by Bryan Perry

February 11, 2020

If someone says, “I bring you good tidings!” it usually means they have information to share that you’ll probably like. This week, I bring you “good tidings of economic joy” to embrace and be thankful for.

While it is easy to post a series of recent bullish raw data points – like ISM, ADP, Factory Orders, Trade Balance, Durable Goods, Advanced GDP, and Retail Sales – Louis Navellier has already done that for us (above). But what hits home to most Americans are other statistics that are discussed at the kitchen table.

Five weeks into 2020, the list of fortunate data points for average Americans includes:

  • 30-year fixed rate jumbo mortgages are down to 3.8%.
  • Refinance rates as low as 3.06%.
  • The national average price of gasoline is $2.43 per gallon.
  • The Monthly Housing Affordability Index is at its best level since early 2018.
  • The inflation rate for groceries has declined for three consecutive months, to a 1.8% annual rate.
  • Hourly earnings accelerated by 3.1% from a year earlier to $27.16 per hour.
  • Consumer confidence is at its highest reading in eight months, rising to 135.7.
  • The dollar exchange rate is at a 2-year high for Americans traveling overseas.
  • U.S. Retirement Assets have risen from $22.2 trillion in 2016 to over $29.0 trillion now.

These household markers are what matter to most Americans when sizing up their own personal situation.

In fact, there is an index that measures just this sort of quasi-anecdotal evidence. The Present Situation Index sub-index of the Consumer Confidence Index measures overall consumer sentiment regarding their present economic situation. It is then combined with another sub-index, the Expectations Index, that takes into account a forward six-month outlook. The two combined create the Consumer Confidence Index.

So, against the backdrop of the coronavirus outbreak, the impeachment hearings, the Iran crisis, and a hard Brexit from the EU, the latest survey conducted by the Conference Board on January 28, 2020 summed up just how rosy consumers feel about their economic well-being: “The Conference Board’s Consumer Confidence Index increased in January, following a moderate increase in December. The Index now stands at 131.6 (1985=100), up from 128.2 (an upward revision) in December. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – increased from 170.5 to 175.3, while the Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – increased from 100.0 last month to 102.5 this month.”

The University of Michigan Consumer Sentiment index is also near 100, its peak reading in recent years:

University of Michigan Consumer Sentiment Chart

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

What’s nice to see from my vantage point is how skeptical many investors still are towards the current stock market rally – probably “the most unloved rally of all time.” Having just returned from the World Money Show in Orlando, where roughly 5,000 investors converged on the Omni Hotel in Champions Gate, there was a persistent tone of caution that permeated each of the workshops I conducted or attended.

While investors clearly displayed an “attitude of gratitude” about their current market gains, there is also a broad-based curiosity about just when market conditions will get worse. In years past, attendance at the Money Shows was always light during bull markets, mainly because things were going right, and investor confidence was high. This time around, however, with the market at a record high and attendance up, the takeaway I got from the audience was that they were looking for a timely exit from the stock market!

It felt like these investors weren’t there to make money. They were there to learn how to preserve their capital while still being long in equities and while looking at what bearish triggers to be on the lookout for. There were plenty of astute questions and insightful conversations. It was all very enlightening.

The common denominator within most of the conversations I had centered on the Fed’s eventual winding down of its current stimulus program. Financial firms and investors want to know what the Fed’s exit strategy will be after it became a dominant player in the repo market. The Fed began intervening in the overnight lending markets for cash in mid-September, when a liquidity shortage pushed short-term borrowing costs up to 10%, or more than four times the top of the federal funds target range at the time.

The Fed started growing its balance sheet a month later, with the goal of raising reserves to a level where daily market operations would no longer be needed. The Fed added almost $400 billion in recent months to keep credit flowing by means of short-term “repo” operations and outright purchases of U.S. Treasury bills, It is nearing its all-time high of $4.5 trillion set in the aftermath of the Great Recession of 2008.

Federal Reserve Total Assets Chart

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

The reason for the Fed’s intense intervention was a deluge of Treasury bonds to fund the federal deficit, which in turn raised fears that financial institutions would run out of cash to fund short-term debt.

Repo Support Chart

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

The underlying risk in this very complicated scenario is that the interventions “were basically to regain control over the price of money,” according to Lyn Alden, founder of Lyn Alden Investment Strategy in an interview with MarketWatch. “If they had not intervened, the repo rate probably would have stayed in the double-digits, which could have spread to the Treasury market.”

This is the kind of financial risk that flies over the heads of ordinary investors that aren’t privy to the intricate plumbing that makes the financial system stable. What they do understand is that at some level, at some time in the future, there will be a tipping point where the ballooning federal deficit causes price instability and is the “elephant in the room” that isn’t being addressed because the economy is growing.

Seeing how the current bull trend has survived the recent threats and headwinds only to thrive and drive to new lifetime highs, it will take a grand scenario or massive black swan event to undo a shrinking array of stock names being pursued by what seem to be limitless fund flows.

If the current bull market is to be extended on a secular basis, it stands to reason that a genuine effort to reduce the budget deficit in good times would extend the good tidings for Americans for years to come.

Let’s hope that line of thinking is shared among all the puppet masters in Washington.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
The Good Economic News Keeps Rolling In

Income Mail by Bryan Perry
Good Tidings for the Average U.S. Household

Growth Mail by Gary Alexander
Will the Coronavirus Infect This Bull Market?

Global Mail by Ivan Martchev
New Lows Coming for Crude Oil?

Sector Spotlight by Jason Bodner
The 5% Correction Was Over in a Flash. What’s Next?

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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 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 performances should be considered mere “paper” or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates’ Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, 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.