by Louis Navellier

July 2, 2024

Presidential election year chaos escalated after Joe Biden’s dismal Thursday night performance, where he shuffled to the podium, had a hoarse voice, stammered, lost his cool and train of thought several times and appeared unsteady. Long before it ended, this presidential debate seemed to border on elder abuse.

After the debate, a Financial Times poll said that 91% wanted Biden to step aside for another candidate, which was also the consensus of several pundits on CNN. The next debate, scheduled for September 10th, may not happen – even if Biden remains in the race, since his weakness is a threat to national security.

In the meantime, both Biden and Trump keep promising anything and everything to try to boost their support. For starters, Biden has promised more student loan relief, even though the Supreme Court has blocked those efforts. And Donald Trump has pledged a 10% minimum tariff on imported goods to help pay for his proposed tax cuts. Economists have criticized higher tariffs by both candidates as being inflationary, as the Biden Administration has increased tariffs even more, especially on Chinese goods. Also, since almost half of Americans do not pay income taxes (beyond Social Security and Medicare tax via payroll deductions), a 10% minimum tariff on Chinese imports would merely broaden the tax base.

Even though the presidential debate resembled a train wreck, investor confidence typically increases during major elections, due to all the promises they offer, so if history repeats, the stock market should continue to meander higher, especially if central banks continue to cut rates to stimulate growth.

In the meantime, there are a few other important elections going on in the world – such as those in Britain, France and Iran. In the wake of the European parliamentary elections, there appears to be a shift to right wing parties that oppose: (1) excessive “green” agricultural reforms, (2) excessive immigration and (3) unlimited aid to Ukraine, which is causing the European Union (EU) to “crack.” The upcoming French elections will be the most consequential, since the French conservatives are essentially anti-EU.

Speaking of tariffs in the U.S., Brussels announced recently that it formally notified Chinese vehicle manufacturers, including BYD, Geely (owns Volvo) and SAIC (owns MG brand) that it will be imposing tariffs of up to 48% on electric vehicles (EVs). Approximately one-fifth of EV sales in Europe were Chinese brands in 2023 and they are expected to rise to a 25% market share in 2024. Interestingly, Germany warned about imposing tariffs on Chinese EVs, since China is a big market for German automakers, so now Chinese EV manufacturers face up to 48% tariffs in the EU and a 100% tariff on EVs in the U.S.

China has been expanding its presence in eastern European countries like the Czech Republic, Hungary and Slovakia. Hungary has invested heavily in battery manufacturing, with Chinese partners, and they even secured a BYD factory, so Hungary called these new tariffs on Chinese EVs “brutal” punishment.

Since the EU is ignoring countries that have big automotive industries, like Germany and Hungary, the ruling elites in Brussels are clearly not listening to its EU members. As a result, the EU is increasingly likely to break up, especially in the wake of the recent and upcoming European parliamentary elections.

This unrest is reflected in the latest German Ifo Institute’s business confidence index, which declined to 88.6 in June, from 89.3 in May. Economists expected a rise to 89.6, so this was a big disappointment. Between Brussels ignoring Germany on Chinese tariffs and the big political shifts underway in the EU in the wake of the European parliamentary elections, Germany’s business sentiment has clearly suffered.

According to GfK and the Nuremberg Institute for Market Decisions, consumer confidence in Germany has slipped to -21.8 in July from -21.0 in June, the first drop after improving for the four previous months, so the political changes unfolding in the EU may be creating more consumer uncertainty in Germany.

Will this chaos upset our markets? I’d say no. Some of these needed changes may supercharge markets.

Bad News Dominated the Economic Landscape Last Week

The National Association of Home Builders last week announced that the median U.S. home price rose to a record $419,300 in May, up 5.6% in the past 12 months. However, existing home sales declined 0.7% in May to a 4.11 million annual pace, the third straight monthly decline, and a total 2.8% drop in the past year. Clearly, until the Fed cuts key interest rates, home sales will be impeded by high mortgage rates.

Then, on Thursday, the Commerce Department announced that durable goods orders rose just 0.1% in May, while the April orders were revised down to a 0.2% increase, from +0.6% previously reported.

