Markets Rise Strongly

Markets Rise Strongly in Early July, Despite China Fears

by Louis Navellier

July 17, 2018

The S&P 500 is up over 3% in the first half of July and Nasdaq is at an all-time high, despite the ongoing tariff disputes with China. I believe the press has overblown the “trade war” story, but the overall market is waking up to the fact that the likely eventual outcome will be fewer tariffs and fairer trade in the end.

Trade War Image

I’ll believe there is a true trade war with China when I see most of the shelves at Best Buy and Wal-Mart empty, since the vast majority of their goods are made in China. China still has a huge trade surplus with us. For every dollar of U.S. exports to China, the U.S. imports $3.87 of Chinese merchandise, so China has a lot more to lose than the U.S. does. In the end, I expect that China will seek a truce on trade tariffs.

My global expert, Ivan Martchev, has been writing about China a lot lately. As he has pointed out, China and the U.S. are dependent on each other. As a result, the relationship President Trump has with Chinese President Xi Jinping is very important. I suspect that the Trump Administration will not try to publicly humiliate President Xi Jinping, like he has been doing to our Canadian and German allies. Instead, I expect that the tariff “war” between the U.S. and China will be resolved diplomatically. As a result, every market dip on trade concerns represents a buying opportunity for our recommended U.S. and global stocks.

In This Issue

Bryan Perry compares the Shanghai and American stock indexes to demonstrate why China needs trade resolution more than America does. Gary Alexander shows how great earnings and other indicators trump the shrinking yield curve when it comes to predicting U.S. economic growth. Ivan Martchev turns his attention to zero-coupon Treasuries as the preferable bond play now, while Jason Bodner sees the same two or three sectors continuing to lead this market higher. I’ll return with a few comments on German-American trade talk and the latest oil and inflation news, as well as some specific energy stock picks.

Income Mail:
It’s “Shanghai Noon” for the Chinese Stock Market
by Bryan Perry
Broken Links in the Global Supply Chain are the Real Risk

Growth Mail:
Let’s “Make Earnings Great Again” (MEGA)
by Gary Alexander
Is the Shrinking Yield Curve Signaling a Recession?

Global Mail:
U.S. Treasury Zeroes: The Contrarian Trade of the Century
by Ivan Martchev
The Yuan is the Weapon of the Sun Tzu Disciples

Sector Spotlight:
When Predictions Don’t Work…Change Your Mind!
by Jason Bodner
The Same Leaders Are Driving This Market Higher

A Look Ahead:
German-American Language Differences
by Louis Navellier
Higher Oil Prices Spark a New Wave of “Temporary” Inflation

Income Mail:

*All content of "Income Mail" represents the opinion of Bryan Perry*

It’s “Shanghai Noon” for the Chinese Stock Market

by Bryan Perry

The tale of the tape for both the Chinese and U.S. stock markets during the heated tariff skirmish is quite telling. And since most investors are of the view that “the tape doesn’t lie,” it is revealing to see how the global market views the brewing trade war in terms of who wins and who loses. While both markets were clobbered last February, each has taken a different direction since then.

The top chart (below) shows the S&P 500 in green and the Shanghai Composite Index in black.

Different Directions for Different Markets Chart

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

The stock market decline in early February was swift and startling, a 10.16% fall in the S&P 500 over a nine-session span ending February 8, resulting in the market’s first correction (as defined by a drop of 10% or more) in two years. Rising bond yields, a spike in the dollar, and worries of market overvaluation converged with the fear of a slowdown in China, and the U.S. market collapsed…but only for a while.

The S&P 500 has since stabilized and gained +4.78% year-to-date as of last Friday’s close. Conversely, even though China’s government released data in mid-February confirming their economy remained on good footing, a brief snap-back rally off the correction low in late February failed, with gradual selling pressure giving way to a sharp downward move in June and early July on tariff-related headlines.

