by Louis Navellier
July 23, 2024
Technology stocks came under pressure last week as major airlines, including American, Delta and United, were grounded last Friday due to a CrowdStrike software update that crashed some Microsoft Windows 365 operating systems. This was a global software crash that impacted airlines, banks, trains and many other businesses in a systematic cascade of software failures. Other businesses impacted included the London Stock Exchange news services and Sky News live television broadcasts. CrowdStrike said that the software issue is not related to a cyber-attack and that a fix has been deployed. Microsoft confirmed that the CrowdStrike fix is restoring Window 365 systems worldwide. Unfortunately, since CrowdStrike and Microsoft are major technology companies, some technology stocks remain under pressure.
In the energy sector, crude oil prices rose sharply on Wednesday after the annual Boreal forest fires in Alberta, Canada erupted and forced evacuations that curtailed crude oil production. Last year, Canadian forest fires burned more than 45 million acres – an area bigger than the entire state of Florida. Right now, there are 25 out-of-control Boreal forest fires in Alberta, including a 200,000-acre blaze that caused Suncor Energy to curtail crude oil production. Boreal forest fires in Canada and Siberia account for approximately 25% of global carbon dioxide emissions and are hard to put out, since the peat in the forest floor tends to smolder for days and fires are easily re-ignited by lightning and/or windy conditions.
The U.S. Energy Information Administration (EIA) reported on Wednesday that crude oil inventories declined by 4.9 million barrels to 440.2 million barrels, in the third straight weekly decline. Crude oil inventories are now 5% below their 5-year average. The EIA estimates that U.S. crude oil production is running at 13.3 million barrels per day and exports are averaging just below four million barrels per day.
I expect crude oil prices to remain high due to ongoing shipping problems in the Middle East, as Houthi rebels in Yemen hit another crude oil tanker, the Liberia-flagged Chios Lion, and have been ramping up attacks on merchant vessels. Complicating matters further, the USS Mason, a Navy destroyer, had to defend itself from anti-ship ballistic missiles. Commander Justin Smith of the USS Mason said that “My team responded incredibly well, from the detection to being able to make sure that the system was ready to engage,” but the Houthi rebels are now better armed, with more sophisticated missiles to sink ships.
In other economic news, the Commerce Department announced that retail sales were unchanged in June, which was better than economists’ consensus expectation of a -0.3% decline. Excluding vehicle sales, which declined 2% due to a cyberattack on CDK software, retail sales rose by a respectable 0.4% in June, which is the strongest pace in three months. Also notable is that May retail sales were revised upward to a 0.3% increase, up from 0.1% previously reported. Only three of the 13 categories that the Commerce Department monitors declined in June. Excluding autos and gasoline, retail sales rose 0.8% in June. Auto sales are expected to pick up in July, since the CDK software cyberattack deferred some pending sales into July, according to Auto-Nation. I should add that, despite some positive details in the retail sales report, Treasury bond yields declined slightly, so the pressure remains on the Fed to cut key interest rates.
The Political Fallout of the Republican National Convention – And Biden’s Resignation
The recent Movie Civil War turned real after the assassination attempt on Donald Trump. Former Attorney General Bill Barr said it best when he said that Trump’s opponents must stop the “existential threat” rhetoric. President Biden immediately stopped all negative campaign ads, and on Sunday he reluctantly bowed out of the Presidential race, throwing all his delegates and support to Kamala Harris.
Due to the iconic bloody photo with his fist in the air with the America flag behind him as he struggles with Secret Service agents to shout “fight,” I expect that Trump will be the odds-on favorite to win.
Immediately after the assassination attempt, Elon Musk officially endorsed Donald Trump and said, “The last time we had a candidate this tough was Theodore Roosevelt.” Musk also slammed the Secret Service and asked, “How was a sniper with a full rifle kit allowed to bear crawl onto the closest roof to a presidential nominee?” Musk added, “Extreme incompetence or deliberate; either way, SS leadership must resign.” There was even a bystander pointing out the shooter for over two minutes to police and Secret Service.
It will be interesting to compare the tone and enthusiasm of the Republican National Convention (RNC) last week to the upcoming Democratic National Convention (DNC) in Chicago, which will either be a wide-open convention for a new nominee, or a “rubber stamp” for Kamala Harris – it’s too soon to tell.
All along I’ve said the candidate could be Gavin Newsom, but he has a lot to answer for in his California state policies. Elon Musk announced last week that he is moving the headquarters of “X” (formerly Twitter) and Space X from California to Texas, as there has been a contentious fight between Musk and California under Newsom. Musk said that “the final straw” was a new law enacted last week that bars school districts from requiring teachers to notify parents if their children change their gender identification. Musk said that he had warned Governor Newsom that such legislation would “force families and companies to leave California to protect their children.” Obviously, if Newsom is picked as the Presidential candidate at the DNC, this public fight with Elon Musk may escalate into a national fight over Newsom’s failed policies.
