by Louis Navellier
July 11, 2023
Last Wednesday, the FOMC minutes from the June 2023 meeting were released, revealing that, “Some participants indicated that they favored raising the target range for the Fed funds rate 25 basis points in June, or that they could have supported such a proposal.” The key word is “some,” which is not indicative of a majority. These minutes also cited a “tight” labor market and signaled “upside risks” to inflation.
Meanwhile, Fed Chairman Jerome Powell at a conference in Madrid hosted by the Bank of Spain said, “A strong majority of committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year.” Hmm. The FOMC minutes say “some,” while Jerome Powell said it was “a strong majority.” Frankly, since there is an outspoken minority of doves on the Fed – including those from Atlanta, Chicago, Minneapolis, and San Francisco – I think the July FOMC decision will rest on the June inflation reports, especially the Consumer Price Index (CPI). Due to the fact that the CPI surged 1.2% in June 2022, I am expecting that the annual pace of the CPI this month will decelerate to an annual pace of 3% or less (by cutting off June 2022), which will hopefully cause the doves on the FOMC to be more outspoken at the July meeting and convince the rest of the FOMC to pause one more time.
Last week, the Institute of Supply Management (ISM) announced that its manufacturing index declined to 46 in June, down from 46.9 in May. This was the eighth straight month in which the ISM manufacturing index has been mired below 50, signaling a contraction, and 46 is the lowest monthly reading in the past three years (since the depth of the COVID lockdown in May 2020)! The new orders component improved to 45.6 in June, up from 42.6 in May, but the production component plunged to 46.7 in June, down from 51.1 in May. Of the six largest manufacturing industries surveyed, only one, namely transportation, expanded in June. Only four of 15 industries surveyed reported expanding in June, a big disappointment.
In the wake of this dismal ISM manufacturing report, it would be very unwise, in my opinion, for the Federal Open Market Committee (FOMC) to hike key interest rates at its late July FOMC meeting.
The two employment reports released last week may give the Fed “permission” to raise rates again, but that will be old news by late July, so much bigger weight will be given to the inflation reports by then.
Another piece of good news – which means “bad news,” as far as the interest rate outlook is concerned – is that the ISM service (non-manufacturing) index rose to 53.9 in June, up sharply from 50.3 in May. The business activity component surged to 59.2 in June, up from 51.5 in May, while the new orders index rose to 55.5 in June, up from 52.9 in May. Fully 15 of the 18 service industries that ISM surveyed reported expansion in June, so the service sector is exhibiting accelerating growth, reflecting the ADP jobs data.
After the ISM service news, the Atlanta Fed raised its estimate of second-quarter GDP growth to a 2.1% annual pace, up from its previous estimate of 1.9%, and this faster growth rate implies more Fed action.
The Latest Energy and EV Developments
Crude oil prices meandered higher last week, due to both Russia and Saudi Arabia reaffirming August production cuts of 500,000 to 1 million barrels per day, respectively. A pipeline burst in Russia’s Komi Republic (a northwestern province), disrupting production. Other infrastructure woes may continue to curtail Russian crude oil production in the upcoming months due to Western sanctions. Most major oil companies are exploring for crude oil offshore to boost profits as well as replace Russian crude oil, long-term, since it is perceived that Russia’s oil production will steadily decline without Western expertise.
The U.S. Navy announced last Wednesday that it intervened to prevent Iran from seizing two oil tankers in the Gulf of Oman. Iran has seized six oil tankers this year, since the U.S. Navy is now stretched too thin and can’t protect all trade routes. The Navy said, “Since 2021, Iran has harassed, attacked or seized nearly 20 internationally flagged merchant vessels, presenting a clear threat to regional maritime security and the global economy.” But then, the White House National Security Council said, “The United States will respond to Iranian aggression, together with our global allies and our partners in the Middle East region to ensure the freedom of navigation through the Strait of Hormuz and other vital waterways.”
In other energy news, the quest for green hydrogen is running into many obstacles, mostly high costs and a lack of water. Essentially, desalination plants powered by wind and solar are required to make green hydrogen. Most hydrogen is made from natural gas. Much “peak electricity” required for air conditioning during the summer is provided by natural gas peak power plants that turn on during peak load demand.
