By Louis Navellier
The markets were mostly positive in July, but last Friday got August off to a scary start, as August has often been a problem month in recent years. We’ll see if Trump’s tariff treaties can reverse that trend.
Despite the Fed’s reluctance to cut interest rates last week, we got great news – the European Union (EU) agreed to 15% tariffs on all goods exported to the U.S., including automobiles. Additionally, the EU will invest another $600 billion in the U.S. and buy $750 billion in U.S. energy exports. The EU also agreed to buy a “vast amount” of U.S. military equipment. (The only exception is that steel imports will carry a 50% tariff.) Commerce Secretary Howard Lutnick said these new EU tariffs went into effect as of last Friday.
One of the reasons the market fell last Friday is that the Labor Department clearly can’t count jobs in a timely manner. In fact, there was a massive (87-90%) downward revision in May and June jobs. ADP sometimes revises their past totals, but they are seldom as seriously off the mark as the BLS report, since ADP works directly with the payroll data for private-sector jobs, so I trust the ADP numbers more than the BLS – the “gang that can’t count straight,” releasing seriously misleading numbers most months.
Here are the most important developments recently and what they mean:
– This earnings announcement season is definitely heating up and Axon Enterprise (AXON), Kinross Gold (KGC), Paymentus Holdings (PAY) and Palantir Technologies (PLTR) all posted better-than-expected sales, earnings, and raised their guidance. As always, our best defense remains a strong offense of fundamentally superior stocks.
– President Trump, after the July payroll report, fired Erika McEntarfer, the Commissioner of the Bureau of Labor Statistics, accusing her of politicizing the payroll report. McEntarfer was appointed by Joe Biden.
– To his credit, Fed Governor Christopher Waller went on Bloomberg TV before the July FOMC meeting and July payroll announcement to explain for approximately 30 minutes that the labor force was weakening. Christopher Waller and Michelle Bowman voted 2 to 9 against holding key interest rates steady at the July FOMC meeting. – Interestingly, according to a Fed spokesperson, Governor Adriana Kugler didn’t attend the FOMC meeting due to a personal matter and has since announced her resignation, so President Trump can appoint a new Fed governor who believes in his economic agenda. As a result, there will soon be at least three Fed officials who want to cut key interest rates instead of waiting for a mythical inflation “bogeyman” to appear from tariffs.
– Inflation has come in below economists’ consensus expectations for the past five months due to (1) deflation in China, (2) lower energy prices, (3) a strengthening U.S. dollar and (4) AI/productivity gains that naturally suppress inflation, so the Fed cannot ignore the obvious much longer, without a munity on the FOMC that President Trump is now openly encouraging.
– There are some last-minute trade maneuvers going on this week. Switzerland remains shocked that their tariffs will rise to 31% to 39% on August 7th, so there is a full court press underway to try to get the Trump Administration to reconsider. The pharmaceutical exports to the U.S. from Switzerland remain a contentious subject, and the Trump Administration wants Swiss drug companies to move their drug manufacturing to America. It will be fascinating to see how the tariff spat between Switzerland and the Trump Administration is ultimately resolved.
– President Trump has ramped up his fight against India, threatening to impose tariffs “substantially” higher than 25% on India’s exports to the U.S. to penalize it for buying oil from Russia. Trump’s aides say energy purchases by countries like India and China are helping to keep Russia’s economy afloat as the war with Ukraine persists. India has been defiant and is continuing to buy Russian crude oil and actually buys more oil than it needs, since India sells refined petroleum products. Russia is the largest supplier of crude oil and military equipment to India.
– According to S&P Global, China’s service sector PMI rose to 52.6 in July, up from 50.6 in June. Any reading above 50 signals an expansion, so China’s service sector is largely responsible for economic growth, since its manufacturing sector is contracting.
– Here in the U.S., the Institute of Supply Management (ISM) reported on Tuesday that its non-manufacturing, service sector PMI declined to 50.1 in July, up from 50.8 in June. The business activity component declined to 52.6 in July, down from 54.2 in June. Fully, 11 of the 16 service industries surveyed reported an expansion in July. Any reading over 50 signals an expansion, so the service sector is teetering on slipping into a contraction. Overall, the deceleration in the ISM service sector PMI is reigniting recession fears and is expected to coax the Fed to cut key interest rates.
– The Commerce Department on Tuesday announced that the U.S. trade deficit for June came in at $60.2 billion, which is better than economists’ consensus estimate of $62.6 billion and substantially lower than the May trade deficit of $71.7 billion. Imports plunged by 3.7% in June to $337.5 billion, while exports declined by 0.5% to $277.3 billion. This better-than-expected trade deficit is expected to cause many economists to revise their second-quarter GDP estimates higher and boost the value of the U.S. dollar.
Overall, the market trend remains positive. Volatility is rising, but with the dip buyers emboldened, and Fed cuts on the way, it will probably take a Black Swan event to break the positive momentum.
*Views expressed in this article are opinions of the author and do not necessarily reflect the views of Argotimes News.