by Louis Navellier
September 9, 2020
The economic news last week was very positive. The biggest news came on Friday when the Labor Department reported that the unemployment rate declined dramatically to 8.4% in August, down almost two percentage points from 10.2% in July. A whopping 1.371 million payroll jobs were created in August after 1.734 million were created in July, so over 3.1 million jobs were created in the last two months.
The labor force participation rate rose to 61.7% in August, up from 61.4% in July. The average workweek increased to 34.6 hours in August, up from 34.5 in July, boosted by the fact that full-time workers rose by 2.8 million to 122.4 million. Average hourly earnings rose 0.4% by 11 cents to $29.47 per hour. Overall, this was a very positive payroll report, indicative of a V-shaped economic recovery!
The Labor Department also reported on Thursday that weekly unemployment claims declined by 131,000 to 881,000 in the latest week, which was below the economists’ consensus expectation of 940,000. Actual claims, excluding seasonal adjustments, were significantly lower, at 833,352. Continuing unemployment claims declined to 13.25 million, down from 14.49 million in the previous week, which is encouraging.
In other news, the Institute of Supply Management (ISM) reported on Tuesday that its manufacturing index rose to 56 in August, up from 54.2 in July – the fourth straight month the ISM manufacturing index has risen. The index is at its highest level in 21 months after falling to an 11-year low of 41.5 in April.
This remarkable manufacturing turnaround is being fueled by a resurging domestic auto industry as well as a booming construction sector. The ISM new orders component surged to 67.6 in August, up from 61.5 in July, which is the highest level since 2004 and indicative of a V-shaped economic recovery. Fully 15 of the 18 manufacturing industries that ISM surveyed improved in August, up from 13 industries in July.
ISM reported that its non-manufacturing (service) index declined to 56.9 in August, down from 58.1 in July. Since any reading over 50 signals expansion, the service sector is still growing, but at a slower pace.
The Fed released its Beige Book survey on Wednesday, reporting that all 12 of its districts enjoyed modest growth. Despite high unemployment, some districts reported an emerging labor shortage, since some workers preferred staying on unemployment insurance. Childcare workers were in especially short supply as many families are forced to hire folks to look after their children, since many schools employ on-line learning. The Beige Book survey concluded by saying, “Continued uncertainty and volatility related to the pandemic, and its negative effect on consumer and business activity, was a theme echoed across the country.” As soon as a coronavirus vaccine is approved, economic activity should improve immensely.
Speaking of vaccines, the best news for the market is that the CDC last week asked states to be prepared to distribute an FDA approved coronavirus vaccine as soon as November 1st. Specifically, CDC Director Robert Redfield sent a letter asking governors to fast-track permits and licenses so that vaccine distribution sites can be up and running by November 1st. Naturally, healthcare workers and other high-risk folks would be first to get the vaccine. Multiple vaccines are now in Phase 3 trials that have been accelerated by “Operation Warp Speed.” Clearly, President Trump wants a vaccine to be available before election day, so FDA approval, manufacture, and distribution of a vaccine are being expedited.
The only “bad” economic news is not really bad at all, since it signifies a resumption of global trade and consuming power. On Thursday, the Commerce Department announced that the U.S. trade deficit surged 18.9% in July to $63.6 billion, up from $53.5 billion in June, but that was only due to surging imports over exports. In July, imports soared 10.9% to $231.7 billion, while exports rose 8.1% to $168.1 billion.
Even though a higher trade deficit is calculated as a drag on GDP growth, the fact that both exports (+8.1%) and imports (+10.9%) are rising sharply is a very good sign of worldwide economic growth.
After Tesla Stock Split 5:1, its Price Nosedives
Even though I see the overall stock market rallying again soon, there are stock bubbles out there.
After Apple and Tesla split their stock shares 4:1 and 5:1, respectively, on Monday, August 31, both stocks initially rose; but then Tesla fizzled badly, down 16% on the week after the company announced that it would raise another $5 billion in a secondary stock offering to fund its new manufacturing plants in Austin, Texas and Berlin, Germany. Tesla also announced that July sales were poor in the hottest electric vehicle (EV) market, namely Europe, so the analyst community slashed its third-quarter consensus earnings estimate to just 53 cents per share, down 80% from $2.67 per share a week earlier.
Naturally, an 80% earnings cut by the analyst community would hurt almost any stock, but Tesla has a large and fanatical following, which limited the damage. Tesla’s fans are arguing that the company’s future growth will now come from selling its Powerwalls in conjunction with solar systems, which could help turn homeowners into “mini-utilities” that sell electricity back to major utilities. Furthermore, the “buzz” about Tesla’s much delayed “battery day” on September 28th, is expected to possibly boost the stock, especially if a “million-mile battery” or a more efficient, lighter lithium battery is revealed.
Due to the fact that Tesla has already lost its EV market leadership in Europe for this year, some fanatic Tesla investors are expecting that the company will become a lithium battery company, even though it currently buys lithium batteries from CATL, LG Chem, and Panasonic. What is especially interesting is that Tesla has awarded approximately 80 of its $250,000 roadsters to its most fanatical promoters on YouTube and other social media channels via its discontinued referral program, but some of these promoters are now reportedly getting perturbed that their $250,000 sports cars have not yet shown up!
The good news for investors is that as Tesla stock stumbled last week, the money rotated into other exciting stocks. This is an important sign that money is not leaving the stock market, but that it is merely getting reshuffled. This is also an exciting preview that many of the stocks we recommend will likely benefit from quarter-ending window dressing in the last couple of weeks of September as institutional managers reshuffle their portfolios ahead of the upcoming third-quarter announcement season.
Navellier & Associates does not hold Tesla, CATL, LG Chem, and Panasonic, in managed accounts but does own Apple. Louis Navellier & his family do not own Tesla, CATL, LG Chem, and Panasonic in private accounts but they do own Apple.