January 2, 2019

Before Christmas, President Trump effectively declared the Federal Reserve as the #1 enemy of the stock market.  The Wall Street Journal reported that President Trump said that the Federal Reserve is “the only problem our economy has,” adding that the Fed doesn’t “have a feel for the stock market.”

In his Christmas message, the President was more conciliatory when he said the Fed is “raising rates too fast because they think the economy is so good.  But I think they will get it pretty soon.  I really do.”  Trump added that “I mean, the fact is that the economy is doing so well that they raised interest rates and President Obama had a very low-interest rate. We have a normalized interest rate, a normalized rate, it’s good for a lot of people. They have money in the bank, they get interest on their money.”

Although President Trump seemed to be rambling a bit in his Christmas message, the good news is that the Fed Funds futures market is not (as of now) expecting another key interest rate hike by the Fed in 2019.  As I have said multiple times, the Fed does not like to fight market interest rates and does not want to invert the yield curve, so for all practical purposes, the Fed may be done raising key interest rates.

As I mentioned on last Monday’s podcast, the Fed can no longer raise key interest rates, no matter what their official Federal Open Market Committee (FOMC) statement said, since market rates have fallen significantly, and the Fed never fights market rates.  Here is a sampling of the falling Treasury yields:

Complicating matters, Treasury Secretary Steven Mnuchin summoned a call with the top officials at the Federal Reserve, the Securities & Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC) to discuss coordination efforts to assure normal market operations. Secretary Mnuchin also called the heads of six major banks to reassure them that there are no liquidity problems and, specifically, no “clearance or margin” issues, and then he issued a press release.  Unfortunately, Secretary Mnuchin’s efforts were grossly misinterpreted by the financial media to imply that the U.S. might be on the verge of another financial crisis, which just exacerbated the situation and likely triggered more selling pressure.

Interestingly, there was also a Treasury Department statement that said, “With the government shutdown, Treasury will have critical employees to maintain its core operations at fiscal services, IRS, and other critical functions.”  In other words, we still have to pay taxes for government services we’re not getting.

Treasury yields should remain under pressure as a strong U.S. dollar continues to attract international capital and push Treasury yields lower. Based on recent Treasury auctions, the bid-to-cover ratios remain healthy around 2.8 to 1 as yields meander lower.  In other words, there is no “debt bomb” about to go off. The U.S. remains an oasis for international investors fleeing low interest rates and weak currencies.

As a result, I remain optimistic for 2019, despite the fact that the financial media refuses to report any good news, such as falling market interest rates, as well as record corporate earnings and stock buy-backs.

The Stock Market Decline Has Hit Consumer Confidence Hard

Last Thursday, the Conference Board announced that consumer confidence declined sharply to 128.1 in December, down from a robust 136.4 in November.  Previously, consumer confidence peaked at 137.9 in October.  There is an amazing diversion between super-high “present situation” beliefs and sharply lower “future expectations.” Specifically, the present situation component remained high at 171.6 (down a bit from 172.7 in November), while future expectations declined sharply to 99.1 (down from 112.3).  The resulting 72.5-point spread between the “present situation” and “future expectations” is second only to the all-time high set in 2001, right before a recession, so this is a statistical anomaly we should watch closely.

The best economic news last week was that the consumer kept spending in the holiday season, despite the stock market’s decline. According to MasterCard SpendingPulse, consumer spending between November 1 and December 24 reached $850 billion, up 5.1% vs. a year ago. During this period, MasterCard SpendingPulse said that online sales surged 19.1%, apparel sales rose 7.9%, and sales at brick & mortar stores rose 3.3%. Interestingly, department store sales declined 1.3% due largely to store closings. Clearly, consumers were in a good mood this holiday shopping season, despite the wild stock market!

The demand for bigger ticket items – like homes and cars – remains lower. On Friday, the National Association of Realtors announced that pending home sales declined 0.7% in November to a 4-month low. In the past 12 months, pending home sales have declined 7.7%. Interestingly, the federal government shutdown has temporarily shut down Federal flood insurance, which is estimated to reduce pending home sales by 40,000 per month, so I expect this decline in pending home sales to continue.

Speaking of the federal government shutdown, the U.S. Bureau of Economic Analysis is suspending all its data releases! In the meantime, during his Christmas message, President Trump said that the recent decline in U.S. stock markets is a buying opportunity for investors. As usual, the stock market does not seem too upset over the federal government partial shutdown over the border wall funding issue. In his Christmas message, President Trump said that the government is going to remain partially shut down “until we have a wall (or) fence.” Overall, it looks like the federal government shutdown will continue well into January, especially since most of the Congressional leadership is on vacation.

Interestingly, I should add that the crude oil market is actually more volatile than the stock market lately. On Wednesday, crude oil prices surged over 8% for the biggest daily gain in more than two years, based on speculation that worldwide demand would remain strong in 2019. Even with the surge in crude oil prices on Wednesday, crude oil prices ended the week approximately 40% lower than in October, when oversupply concerns caused crude oil prices to plunge. The truth of the matter is that crude oil is seasonal because worldwide demand declines in the fall and rises in the spring. As a result, much of the decline in crude oil prices could be attributable to weak seasonal demand. When worldwide demand picks up in the spring, hopefully crude oil prices will find equilibrium and settle into a much tighter trading range.

About The Author

Louis Navellier

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. *All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*


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 hypothetical 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 hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) 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.

Marketmail Archives