Another piece of bad news reported on Thursday was that jobless claims rose to 233,000 in the latest week. The four-week moving average rose to 236,000, the highest rate since last September. Goldman Sachs Chief Economist Jan Hatzius said the labor market is reaching a potential “inflection point,” where softening demand for workers could lead to a rise in the jobless rate. In the wake of this news, the Atlanta Fed lowered its second-quarter GDP estimate to an annual pace of 2.7%, down from a previous 3.0%.

Energy prices remain high, as is usual in the summer months. There is also the probability that Russia’s Arctic pipeline may be hit by Ukraine, since they have hit six Russian refineries and/or crude oil storage facilities so far, despite the Biden Administration’s instructions not to strike Russian energy plants (in order to keep oil prices contained). In the meantime, Russia has disabled 80% of Ukraine’s coal-fired power plants and a third of its hydroelectric plants. As a result, rolling blackouts are common in Ukraine.

Western Leaders Fight to Retain Their Power, While World III Looms

U.S. involvement in supplying long-term rockets that were fired into Russia is getting us closer to World War III. A recent cluster bomb attack on Sevastopol in Crimea was called “barbaric” by Russia, since it killed two children and injured 82, including 27 children hospitalized with injuries. Kremlin spokesman Dmitry Peskov said, “The involvement of the United States, their direct involvement, as a result of which Russian civilians were killed, cannot be without consequences.” The Russian foreign ministry said it had summoned U.S. envoy Lynne Tracy to provide a warning that there will be consequences for the Sevastopol attack. Later, the Russian foreign ministry issued a statement saying that Washington DC “bears equal responsibility with the Kyiv regime for this atrocity” and the strike will “not go unpunished.”

Interestingly, the day after the U.S. Presidential debate, Ukraine’s President Volodymyr Zelensky said that he was drawing up a “comprehensive plan” for how Kyiv believes the war with Russia should end. Specifically, Zelensky said, “It is very important for us to show a plan to end the war that will be supported by the majority of the world.” Since President Biden is unlikely to meet with Vladimir Putin, and French President Macron is in the midst of a leadership upheaval – and Britain is expected to have a new Prime Minister soon – all of a sudden, the major leaders that backed Ukraine the most suddenly have no time to help Zelensky or meet with Putin. During Thursday’s Presidential debate, Donald Trump said that if he is elected, he will resolve the Ukraine war before Inauguration Day, although he would have no authority to negotiate until he becomes President. Overall, the leadership void and changes in the world opened a window for Russia to seize more of Ukraine until serious cease-fire negotiations commence.

Last week, the EU imposed sanctions on Russian LNG shipments for the first time since the Ukraine invasion. In May, Russian LNG accounted for 15% of the EU’s natural gas imports, but these new sanctions will likely mean that Russian LNG will have to travel farther, to Africa or Asia. In response to the EU sanctions, Russian Deputy Foreign Minister Alexander Grushko told TASS, the Russian news agency, that the EU was continuing to escalate political, economic and military tensions with Moscow.

Prepare for Power Outages Due to Rising Demand and Limited Supply

In the U.S., unlike Europe, we remain blessed to be food and energy independent. The only glitches on the energy front remain the Biden Administration’s orders to curtail LNG expansion, so the Biden Administration effectively put limits on expanding the utility grid with natural gas power plants. As a result, blackouts are possible during any strong heat waves this summer, or during later power surges.

I should add that on Wednesday evening at my Reno home, there was a power outage for several hours, despite NV Energy placing diesel generators every mile or so in my neighborhood. The cloud computing data centers in Reno for Apple, Google and others are increasingly dominating the power grid, which is why, high in the hills surrounding Reno, we now need diesel generators to meet electricity demand.

We own several growth stocks that help expand the electric grid and fuel AI data center growth, including Eaton, Emcor Group, Quanta Servies, Super Micro Computer and Vertiv Holdings. Companies helping to protect the electric grid and data centers include Crowdstrike, Nutanix and Parsons Corp. These stocks will help expand and protect the utility grid and data centers.

