Domestic Energy Sector Continues To Surprise

Published on

In his podcast addressing the markets today, Louis Navellier offered the following commentary.

If you wish to listen to this commentary, please click here. 

Cracking Housing And Services Prices

The Labor Department on Wednesday announced that the Consumer Price Index (CPI) rose 0.4% in April and 4.9% in the past 12 months. Although the CPI was in line with economists’ consensus expectation, what got Wall Street excited was that Owners’ Equivalent Rent only rose 0.4% in April, down from 0.6% in March and 0.8% in February, so finally the fact that housing and rental prices are cooling is showing up in in the CPI report.

Also encouraging was that service prices, excluding energy and housing costs, rose only 0.1%. Food prices were unchanged in April, while energy prices rose 0.6%.  The core CPI, excluding food and energy, rose 0.4% in April and 5.5% in the past 12 months.  Overall, Wall Street was excited that Owners’ Equivalent Rent is now running at the slowest pace in a year and that service costs are moderating.

On Thursday, the Producer Price Index (PPI) will be announced for April.  The PPI has actually declined for the past two months, so the PPI will be also scrutinized for service costs continuing to decline after dropping -0.3% in March.  If wholesale service costs continue to decline, I expect the bond market will celebrate and Treasury yields will meander a bit lower.

Domestic Energy Surprise

So far, with 85% of the stocks in the S&P 500 reporting their first-quarter results, sales have come in 2.5% higher than analyst estimates and earnings have exceeded estimates by 7.3%.  A weaker U.S. dollar has helped many multi-international companies report better than expected results. 

The domestic energy sector continues to surprise to the upside and the big energy giants now have record cash reserves to pay larger dividends, buy more stock back, and make acquisitions.

The leaders have clearly been tech. I am looking forward to Nvidia‘s (NASDAQ:NVDA) guidance. We don’t expect positive sales growth in Nvidia but the analysts revised their estimates higher. Because of the buzz over AI, the cloud computing centers are gearing up and NVIDIA’s chips are increasingly being used. So, it will be very interesting to see what NVIDIA’s guidance will be.

No Progress On Deficit Ceiling

Treasury Secretary Janet Yellen is turning up the heat on her warnings about raising the federal government’s deficit ceiling.  Tuesday’s meeting between House Speaker McCarthy and President Biden did not result in any positive progress, except that negotiations will occur in a few days.  What Wall Street is hoping is that Speaker McCarthy would say that “progress is being made,” but so far there has been no movement. 

Since the House of Representatives did pass a deficit ceiling bill, all President Biden has to do is sign the bill to lift the deficit ceiling, but he does not like the $160 billion in spending cuts in the bill.  So right now, Speaker McCarthy has the leverage, so it will be interesting who blinks first.

The deficit ceiling is a political football and since 2024 is an election year, both sides are seeking to score political points.  However, the Biden Administration has the most to lose, so it will be interesting if there will be any caps on federal spending.  As long as Treasury bond yields do not panic, investors should not panic either.

Coffee Beans: Cash-Loving or Cashless

While some nations in Western and Northern Europe as well as in the Americas and Oceania have shifted to more card payments, much of Asia and Africa continues to run on cash.

Despite popular belief, debit cards were more popular than credit cards in the U.S. and also across most other nations in the past 12 months. Denmark, France and South Korea were the biggest credit card lovers. Source: Statista. See the full story here.