When President Trump first announced that China would be hit with tariffs on March 23, the Shanghai market broke down again, followed by a couple of months of optimism after a U.S. contingent brokered a deal for China to import as much as $200 billion more in American agricultural and energy products to help balance the trade deficit. But the business of combating Beijing’s misappropriation of U.S. intellectual property rights through joint venture requirements and other policies that force technology transfers was never worked out or settled. And that is the big red elephant in the room that needs to “leave the room.”

World equity markets sold off last Wednesday in a knee-jerk reaction to the U.S. announcing a new round of $200 billion of tariffs on a variety of Chinese imports. This brings the total targeted amount to $250 billion, or roughly half of all Chinese imports. This news roiled investor sentiment after a four-day rally in which the focus had been strong employment data and the upcoming second-quarter earnings season.

The current tit-for-tat tariff skirmish has yet to fully mushroom into a trade war, but it’s moving in that direction. The final decision on the $200 billion of newly-assigned import taxes will be some time after August 30, allowing for six weeks to negotiate, and the stock market seems to have accounted for this.

Although the macroeconomic impact of those tariffs is seen as marginal, the trade measures could likely have a substantial knock-on effect, given the complicated nature of global supply chains.

Haibin Zhu, chief China economist at J.P. Morgan, told CNBC, “If you only focus on the $50-$250 billion in tariffs, the macro-impact is still very limited ... The more worrisome news is more on the non-tariff parts, which is on investment restriction, and that could lead to a disruption in the global production line and also global trade…. If you put them together, clearly the market is becoming much more nervous and the nervousness is more severe in the onshore investor compared to the global investor.”

Although President Trump and his Commerce Secretary Wilbur Ross are taking fresh heat from their more skittish supporters and some detractors, they are operating from a position of strength. In my view, Trump and his team are using the current collage of variables to force China to change. China is stuck between a rock and a hard place and the chart of China’s primary stock market is real-time evidence of an economy that could buckle if there is material disruption in the global supply chain that took 25 years to build. It is truly ‘Shanghai Noon’ for the Shanghai Composite as a major violation of the 2,800 level will open the way for a further drop of another 30% slide to 2,000, where the multi-year technical support is.

Just as the Trump administration is highly sensitive to where the U.S. stock market is trading as a measure of confidence, I have to believe that China’s leaders are watching their market, as a further decline could reduce consumer spending; so while China and the U.S. have each other by the shirt collars, if Shanghai takes out the low of the year (2,691), we could see another trade summit scheduled sooner than later.

Jackie Chan and Owen Wilson in

Markets often dictate policy, if those in power want to remain in power. To be sure, China’s highly-leveraged financial system has been exposed and it’s quite vulnerable to a sudden economic downturn that the ruling Communist party and President Xi can ill afford, which is why I think the Chinese will blink on trade, including the cleaning up of nefarious practices that cost American companies hundreds of billions of dollars per year. And those off-balance sheet costs are never factored into the hard data. The problem (and the benefit) is much bigger in scope than just the monthly trade deficit figures reported.

Money goes where it is best served, and that is currently the U.S. market. Along with China’s market meltdown, European markets are for the most part down for the year, as are Asian and Latin American markets. The U.S. dollar is king, inflation is tame, and the domestic economy is set to grow by over 4% for the second quarter. And though the prospect of a trade war provides an unknown impact on GDP growth, money flow from around the world will still be finding its way into U.S. markets for the foreseeable time.

China may have some big long-term plans for global economic, military, and political dominance; but the tale of the tape paints a different picture – one of China’s leaders pridefully whistling by the graveyard. 

Growth Mail:

*All content of "Growth Mail" represents the opinion of Gary Alexander*

Let’s “Make Earnings Great Again” (MEGA)

by Gary Alexander

The 2018 Freedom Fest in Las Vegas started on a positive note as Patrick Byrne, CEO of Overstock.com, came on stage with one of those omni-present red caps; but it seemed a little “off” to me, since the third word looked a bit too long. Sure enough, he took it off and asked the camera to zoom in on the words:

“MAKE AMERICA GRATEFUL AGAIN”

A Red Make America Grateful Again Hat Image

I checked on line and found out that these hats are very popular (“Out of Stock. More on the Way”).

