9-24-24: The Economy Looks Sound, Favoring the Incumbent Party

by Louis Navellier

September 24, 2024

Last Tuesday, the Commerce Department released the much-anticipated retail sales report with its seemingly small 0.1% rise in August, but that is a month-over-month (not annual) rate and that was better than the economists’ consensus estimate of a 0.2% decline. Excluding vehicle sales and gas stations, retail sales were even better, up 0.2% in August. Online sales rose 1.4% in August, but only five of the 13 categories surveyed rose in August, so overall, this was not a very impressive retail sales report.

On Wednesday, the Commerce Department announced that housing starts rose 9.6% to an annual pace of 1.356 million in August, up from a 1.237 million annual pace in July. Also notable is that building permits rose 4.8% to an annual pace of 1.475 million in August, up from a 1.407 million annual pace in July. Both housing starts and building permits were above estimates, a good sign that falling Treasury yields are helping the housing sector. In fact, mortgage rates are now at their lowest level in the past two years.

Then, on Thursday, the National Association of Realtors announced that existing home sales declined 2.5% to a 3.86 million annual pace in August, which is the slowest pace in 10 months. Existing home sales have declined 4.2% in the past 12 months. The supply of existing homes for sale rose slightly to 1.35 million, so there is now a 2.9-month supply of homes for sale, which is historically tight and may allow home prices to rise. In the past 12 months, median home prices have risen 3.1% to $416,700.

With the latest Fed interest rate cut, a new “dot plot,” and the housing sector firming up, the economic uncertainty has been mostly eliminated, so investors have begun to stress more about political uncertainty. Real Clear Politics has tallied 276 electoral votes for Kamala Harris and 262 for Trump. However, the seven swing states of Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin are all too close to call, so whoever has the most enthusiastic base and voter turnout there should win.

After meeting with representatives of the Harris Campaign, The Teamsters Union declined to endorse either Harris or Trump. The Teamsters General President Sean O’Brien said in a statement Wednesday that, “Unfortunately, neither major candidate was able to make serious commitments to our union to ensure the interests of working people are always put before Big Business.” Clearly, the upcoming election is shaping up to be close, but I suspect that since Donald Trump has more energy and rallies that he may win the electoral college, especially if he can win the biggest swing state of Pennsylvania.

The U.S. economy may not be roaring on all cylinders, but it is still the major engine for global growth, eclipsing Europe and most of Asia. This is evidenced by the fact that Mario Draghi’s report to the European Union said that, “The EU should aim to move closer to the U.S. example in terms of productivity growth and innovation.”  Draghi’s report also cited that no EU company has a market capitalization of more than 100 billion euros ($111 billion), while America has several companies with trillion-dollar market capitalizations, like Nvidia (below). Draghi said that almost all of the U.S. productivity edge over the past 20 years is attributable to the technology sector, so he concluded by saying, “Europe cannot afford to remain stuck” in their old industries. Obviously, the Draghi report is controversial in the EU.

NVIDIA is Still the Market Leader We Want to Own

Nvidia CEO Jensen Huang told a Goldman Sachs conference that demand for its Blackwell chips is so high that some of its customers are getting “emotional” about any potential product slowdowns.  Oracle announced it is taking orders for the first “Zettascale” AI supercomputer, which will be powered by up to 131,072 Nvidia Blackwell chips. So, between Google’s $10 billion order, orders from Meta, Microsoft, and Oracle’s demand for Blackwell chips, Nvidia should post record sales and earnings well into 2025.

Due to the AI boom that is fueling new cloud computing centers, Bloomberg posted a great new article highlighting how new natural gas-fired power plants will be necessary to power AI data centers. Most of the new natural gas power plants are in Texas, Oklahoma, Kentucky and Missouri, but seven other states also have major natural gas power plants under development. Bloomberg pointed out that the Sierra Club is furious about these new plants and is warning of methane emissions, among other objections, but the fact of the matter remains that natural gas is clean and remains very cheap in the U.S., so it appears that many utilities are willing to fight any opposition, since natural gas is much cleaner than other fossil fuels.

Interestingly, Constellation Energy is investing $1.6 billion in one reactor on Three Mile Island to fuel Microsoft’s data center needs. Previously, low natural gas prices caused Constellation Energy to shut down Three Mile Island. However, Microsoft is looking for energy sources with zero carbon output, so it committed to purchase nuclear sourced electricity from Constellation Energy for two decades. Microsoft’s plans to run its massive global network of data centers utilizing exclusively clean energy by 2025.

NATO Nations are Still at Risk of Triggering World War III

Last week, British Prime Minister Keir Starmer was in talks with President Biden to approve the use of NATO weapons against targets in Russia, even though Russian President Vladimir Putin warned NATO nations that if they lift the restrictions on long-range missiles for Ukraine that such an action will be considered an “act of war.” With Russia as a major nuclear power, that puts us dangerously close to World War III as Ukraine strives to mount more attacks deeper into Russia. So far, there is no news on what Biden and Starmer are willing to approve, so I suspect that they are taking Putin’s warning seriously.

Last Tuesday, The Wall Street Journal featured an article entitled “One Million Are Now Dead or Injured in the Russia-Ukraine War.”  In that article, the Journal pointed out that this is a “staggering toll that two countries struggling with shrinking prewar populations will pay far into the future.”

The Journal also published an editorial last week by noted foreign affairs expert Walter Russell Mead, entitled “U.S. Shrugs as World War III Approaches.” The opening paragraph is s fairly chilling list:

“Washington Post columnist David Ignatius reports from Kyiv that Ukraine is ‘bleeding out’ as its weary soldiers struggle against a numerically superior Russia. The New York Times reports that China is expanding the geographical reach and escalating violence in its campaign to drive Philippine forces from islands and shoals that Beijing illegitimately claims. And Bloomberg reports that Washington officials are fearful that Russia will help Iran cross the finish line in its race for nuclear weapons. These stories, all from liberal news outlets generally favorable to the Biden administration, tell a tragic and terrifying tale of global failure on the part of the U.S. and its allies. China, Russia and Iran are stepping up their attacks on what remains of the Pax Americana…”

– Walter Russell Mead in The Wall Street Journal, September 16, 2024

I should add that the exploding pagers and hand-held radios on thousands of Hezbollah fighters may go down in history as one of the most brilliant military strategies ever. Iran’s envoy to Beirut was also hurt when his pager exploded. Mossad reportedly put explosives in thousands of pagers before they were distributed in Lebanon. These pagers were made in Hungary and licensed by a company in Taiwan.

Tensions in the Middle East remains high, but it will be hard for Hezbollah to retaliate, since most of their fighters are now injured, and their communications have been disrupted. After the exploding pagers and hand-held radios, Israel conducted airstrikes on up to 100 Hezbollah missile launch sites in Lebanon.

Navellier & Associates owns Nvidia Corp (NVDA), and Microsoft Corporation (MSFT) in managed accounts. We do not own Constellation Energy (CEG).  Louis Navellier and his family own Nvidia Corp (NVDA), and Microsoft Corporation (MSFT), via a Navellier managed account, and Nvidia Corp (NVDA), in a personal account.  They do not own Constellation Energy (CEG) personally.