On Bloomberg TV, Bill Gates said that AI data centers may one day use up to 6% of global electricity, up from around 2% today. Although he thinks that AI will “pay for itself” when it comes to greenhouse emissions (by making data centers more efficient), Gates also admitted that in some parts of the world, the demand for electricity is already outstripping available power supply due to data center demand.

Overall, I believe my Buy List remains well positioned for the AI feeding frenzy, which shows no signs of ending, while our energy stocks are benefitting from recent heatwaves, strong demand and persistent uncertainty surrounding conflicts in the Middle East and Ukraine. In other areas, Eli Lilly and Novo-Nordisk are prospering from weight loss drugs, and Allstate and Progressive are benefiting from high insurance rates.

In short, our best defense in times of slowing growth or political tensions remains a strong offense of fundamentally superior stocks. Second-quarter earnings should be up at least 8% for the S&P 500. I should add that the second quarter represents the last quarter of easy year-over-year comparisons.

All bull markets climb a wall of worry, and this market is no exception. That is why it is imperative the Fed cuts key interest rates in the upcoming months (July or September) to “turbocharge” U.S. economic growth now that retail sales have stalled and the manufacturing sector has been flat for two years.

One question I get a lot is: “Why don’t I just put all my money in Nvidia?” While I recently wrote an article entitled “Nvidia could pass Apple, Microsoft to become world’s most valuable company and first $4 trillion stock,” I don’t believe in putting all our eggs in any one basket. The brief, but sharp pullback in Nvidia (NVDA) and Super Micro Computer (SMCI) that ended with Tuesday’s reversal, is a reminder that Citadel’s “mean revision” trading algorithms remain alive and well.

Although I sincerely believe that any dip in Nvidia and Super Micro Computer remain great buying opportunities, please be aware that Citadel’s mean revision trading algorithms may remain active until the next (second quarter) earnings announcement season commences. I should add that Barron’s said SMCI should replace Walgreens in the NASDAQ 100 (QQQ). If that happens, it would likely boost SMCI!

Overall, I remain proud of my growth stocks, which are characterized by strong sales and earnings. In recent months, the analyst community has revised their consensus earnings estimate significantly higher. Typically, positive analyst revisions precede future earnings surprises. As a result, I am expecting better-than-expected earnings announcements to drive our growth stocks higher, starting in mid-July!

Navellier & Associates owns Volkswagen AG Unsponsored ADR (VWAGY), Nvidia Corp (NVDA), EMCOR Group, Inc. (EME), Quanta Services, Inc. (PWR), CrowdStrike Holdings, Inc. Class A (CRWD), Eaton Corp. Plc (ETN), Super Micro Computer, Inc. (SMCI), Alphabet (GOOGL), Microsoft Corp (MSFT), Novo Nordisk A/S Sponsored ADR Class B (NVO), Eli Lilly and Company (LLY), Nutanix, Inc. Class A (NTNX), Parsons Corporation (PSN), Vertiv Holdings Co. Class A (VRT), and some accounts own Apple Computer (AAPL), in managed accounts. Louis Navellier and his family own Volkswagen AG Unsponsored ADR (VWAGY), Nvidia Corp (NVDA), EMCOR Group, Inc. (EME), Quanta Services, Inc. (PWR), CrowdStrike Holdings, Inc. Class A (CRWD), Super Micro Computer, Inc. (SMCI), Alphabet (GOOGL), Microsoft Corp (MSFT), Novo Nordisk A/S Sponsored ADR Class B (NVO), Eli Lilly and Company (LLY), Nutanix, Inc. Class A (NTNX), Parsons Corporation (PSN), Vertiv Holdings Co. Class A (VRT), via a Navellier managed account, and Nvidia Corp (NVDA), and Apple Computer (AAPL), in a personal account. He does not own Eaton Corp. Plc (ETN), personally.  

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

Please see important disclosures below.

Also In This Issue

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The Stock Market is Acting a Little Tired

Sector Spotlight by Jason Bodner
As July Dawns, The Market’s “Silly Season” Begins

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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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