buying in staples, but to a lesser degree. The takeaway we can see is that staples and energy have fared way better than tech or discretionary stocks:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

How long will this last? No one knows for certain, but it seems that it will last at least a little while longer.

In the meantime, the gas pump will keep demanding, “Hand over your wallet.”

---

^[1] Bureau of Labor and Statistics

^[2] US Census Bureau

^[3] Bureau of Labor and Statistics

^[4] US Department of Labor

^[5] US Energy Information Administration

^[6] EPA Automotive Trends Report

^[7] NUMBEO

^[8] Statista

^[9] Bureau of Labor and Statistics

^[10] U.S. Bureau of Labor Statistics

^[11] Oecd.org

^[12] US Census Bureau

^[13] MAPsignals.com Fight

Important Disclosures:

Jason Bodner is a co-founder and co-owner of Mapsignals. Mr. Bodner is an independent contractor who is occasionally hired by Navellier & Associates to write an article and or provide opinions for possible use in articles that appear in Navellier & Associates weekly Market Mail. Mr. Bodner is not employed or affiliated with Louis Navellier, Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made here are those of Mr. Bodner and not necessarily those of any other persons or entities. This is not an endorsement, or solicitation or testimonial or investment advice regarding the BMI Index or any statements or recommendations or analysis in the article or the BMI Index or Mapsignals or its products or strategies.

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.