Journalist George Will followed by saying that MSNBC and Fox News have the same business plan: “Talk to your two million core believers and ignore everyone else. That’s four million people between them. Meanwhile, 324 million other Americans are mowing their lawns and working hard every day.”

In the Bull vs. Bear panel, the two bears had a touch of humility, too. Doug Casey said that even though he predicted that Donald Trump would win in 2016, he “didn’t see Trump bull market coming.” Jim Rogers, the other bear, said, “Markets don’t always act rationally…I guess they don’t know what I know.”

As for my panel on “The Decline of Western Civilization,” three of my four panelists didn’t even agree with the premise of the title – that our society was in decline – so I guess there was optimism in the air.

The market was in sync with our conference. The S&P closed Friday above 2,800, its best closing since February 1. The Dow Jones Industrials closed above 25,000 and Nasdaq closed at a record-high 7,825.98.

We’re nearing the six-month anniversary of the first “tariff tantrum” following the minor tariffs imposed on washing machines and solar panels on Monday, January 22 this year. The S&P peaked that Friday, January 26, then careened down over 10% in two weeks to 2581 on February 8. It retested that low a few times, most notably on April 2, but then MEGA-earnings for the first quarter began to flow in. At first, those earnings were called “peak” earnings, so nervous traders forced another test of market lows in May.

But now, we see that MEGA-earnings should continue for Q2. The latest earnings estimates for the S&P 500 are up over 20% from the same quarter a year ago. The S&P 600 is expected to rise 32%, while Ed Yardeni says, “Growth rates are expected to remain high during the last two quarters of the year as a result of the tax cuts,” averaging over 21% for the S&P 500, 22% for the S&P 400, and 34% for the S&P 600.

Growth Rates Expected to Remain High Charts

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

Meanwhile, S&P 500 revenue estimates are expected to increase by 7.9% this year and 5.1% next year. The latest GDPNow estimate from the Atlanta Fed shows second-quarter GDP coming in at 3.9%. This certainly doesn’t seem to be the expected landscape for a new 1930s-type Smoot-Hawley “trade war.”

Earnings season began last week with some of the major financial stocks posting better-than-expected earnings and sales, despite constant warnings that a shrinking yield curve threatens bank earnings.

Is the Shrinking Yield Curve Signaling a Recession?

Last Friday the spread between the 10-year and 2-year Treasuries shrunk to 25 basis points, down from 98 bps a year ago. This worries investors since a flat or inverted yield curve usually accompanies a recession.

Economist Ed Yardeni examined the evidence in some detail last Wednesday (in “Is the Yield Curve Bearish for Stocks?”) and decided that the jury is still out on this indicator. First of all, the more common historical comparison is the 10-year Treasury vs. the Fed Funds rate, where the spread is closer to 1%:

Yield Curve Chart

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

The gap is shrinking, but there is a long way to go to zero. The Federal Open Market Committee (FOMC) raised the Fed funds rate by 25 basis points (bps) on June 13 to a range of 1.75%-2.00%, while the 10-year U.S. Treasury bond yield peaked at 3.11% on May 17 and fell to 2.82% in early July, so the spread is just below 100 bps now. If the Fed delays raising short-term rates for a while and 10-year Treasuries stay within half a point of 3%, this gap is not likely to come close to zero any time soon.

Next, we need to look at all 10 Leading Economic Indicators, of which the yield curve is but one. Even though the yield curve has declined, the LEI have collectively risen 6.1% in the last 12 months to a new high. To find the truth, we have to look at the full weight of evidence, not just this one indicator in 10.

Leading and Coincident Economic Indicators Chart

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

As this long-term chart shows, historical recessions began long after the Leading Economic Indicators turned down – which they have not done yet. In fact, the LEI are still rising strongly in 2018.

In addition, we have to look at the global bond market. With negative interest rate policies in Europe and Japan, U.S. rates are comparably attractive, so global wealth is drawn to the U.S. dollar and Treasuries. This means the bond market isn’t just driven by the “bond vigilantes” monitoring the U.S. business cycle and our inflation trends, but by foreign capital seeking the best real return for their trillions in liquid capital.