Interestingly, thanks to Elon Musk and Donald Trump’s selection of J.D. Vance as his Vice President, Silicon Valley is warming up to backing the Trump/Vance ticket after overwhelmingly supporting Democrat candidates for President in the past. The fact that J.D. Vance worked for some Silicon Valley elites helps favor the return of a Trump Administration, which did not aggressively sue big technology companies, like Amazon and Apple, which the Biden Administration is now pursuing in federal courts.
As Inflation Cools, A Summer Rate Cut Appears More Likely
Chicago Fed President Austan Goolsbee said that the June inflation statistics makes him more confident that price pressures are easing in a way that supports the Fed lowering key interest rates sooner rather than later. Specifically, Goolsbee said, “You only want to stay this restrictive for as long as you have to, and this doesn’t look like an overheating economy to me.” Goolsbee asserted that unemployment is drifting higher, new hiring is cooling, and delinquencies on certain consumer debts are rising, which implies that the Fed should signal that key interest rate cuts will be forthcoming, if not next week, then in September.
Interestingly, the Wall Street Journal reported last week that tenant evictions in the past 18 months are up over 35% in six major urban areas, according to Princeton University’s Eviction Lab research unit, so rising housing costs are having serious implications, which the Fed should factor into their calculations.
The Personal Consumption Expenditure (PCE) inflation index, released later this week, is expected to be very positive in the wake of the first monthly decline for the Consumer Price Index (CPI) since May 2020. Furthermore, the sticky point regarding consumer inflation, namely shelter costs based on owners’ equivalent rent, rose only 0.2% in June, which is the smallest monthly increase since 2021. Treasury bond yields did not rise in the wake of the PPI or CPI, so a Fed rate cut on September 18th is likely. However, if I were running the Fed, I would cut key interest rates at the July 31st FOMC meeting.
In Britain, two-year government note yields have fallen below 4%, which will allow the Bank of England to cut key interest rates in early August. Other central banks are expected to cut key rates as inflation continues to decline. Economic incentives are expected to be passed in Europe and in the U.S., so these tax cuts are expected to improve the “velocity of money,” which is how fast money is changing hands.
China’s GDP growth in the second quarter slowed to a 4.7% annual pace, down from a 5.3% annual pace in the first quarter. Economists were expecting second-quarter GDP to slow to a 5.1% annual pace, so the deceleration in GDP growth in China was a surprise. Weak consumer demand, plus the aftermath of a big property bust continues to suppress overall economic growth there. Additionally, demographics are weighing on China, as the country is shrinking due to an aging population from its past “one baby” policy implemented decades ago. In addition, the Chinese Communist Party is holding a four-day meeting this week to set the direction of its economic policy. Leadership in Beijing has been pushing for “high-quality development” in areas such as electric vehicles (EVs) and artificial intelligence (AI). Due to a glut of EVs, batteries and solar panels in China, it will be interesting to see which type of industry is prioritized.
In conclusion, I’d say that domestic and global political and economic events are likely to boost business, consumer and investor confidence in the upcoming months. First, PCE inflation is expected to approach the Fed’s 2% annual target this Friday. Second, the Fed will follow market rates and other central banks and cut key interest rates next week or no later than September 18th. Third, the contrast between the RNC and DNC political conventions should be fascinating to watch unfold and, finally, in the wake of an assassination attempt on July 13th and Donald Trump’s iconic response, Elon Musk, Bill Ackman and other Wall Street leaders have now endorsed Trump to become the next President. We don’t know for sure how the Democrats will respond in August, but it’s clear that the “race is on” for an exciting election.
Navellier & Associates owns CrowdStrike Holdings, Inc. Class A (CRWD), Apple Computer (AAPL), Microsoft (MSFT), and a few accounts own Amazon (AMZN), in managed accounts. We do not own Suncor Energy (SU). Louis Navellier and his family own CrowdStrike Holdings, Inc. Class A (CRWD), Apple Computer (AAPL), Microsoft (MSFT), via a Navellier managed account, and Apple Computer (AAPL) and Amazon (AMZN) in a personal account. He does not own Suncor Energy (SU) personally.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
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A Look Ahead by Louis Navellier
The Best Tech and Energy Stocks Should Remain Strong
Income Mail by Bryan Perry
Riding Out Summer Volatility with the “Mag 7” Earnings on Deck
Growth Mail by Gary Alexander
“Mr. Powell, Tear Down This Interest Rate Wall!”
Global Mail by Ivan Martchev
It is Starting to Look like an Intermediate-Term Sell-Off
Sector Spotlight by Jason Bodner
Here’s Your “X-Ray Vision” Key to the Market
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