February 12, 2019

One reason why so many companies continue to post better-than-expected earnings is due to the fact that 2018 was the biggest year ever recorded for stock buy-backs. I do not have the final buy-back figure for 2018 yet, but since over $800 billion in stock buy-backs were announced earlier in the fourth quarter, I suspect that there were between $800 billion and $1 trillion in stock buy-backs for all of 2018.

Writing against these stock buy-backs, Senators Chuck Schumer and Bernie Sanders wrote an opinion piece in The New York Times last week arguing that “Corporate self-indulgence has become an enormous problem for workers and for the long-term strength of the U.S. economy.”  In this opinion piece, Schumer & Sanders said, “When a company purchases its own stock back, it reduces the number of publicly traded shares, boosting the value of the stock to the benefit of shareholders and corporate leadership.”

Frankly, I am at a loss to why Schumer & Sanders believe that companies should avoid trying to benefit their shareholders, especially since workers’ pensions are typically invested in the stock market, often with heavy concentration in company stock. Schumer & Sanders were apparently attempting to insinuate that stock buy-backs hurt workers, but they provided no evidence that stock buy-backs hurt workers!

Overall, I found the Schumer & Sanders’ NYT opinion piece to be truly bizarre and meaningless.

The Economic News Remains “Mixed,” Confounding Fed Watchers

The economic news last week was mixed, confounding the Fed – and Fed watchers. First, the Commerce Department announced that factory orders declined 0.6% in November, due to sharp declines in electrical equipment and machinery attributable to falling energy prices. Economists were expecting factory orders to decline 0.2%, so this was a big surprise. Interestingly, the Commerce Department also reported that durable goods orders rose by a revised 0.7% in November, down slightly from 0.8% previously estimated.

On Tuesday, the Institute for Supply Management (ISM) reported that its non-manufacturing (service) index decelerated to 56.7 in January, down from 58 in December. Although any reading above 50 signals an expansion, this was the lowest ISM service index reading in six months, so the service sector’s growth appears to be slowing a bit. A big decline in the new orders component to 57.7 in January, down from 62.7 in December, was largely responsible for the drop. Eleven of the 18 industries surveyed reported growth, while seven industries contracted. Overall, some of this deceleration appears to be weather-related, since agriculture, forestry, education, retail, and information industries reported lower revenue.

On Wednesday, the Labor Department reported that U.S. productivity surged 1.3% in the fourth quarter. This is good news for fourth-quarter GDP estimates. The GDP will also be boosted by the fact that the Commerce Department reported on Wednesday that the U.S. trade deficit declined to $49.3 billion in November, the first decline in six months. A smaller trade deficit usually triggers upward GDP revisions.

Interestingly, President Trump and Treasury Secretary Steven Mnuchin had dinner with Fed Chairman Jerome Powell at the White House last week. I suspect now that Fed Chairman Powell is doing what President Trump wants, namely not raising key interest rates, the dinner was very cordial, especially since it was Powell’s 66th birthday. What is unknown is whether or not the Fed is also taking the stock market into consideration in its decision-making process. Since the Fed acknowledged that it is reluctant to raise key interest rates due to global events (like the China trade negotiations and economic slowdown, Brexit, etc.), I suspect that the Fed also is being influenced a bit by the stock market, but right now Treasury yields remain low, effectively tying the Fed’s hands from further raising key interest rates.

Finally, the situation in Venezuela remains tense. Tankers full of crude oil are sitting offshore, since the U.S. will not pay Petróleos de Venezuela, S.A (PDVSA) as long as Nicolas Maduro remains President and controls the military. Desertions among his rank and file soldiers are steadily rising, so it appears that Maduro’s days are numbered. National Assembly leader Juan Guaido has promised military defectors amnesty, so it will be interesting to see if military desertions continue to rise. Senator Marco Rubio said on Thursday that Juan Guaido will name a new board for Citgo, which is a U.S.-based refinery owned by PDVSA, so Maduro’s influence is fizzling fast. Overall, the standoff in Venezuela remains a mess, but with its oil revenue severely restricted, Maduro will not be able to pay his military leaders much longer.

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