With GDP and earnings soaring, a recession isn’t likely. The yield curve doesn’t contradict that analysis.

Global Mail:

*All content of "Global Mail" represents the opinion of Ivan Martchev*

U.S. Treasury Zeroes: The Contrarian Trade of the Century

by Ivan Martchev

It has been over three years since the Up and Down Wall Street section in Barron’s featured a column titled “German Bunds: The Short of the Century.” While I would characterize the title as bombastic, it was not the idea of the author to title it that way. He was simply accurately explaining how Jeffrey Gundlach and Bill Gross felt at the time about German 10-year federal notes, dubbed bunds, and German 2-year federal notes, dubbed schatze notes, or by their more colorful name, bundesschatzanweisungen.

German Ten Year Notes versus German Two Year Federal Notes Chart

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

I know from experience that the forecasting business is not easy and that all forecasts are inherently wrong, since they involve moving targets – which are just a snapshot in time. Markets constantly change, so targets constantly move, making even the best forecasts far from precise. One could say that the good forecasts by definition are merely “less wrong” than the bad ones. Still, if after three years the short of the century has not worked out for bunds or bundesschatzanweisungen, then this can only be characterized as a bad forecast. The bunds closed last Friday with a yield of 0.28% and have been in negative territory (as low as -0.19%) since they were proclaimed “the short of the century.” The bundesschatzanweisungen closed on Friday with a yield of -0.66% and have been as low as -0.95% last year.

Many investors now feel that the U.S. Treasury market is a similar “short of the century.” They feel that the only way for long-term yields to go is up, due to the quantitative tightening tsunami coming from the Fed’s balance sheet. I shared such concerns early in 2018, knowing that the Fed’s balance sheet annual runoff rate was slated to be upped to $600 billion, but that was before trade war threats became big news.

To be fair, we don't have a real trade war with China yet. The Trump administration is imposing massive tariffs with a purposeful several-week delay in order to use these threats as a cattle prod to get the Chinese to the negotiating table. While this may have been a good “muscle strategy” that worked many times with the lenders of the numerous Trump Organization subsidiaries that filed for bankruptcy over the years – to get them to work out the loans for cents on the dollar – cattle-prodding the disciples of Sun Tzu in Beijing is a dubious proposition at best. The Chinese are famous for “saving face” and I am afraid they will dig in their heels and cause the Trump administration strategy to backfire, resulting in a real full-scale trade war.

United States Ten Year Government Bond Chart

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

This is precisely why the yield curve is massively flattening at the moment, as short-term rates are going up, courtesy of Fed policy while long-term interest rates are not really moving despite the QT tsunami as investors are mulling the deflationary effects of a real trade war. One could say that 3% has become the resistance level in the 10-year Treasury yield, and that we are dangerously close to a false breakout in 10-year Treasury yields, causing all those shorts that have been placed in the U.S. Treasury market in 2018 to turn into a giant short squeeze.

One Hundred Years of the United States Ten Year Government Bond Chart

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

From a longer-term perspective, we have broken no trend lines in the 10-year Treasury yield. While there may have been a marginal violation of the long-term downtrend that started in 1981, we have already experienced one such false breakout in 10-year Treasury yields in 2007 when the market moved above 5%, only to fall to a hair above 2% in 2008 as the Lehman Brothers catalyst made the dominoes in the U.S. financial system fall much faster than they would have otherwise fallen. A real trade war can produce the same effect in the U.S. Treasury market, causing the 10-year note yield to drop to 1% or lower due to the global deflationary implications that it would produce.

The Yuan is the Weapon of the Sun Tzu Disciples

I need to clarify a point I made in a prior column: The Chinese have a credit bubble that is now deflating, but creating a credit bubble was not the goal of the Chinese government over the past 20 years, when the Chinese economy grew from $1 trillion in GDP at the time of the Asian Crisis (1998) to the present $12 trillion, the second largest in the world. The goal of the Chinese government was to extend their economic expansion into perpetuity, which I believe is impossible to do. They tried to control the lending activities of state-owned banks and thus force-fed credit any time the economy showed signs of weakness.