The war against natural gas in California, New York, Washington, and other states is essentially illogical, since natural gas in the U.S. is a waste byproduct from crude oil production, so if there is no demand for natural gas, it will be burned anyway. Ironically, the quest to ban natural gas will curtail electricity supply during peak demand, hinder hydrogen production, and cause more natural gas to be flared.
The UAE, which hosts the COP28 climate summit this year, pledged to invest $54 billion in renewable energy in a quest to reach net zero by 2050. Obviously, this looks good before the UAE hosts the COP28 climate summit. Due to the fact that UAE already has 70 desalination plants, it may be positioning itself to be a provider of green hydrogen, so it will be interesting to see what technologies are pushed there.
China dominates the global production, refining, and processing of many critical raw materials, including gallium and germanium, which are byproducts from the processing of commodities such as zinc, coal, or bauxite. Although the U.S. and its allies depend on China for these critical minerals, China also needs Western technology such as lithography machines to produce high-performance chips; so in that light it is interesting to note that China does not like the fact that the Biden Administration is considering a wider semiconductor chip ban, so China decided to ban the export of gallium and germanium, which are used in semiconductors, 5G base stations, and solar panels. The ban will begin on August 1st to “safeguard national security and interest.” Interestingly, this announcement came before Treasury Secretary Janet Yellen’s scheduled trip to China to “facilitate better economic relations,” so it appears that China implemented this rare earth mineral ban because they want to challenge Secretary Yellen.
After China’s proposed ban on the export of gallium and germanium, the Biden Administration is looking to restrict China’s access to cloud computing to protect access to artificial intelligence, which is increasingly moving to the cloud on faster servers with Nvidia’s advanced A100 chips. This move is perceived to be a “tit for tat” countermove for Secretary Yellen and U.S. negotiators with China. So far, the Biden Administration has not removed any of the tariffs that the Trump Administration imposed on China and seems eager to onshore many of the commodities and products that China manufactures.
Turning to EVs, Tesla’s second quarter sales surged 83% to 466,000 vehicles, so its recent price cuts seem to be stimulating sales. Another electric vehicle (EV) success story is BYD in China, whose sales soared 98% to 700,244 in the second quarter. BYD sold 352,163 EVs last quarter and the rest of its sales were hybrids. Sales were best in its Seagull model, which costs only $11,000 and has 251 miles of range.
BYD is making its own iron-phosphate (LFP) batteries. Most Chinese-made Teslas also use LFP batteries, which are substantially cheaper than lithium-ion batteries. It is clear to me that if companies want to win the EV price wars, they must switch to LFP batteries on less expensive models, which Ford and VW Group are doing, so we’ll see if their market share grows with cheaper EV models in upcoming quarters.
Last Tuesday, Toyota said that its objective is to cut the current weight of batteries in half. Keiji Kaita, the President of Toyota’s research and development center for carbon neutrality, said, “For both our liquid and solid-state batteries, we are aiming to drastically change the situation where current batteries are too big, heavy and expensive.” Kaita added that, “In terms of potential, we will aim to halve all of these factors.”
Regarding solid-state batteries, Toyota initially said that it wanted to start selling hybrid cars with solid-state batteries before 2025. Additionally, Kaita said that Toyota discovered ways to address the durability problems from about three years ago and now has enough confidence to mass-produce solid-state batteries in EVs by 2027 or 2028. Panasonic is working with Toyota on solid-state batteries and is expected to be a major winner if Toyota leads the adoption of solid-state batteries in hybrids and EVs.
Navellier & Associates owns Panasonic Corp (PACRFY), and Nvidia Corp.(NVDA), in managed accounts and a few accounts own Tesla (TSLA), per client request in managed accounts. We do not own Toyota Motor Corp (TM). Louis Navellier and his family own Panasonic Corp (PACRFY), and Nvidia Corp.(NVDA), via a Navellier managed account. He does not own Tesla (TSLA), or Toyota Motors (TM) personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Fed Governors Are Waging a War of Words… Again
Income Mail by Bryan Perry
The Yield Curve Suddenly Tightens – a Bullish Development
Growth Mail by Gary Alexander
July 4th Is a New Thanksgiving Day – With Two Bullish Surprises
Global Mail by Ivan Martchev
The Short Covering Rally is About to Stall
Sector Spotlight by Jason Bodner
The War Between Market “Noise” and Vital Data
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.