January 22, 2020

So far this year, the NASDAQ Composite is up 4.64% (through Friday), but the small-stock Russell 2000 is up only 1.87%. In fact, the Russell 2000 went two weeks into the New Year before it showed any gain at all. The NASDAQ 100 is up ever sharper (+5.05%), showing how Big Buying is concentrated in the biggest tech stocks. It was the same back in 1999. While the Dow and S&P 500 had decent years – up 25.2% and 19.5%, respectively, according to The Almanac Investor – NASDAQ was up 85.6% in 1999.

Dipping a few months back into 1998, NASDAQ actually rose 256% in 17 months, while the Dow and S&P 500 didn’t even gain 50%. In those 17 months, NASDAQ gained nine times more than the Dow.

NASDAQ: The Runaway “Bubble” Index of 1999….and Now?

The NASDAQ Runaway Bubble Index of 1999 Table

This division became even more defined after the Dow peaked on January 14, 2000, while the S&P 500 kept climbing and NASDAQ soared, virtually “melting” up +19.2% in February 2000 and adding another +10.4% in the first 10 days of March. In the first 10 weeks of 2000, the indexes went opposite directions:

First 10 Weeks of 2000: NASDAQ Soars, Dow Falls

NASDAQ Soars, Dow Falls First Ten Weeks of 2000 Table

Something similar happened in the first half of April 2000. On Monday, April 3, 2000, NASDAQ collapsed by 349.15 points, the largest point drop to date and the first giant step backward in a 1,250-point (-27.4%) drop in the first two weeks of April 2000. Ironically, the Dow Jones Industrials rose exactly 300 points (OK, +300.01) on the same day NASDAQ fell 349.15, on April 3, 2000. For the first 12 days of April 2000, NASDAQ collapsed by 17.6% while the Dow Industrials rose by nearly 2%.

Now, 20 years later, the “turtle” in this fable (the Dow) is still winning the long-term race, while the “hare” (NASDAQ) is still playing catch-up, since NASDAQ still tends to fall faster than it rises:

Percent Change of Three Indices from Their 2000 Peaks Chart

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

This is clearly a “tale of two markets,” with NASDAQ exploding far faster and higher, then falling even farther and faster. Recently, we see NASDAQ rising 35.2% in 2019 vs. 22.3% for the Dow, with the semiconductor index up 60.1% last year, so the same thing is beginning to happen all over again.

Here are the 11 S&P 500 sectors (and the S&P 500) since Trump was elected. One sector stands out:

Standard and Poor's 500 Sectors Performance Indices Chart

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

The brown line on top leading the pack is “Information Technology,” up 108.7% since Election Day – more than double the S&P 500 (+53.4%). There are some good fundamental reasons for that leadership but the frothy spike in the last six months may represent herd buying by the mob, fueling an “overbought” condition of certain mega-stocks and fad stocks within that category. The Dow stocks, by contrast, have lagged, even though they have thrown off higher dividends. This is what created the bifurcated market in 1999-2000, and it may be happening again. I believe this is one reason why Louis Navellier is warning against certain “bubble” stocks in NASDAQ and the high-tech world while also predicting a 40,000 Dow.

The Outlook for Stocks in an Election Year

The mention of the Year 2000 obviously brings up the question of election years. Y2K was a highly controversial election in the end, since it came down to a Supreme Court decision over “hanging chads” in the Florida ballots between George W. Bush and Al Gore, but there was no way to know that in March and April, when NASDAQ was crashing. There was actually a strong rally in the summer, when the S&P returned to its March highs (1520) during the Labor Day weekend before slipping back down in the fall.

Maybe the market didn’t care for the prospects of either Bush or Gore that year. Likewise, in 2016, the nation had to plug its nose to choose between two flawed candidates, but it was widely expected Hillary Clinton would win, and the markets were exceptionally flat regarding those expectations in 2015-16:

Standard and Poor's 500 Daily Index Chart

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

Many pundits predicted a market crash if Trump were elected. When it appeared Trump would win on election night around midnight, Nobel-Prize winning economist Paul Krugman filed this prediction in the New York Times: “If the question is when markets will recover, a first-pass answer is never.” It didn’t quite work out that way. The S&P 500 is up 53.4% since Trump was elected president (see chart, above).

Right now, it looks like the markets expect Donald Trump to be reelected, while analysts are predicting an S&P earnings collapse if anti-corporate zealots like Elizabeth Warren or Bernie Sanders gain the 2021 Oval Office. Legendary hedge fund analyst Paul Tudor Jones sees S&P 500 earnings plunging 25% in a Warren Presidency, with the index falling perhaps more than 25% if the P/E ratio dips lower in tandem.

Usually a President with positive economic fundamentals is a shoo-in for a second term, but this one has a “challenging personality,” to put it kindly. Still, how can voters argue with the economy of the last three years, resulting directly from pro-business policies that would likely be reversed by Warren or Sanders.

  • A CNN poll (a very anti-Trump network, by the way) shows that 76% of Americans believe the economy is “very good.” That’s 9 points above last year’s reading and the highest rating in 19 years.
  • Wages are growing four times faster than in the Obama era.
  • African Americans now have the lowest unemployment in 20 years.
  • Income percentage increases are the greatest at the lowest income levels.
  • Real median household income is at a record $66,000, after stagnating for years.

All bets are off with a Warren or Sanders presidency, but if we see either Trump or a business-friendly Democrat gain the White House, with a balance of political Party control in Congress, we should enjoy a continued bull market in 2021, along with a stronger Dow and perhaps a correction in the NASDAQ.

Source: https://www.cnn.com/2019/12/20/economy/trump-economy/index.html.
The rest of the list is from Jay Ambrose’s column in the Tribune News Service.
https://www.limaohio.com/opinion/392964/jay-ambrose-trump-economy-a-worry-for-democrats

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

Important Disclosures:

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 a 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.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

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 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 holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and 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 every investor. 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. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

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 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.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.