Deflating Chinese Credit Bubble Chart

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

One notable peak in the force-feeding of credit came after the failure of Lehman Brothers in 2008-09. At the time, the PBOC again re-pegged the Chinese yuan, which had been allowed to slowly appreciate before the Lehman failure. You can see that in the flattening of the yuan exchange rate for about two years until 2010, as well as the surge of yuan loan growth after the Lehman failure.

Unfortunately, such lending activities result in misallocation of capital and the present credit bubble, demonstrating itself in the construction of empty cities and the overall slowdown of the Chinese economy as it matures under a heavy debt load. The present overdue trade confrontation is likely to make matters quite a bit worse for the Chinese economy as a mainland recession is overdue.

I am not sure if a further yuan devaluation will fully negate the impact of the Trump tariffs, if they go into effect later in July and August, but I am sure that a massive yuan devaluation similar to the one that happened in 1993 will be a deflationary event for the global economy, at which point not even the quantitative Fed-tightening tsunami will be able to stop the 10-year Treasury yield from declining.

In the case this turns out to be a real trade war, buy U.S. Treasury zero-coupon bonds, because the 10-year yield is likely headed to 1% or lower.

Sector Spotlight:

*All content of "Sector Spotlight" represents the opinion of Jason Bodner*

When Predictions Don’t Work…Change Your Mind!

by Jason Bodner

An article published by Newsweek in 1995 trashed the idea of the internet. It swatted down visions of its future as “baloney.” It said, “No online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.”

Clifford Stoll was the oracle in question. Needless to say, this was not the shining moment of his otherwise impressive career. It may or may not have been the dominant opinion at the time, but either way it was a controversial topic. Addressing controversy does one thing very well: It sells magazines.

Clifford Stoll Oracle Image

It takes a while to realize that you’re wrong and, with most of us, it takes even longer to actually concede and admit that you’re wrong. Nowhere does this ring truer than in the media. This is especially true when there’s a story that an industry gets fully behind. For years, the news media has been generally anti-Trump, seizing any opportunity to paint a negative portrait of him. The man does give the news media a ton of ammunition for this, but we are beginning to see cracks in the wall of anti-Trump news coverage.

First of all, CNBC is suffering in the ratings department while Fox Business News is seeing its ratings swell. CNBC’s Jim Cramer recently has been walking back some of his inflammatory language on Trump and his policies. Other media may stop doubling down and concede they may be backing a stale story.

The trade war rhetoric is a story that has been trying to gain momentum since the beginning of the year. February ripped the markets apart with fears of slowing global growth, only to give way to new highs a few months later. All along the way, the tit-for-tat tariffs story has failed to tank the markets.

When $200 billion of tariffs pounded the fear-drums of a trade war, how did the markets respond? The NASDAQ Composite and Russell 2000 indexes are basically at new highs while the S&P 500 and Dow Jones Industrial average are a few percentage points below their highs. The latter two indexes have been in a sideways trading range while the tech-heavy NASDAQ and small-cap Russell have been stronger.

Market's Responses Image

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

This tells us that U.S. domestic companies are attracting more investment capital right now. This makes sense. Tax reform directly benefits companies that derive their revenues from American soil. Larger multinationals are facing more uncertainty with a stronger dollar putting pressure on profits derived overseas. Trade talk and geopolitical concerns are also more of a question mark for multinationals. In plain English, U.S.-based smaller companies stand to benefit while larger multinationals have more risk.

This also helps fuel the repatriation of corporate cash sitting overseas. Tax reform allows companies to repatriate that money to the U.S. with a one-time low tax rate. As this cash comes home, companies are using some of it to buy back their own shares at a record pace. This means there is still an underlying bid to the stock market despite what you may be reading in the headlines.

