by Louis Navellier

June 4, 2024

Thursday’s guilty verdict in the New York criminal case against Donald Trump will not likely change the election outcome, but it crashed his website, as his backers rushed to donate money to his presidential campaign. The Biden Administration and his opponents have been eerily quiet, as they are starting to fear what they may have unleased. While Trump’s opponents may relish calling Donald Trump a felon, they effectively galvanized his supporters and caused the fund raising for his Presidential campaign to soar!

I should add that Trump advisor Peter Navarro is already in federal prison and another former advisor, Steve Bannon, is headed to a federal prison. Navarro refused to comply with a Congressional subpoena after asserting executive privilege and may be out in time to speak at the Republican National Convention (RNC) in July. Bannon also refused to comply with a Congressional subpoena and will likely miss the RNC. Donald Trump’s sentencing is on July 11th, just before the RNC, and I expect that if the judge tries to put Trump in jail, then “all hell” will break out among his supporters, and that could impact the market.

In all that furor, I believe voters should be more worried about deficit spending and where that money is going. The Commerce Department recently announced that a 15.2% increase in new defense orders (largely due to aid to Ukraine) boosted the April durable goods report and caused it to rise 0.7%, when economists were expecting an 0.8% decline, so the good news is that the U.S. aid to Ukraine is boosting the defense industry, but the bad news is that is not helping ordinary American voters this election year.

Speaking of the Ukraine war, Ukraine is running out of men to fight, since their women are increasingly running the factories and farms. Furthermore, Ukraine recently freed almost 350 inmates to join the Army in exchange for the possibility of parole. Prisoners have submitted 4,300 applications to join the Army, while up to 20,000 inmates are expected to apply. Not that long ago, Ukraine mocked Russia’s push to recruit prisoners in exchange for early parole, but now that this sad war has persisted well into its third year, Ukraine is running out of men to resist Russia’s assault on Ukraine’s second largest city, Kharkiv.

Britain and the U.S. have supplied Ukraine with longer-range missiles that can strike deeper into Russia, so the fighting is no longer just a border skirmish, but it has escalated into a major proxy war funded by NATO. Ukraine recently destroyed a Russian radar station designed to track incoming nuclear missiles. Germany refused to provide long-range missiles to Ukraine, since it wanted to avoid nuclear escalation. NATO Secretary General Jens Stoltenberg said that the “time has come to consider whether it will be right to lift some restrictions” on Ukraine. Then, U.S. Secretary of State Anthony Blinken, on Wednesday, signaled that the U.S. is weighing the idea of allowing Ukraine to strike Russia with U.S. weapons.

The nations of Europe, with American aid, may be stumbling into World War III. I for one, would hope that President Biden can find a clear way to present his idea of an endgame in this conflict, on or before the first Presidential debate on June 27th, other than to repeat some vague idea of “total victory.”

I was in Virginia on Wednesday talking to a former Reagan Administration official, and his view was that if Ukraine falls to Russia, the Republican leaders in Congress would be blamed for any defeat, since they delayed aid to Ukraine. However, the collapse of Ukraine cannot reflect well on Democrats either, since Biden said we will “see what Russia takes” in a “minor incursion” before funding this war with Russia.

In the meantime, crude oil markets remain on high alert for more potential disruptions to Russian crude oil output, which has dropped steadily for the past three weeks, reaching its lowest level in 10 weeks.

Some energy companies seem to be expecting a Trump victory and a return to more drilling. Bloomberg reported on Wednesday that Conoco-Philips is acquiring Marathon Oil in a $17.1 billion stock swap. This will boost Conoco-Philips’s presence in Texas shale fields and in the light sweet crude from North Dakota. Conoco-Philips has already expanded dramatically in the Permian Basin in recent years through a $13 billion takeover of Concho Resources as well as a purchase of Shell assets in the region, so it appears that the U.S. domestic crude oil boom is continuing, as Conoco-Philips may be anticipating a Trump victory.

One other potential surprise I have been writing about here in recent weeks is the booming private credit market, which soared from $432.9 billion in 2014 to $1.7 trillion in 2023. This year, private credit is on track to soar above $2 trillion. In my opinion, the 11% yields that the private credit industry is offering investors is not sustainable, so as this industry grows, it is raiding more private credit “rain makers,” so that somewhere along the line these bad loans will be exposed as part of a private credit bubble, a la 2008.

In other news, China keeps slipping in and out of recession territory. China’s National Bureau of Statistics announced that its official purchasing managers index (PMI) declined to 49.5 in May, down from 50.4 in April, so China’s manufacturing sector has resumed contracting after expanding in March and April. The overproduction of batteries, EVs and solar panels that China “dumped” on the world, helped boost its first-quarter GDP growth. However, as I have repeatedly said, building excess inventory is not “real” GDP growth. The National Bureau of Statistics also announced that its service PMI declined slightly to 51.2 in May, so China’s service sector is still expanding. But since manufacturing is bigger than services in the Chinese economy, there is no doubt that China’s economic growth is sputtering.

U.S. growth isn’t soaring, either. The Fed released its Beige Book survey of all 12 Fed districts last Wednesday, and it said that the U.S. economy expanded at a “slight or modest” pace across most regions as consumers pushed back against high prices. Specifically, the Beige Book survey said, “Retail spending was flat-to-up slightly, reflecting lower discretionary spending and heightened price sensitivity among consumers.” Also, the Beige Book reported that job growth in 8 of the 12 Fed districts was “negligible to modest,” so the U.S. economy is not hitting on all cylinders, and the Fed may have to focus more on jobs.

What Our Portfolio Grader is Telling Us Now

Turning to our investment portfolios, at the end of each quarterly announcement season, we retest how our Portfolio-Grader is performing. The main conclusion from our latest back test of the first-quarter reporting period is that the Top 5% of our 6,000+ stock universe is the place to be, as this chart shows:

Portfolio Grader Chart

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

Also important is that the Top 60% of stocks with the highest fundamental scores (A, B & C grades) are performing much better than the overall stock market, as the following chart illustrates:

Fundamental Chart

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

This focus on fundamentals bodes well for our stocks in the upcoming months. When the Fed finally decides to start cutting key interest rates, the breadth and power of the overall stock should improve.

Navellier & Associates owns Marathon Oil Corporation (MRO), Shell Plc Sponsored ADR (SHEL), and Conoco-Phillips (COP), in managed accounts. We do not own Concho Resources (CXO). Louis Navellier and his family own Conoco-Phillips (COP), via a Navellier managed account, He does not personally own Shell Plc Sponsored ADR (SHEL), Marathon Oil Corporation (MRO) or Concho Resources (CXO).

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Reversal of the Reversal

Sector Spotlight by Jason Bodner
It’s June. Time For Some “Good Vibrations”

View Full Archive
Read Past Issues Here

About The Author

Louis Navellier

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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