I met a friend of mine this weekend who manages his own hedge fund. Prior to that, he oversaw $500 million for a macro hedge fund trading global equities. Prior to that, he spent 15 years at the most prestigious Wall Street firm you can name. I value his opinion greatly and what he said made sense. He said Trump is engaging in argumentative talk in the public arena to create attention and get what he wants. He is instigating this “trade war” with China to achieve his ultimate goal of more economic equalization and less dependency. Then he will turn around with hugs and be friends.

Isn’t this what we just saw with North Korea?

The Same Leaders Are Driving This Market Higher

No matter what happens, the market data tells the real story. Sector leadership remains in growth-oriented areas like Information Technology, Consumer Discretionary, and Health Care. Many of the leaders in these sectors are smaller-capitalized companies that rely mostly on domestic revenue. Sound familiar?

Standard and Poor's 500 Sector Indices Changes Tables

Real Estate has also seen a surge in performance, as future rate hikes are perceived to be less likely than before. This means rates are likely to stay low for a while. Taxes are historically low, earnings are surging, and sales are booming. Consumers have more dollars in their pockets and the economy is strong. Let’s add an earnings season (just beginning) that is likely to be awe inspiring – like the last one.

My point is that the backdrop for stocks seems quite rosy.

I look to stocks with the best sales and earnings occupying pole positions in their industries. U.S. revenue-based companies stand to benefit right now. This spells one word that gets me excited: GROWTH.

Don’t believe everything you see and hear. Make well-informed decisions. The news might be seizing on what they believe to be popular topics to drive their ad sales, but their angle might be chosen for purposes of intentional misperception to be revealed down the road. Either way, make your own decision.

Confucius Quote Image

A Look Ahead:

*All content in this "A Look Ahead" section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

German-American Language Differences

by Louis Navellier

I would like to talk to you about Germany a bit. Living in South Florida, I bought a house designed by Germans and I have many German friends. Some of them are very direct, precise, and do not understand why everyone else does not behave exactly like they do. My latest interaction with my German colleagues is that I have been complaining that I am getting rid of my Porsche hybrid vehicle because there is suddenly a big “boom” under the dash that diverts the vehicle’s air conditioning from the cab to cool the lithium batteries that frequently overheat after an hour or so during busy stop-and-go Florida traffic.

Interestingly, when I complain that I do not want to drive in South Florida without air conditioning in my vehicles, my German colleagues look puzzled at me, since they are proud that Porsche engineered my hybrid vehicles to prevent over-heating lithium batteries by utilizing the air conditioning system to cool the batteries. In other words, they think that Porsche engineering is perfectly logical, since the lithium batteries have priority over the passengers, simply because it is better to be uncomfortable in hot, humid Florida than to have the lithium batteries catch on fire!  Some remind me of Spock from Star Trek in that they only understand logic. However, like Spock, there can be communication problems sometimes.

Speaking of communication problems, President Trump caused an earthquake among our NATO allies last Wednesday when he said, “Germany is a captive of Russia because it is getting so much of its energy from Russia.” He criticized the proposed Nord Stream II gas pipeline, which bypasses other NATO countries so Germany can get natural gas at a significantly lower price by dealing directly with Russia.

President Trump went on to say that “it’s very sad when Germany makes a massive oil and gas deal with Russia where we’re supposed to be guarding against Russia and Germany goes and pays billions of dollars a year to Russia.” Ouch!  German Chancellor Angela Merkel diplomatically said that Germany had a “very good relationship” with the U.S., but her body language said otherwise!

This spat with Germany is mostly over the fact that the U.S. now spends over 4.2% of its GDP on defense, while Germany spends just 1.2% of its GDP on defense. President Trump said, “We can’t put up with it.”  So the NATO meeting was like the recent G7 meeting, where the President called our allies hypocrites.

I think that it is safe to say that there may be fewer G7, G20, and NATO meetings in the Trump era! There is no doubt that President Trump did not go to diplomatic charm school. His penchant for publicly calling out our allies has diplomats around the world speculating on how to best deal with him. The truth of the matter is that he loves to pick fights, humiliate folks, and win, no matter how messy the process may look.

Higher Oil Prices Spark a New Wave of “Temporary” Inflation

On Tuesday, crude oil prices hit a 3½-year high after strikes in Gabon and Norway disrupted production. Furthermore, other supply disruptions in Canada and Libya also helped tighten crude oil inventories. On Wednesday, the Energy Information Administration (EIA) reported that inventories plunged by 12.6 million barrels in the latest week, representing the largest weekly drawdown since September of 2016.

Pump Jack Image

Normally, tighter crude oil inventories would cause prices to rise, but Libya resumed its crude oil exports from its Eastern ports on Wednesday and Saudi Arabia boosted its crude oil production to 10.5 million barrels per day in June, the highest level since late 2016. In addition to this new supply from Libya and Saudi Arabia, the EIA continues to revise its U.S. production higher to almost 12 million barrels per day.

The U.S. is now the largest producer of crude oil in the world and inventories are expected to resume rising as worldwide demand moderates in September as the Northern Hemisphere cools. I expect that the U.S., Russia, and Saudi Arabia will cooperate to offset dwindling crude oil exports from Iran due to sanctions being re-imposed, so crude oil prices are likely to stabilize at a relatively high level in the upcoming months. This will continue to encourage aggressive exploration efforts. In my opinion, many energy stocks are great buys on dips. Some of my favorite international energy stocks are BP plc (BP), Ecopetrol SA (EC), Equinor ASA (EQNR), GeoPark Ltd. (GPRK), and Suncor Energy Inc. (SU).

 (Please note: Louis Navellier does currently hold a position in BP plc (BP), Ecopetrol SA (EC), Equinor ASA (EQNR), GeoPark Ltd. (GPRK), and Suncor Energy Inc. (SU). Navellier & Associates does currently own a position in BP plc (BP), Ecopetrol SA (EC), Equinor ASA (EQNR), GeoPark Ltd. (GPRK), and Suncor Energy Inc. (SU) for client portfolios).

There is no doubt that higher crude oil prices ignited a recent wave of inflation. On Wednesday, the Labor Department announced that its Producer Price Index (PPI) rose 0.3% in June, a notch above the economists’ consensus estimate of a 0.2% increase. The core PPI, excluding food, energy, and trade, also rose 0.3% in June. In the past 12 months, the PPI has risen 3.4% (the highest annual pace in the past 6½ years), while the core PPI has risen 2.7%. Interestingly, the 10-year Treasury bond yield trended lower when the PPI was announced, so the bond market (and the Fed) seem to think this inflation is temporary.

On Thursday, the Labor Department announced that the Consumer Price Index (CPI) rose 0.1% in June, below economists’ consensus estimate of a 0.2% increase. The core CPI, excluding food and energy and trade, rose 0.2% in June. In the past 12 months, the CPI has risen 2.9% (the highest rate in six years), while the core CPI has risen 2.3%. The 10-year Treasury bond yield barely budged after the CPI was announced, so if the bond market is not worried about rising inflation, we should not worry, either.

The Fed reported last week that consumer borrowing surged $24.6 billion in May to a seasonally adjusted annual pace of $3.9 trillion. This was a massive surprise, since economists were expecting only a $12.4 billion increase. In the past 12 months, consumer credit has risen 7.6%, the fastest pace since November, which means that retail sales should remain strong, which in turn supports strong GDP growth.

On a MarketWatch radio interview that aired on Thursday, Fed Chairman Jerome Powell acknowledged that we are in the midst of a strong economy and said, “I sleep pretty well on the economy right now.”  However, the Fed Chairman also pointed out that there is considerable uncertainty around the possible economic effects of recent trade measures and how they might influence the Fed’s plan to continue to raise key interest rates. Translated from Fedspeak, Chairman Powell basically admitted that the Fed may have to postpone any key interest rate hikes until the current wave of trade disputes is resolved.


It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

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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 of any offer 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 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 you. 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. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

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 intended or 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 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 performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, 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. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

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 intended as an offer or 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.

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 of any offer 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 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 you. 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. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

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 intended or 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 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 performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, 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. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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