A Week of Shocks

A Week of Shocks Generates Biggest Weekly Drop Since October 2016

by Louis Navellier

March 28, 2017

*All content in the Marketmail Introduction is the opinion of Louis Navellier of Navellier & Associates, Inc.*

The S&P 500 declined 1.24% last Tuesday, breaking a 109-day streak with no daily drop of 1% or more.  It dropped 1.44% for the week – the worst weekly decline since late October, just before the election – but the good news is that Bespoke Investment Group (in “Streak Without 1%+ Down Day Ends,” March 21, 2017) studied all the other times since 1928 when the S&P 500 went 100 or more days without a 1% drop.  On a median basis, the S&P 500 was higher over the next week, month, and three months – by 1.20%, 3.54%, and 4.02%, respectively – after the streak ended.  In other words, the stock market will likely keep rising.

Computer Laptop Image

Tuesday’s decline may have been caused by a scary computer “glitch” at the close of trading last Monday, when at least $150 billion in ETFs were mispriced via the NYSE’s Arca platform at 4:07 PM (EST).  At least six large, widely-traded ETFs were temporarily mispriced, according to The Wall Street Journal (“ETF Trading Glitch Fuels Worries Over Modern Markets,” March 21, 2017).  To the NYSE’s credit, it sent out a quick series of alerts that “all live orders will be canceled” and a backup method would determine prices.

NYSE’s Arca platform is the listing platform for 1,511 ETFs (out of approximately 2,000 ETFs traded in the U.S.), so more ETFs might have been mispriced.  A software upgrade is being blamed for the ETF pricing error, which caused a big scare, but fortunately it did not happen during normal trading hours.

A second shock was the late Friday sell-off after it became clear that the Trump Administration would not be able to “repeal and replace” Obamacare – or the 3.8% tax on investment income.  The infighting in Congress over these “repeal and replace” measures raised additional fears that individual and corporate tax reform might be postponed, but I think that these fears that the “Trump Trade” is stalling are clearly overblown, since the Trump team will now move on to focus on getting other tax cuts through Congress.

In This Issue

In Income Mail, Bryan Perry assures us that the consumer will keep buying, no matter what the market does.  In Growth Mail, Gary Alexander sees hope from the failure of Obamacare reform by redirecting the President and Congress more toward tax reform and regulation repeals.  In Global Mail, Ivan Martchev examines the failing “reflation trade” and the counter-intuitive energy market.  In Sector Spotlight, Jason Bodner explains why the stock market is “overbought” and may finally start trending down.  In my Look Ahead, I will handicap the coming French elections and the crumbling OPEC crude oil output agreement. 

Income Mail:
The Mighty U.S. Consumer Marches to “A Different Drummer”
by Bryan Perry
Pay no Attention to Fake News About an “Over-Extended Consumer”

Growth Mail:
Back to the Basics – Tax Reform and Deregulation
by Gary Alexander
Repeal Counterproductive Regulations in Five Major Industries

Global Mail:
Trouble with the Reflation Trade
by Ivan Martchev
The Latest News from the Energy Patch

Sector Spotlight:
The Magic is Often in What is NOT Seen
by Jason Bodner
Energy & Financials are Falling Fast

A Look Ahead:
What to Expect in France Next Month
by Louis Navellier
OPEC Production Restraints are Crumbling

Income Mail:

*All content in "Income Mail" is the opinion of Navellier & Associates and Bryan Perry*

The Mighty U.S. Consumer Marches to “A Different Drummer”

by Bryan Perry

“If a man does not keep pace with his companions, perhaps it is because he hears a different drummer.”

--Henry David Thoreau

From mainstream media outlets, we constantly hear the moans of those critics who say our “consumer-driven” economy is slowing since the consumer is “tapped out” from having too much household debt, or paying too much for housing, or saddled with student loans, or maxing-out credit cards, or being hooked on that “new car smell.” Yes, there are many overextended families that are not prudent stewards of their finances; but the composite data reflects a healthy uptrend in consumer confidence, spending, and savings.

The facts show that consumer confidence is high, but not overly ebullient; retail sales keep rising, despite all the doom and gloom surrounding mall traffic; and household debt levels have declined since 2010.

United States Consumer Spending Bar Chart

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

Consumer spending in the U.S. rose to $11,655 billion (annual rate) last quarter, up from $11,569 billion in the third quarter (source: Tradingeconomics.com – U.S. Consumer Spending), a 3% annual growth rate over the last quarter and the last six months. Even during the first quarter of 2016, when several countries saw their sovereign 10-year bonds trade with negative yields and the operating phrase of the day was “a global deflationary spiral,” U.S. retail sales posted slightly higher growth from the seasonally strong fourth quarter of 2015. This is a remarkable feat, given the super-bearish tone of the stock market a year ago, when the S&P 500 fell 14% in the six weeks from December 29, 2015 to February 11, 2016.

It is a widely-held belief that stock market corrections of 10% to 15% cause the consumer to hold fast to their purse strings while keeping a close eye on the daily fluctuations in the value of their 401(k), hoping that it doesn’t become a 201(k). But quite frankly, as can be seen by both the two-year graph of the S&P (below) and the three-year bar chart of U.S. Consumer Spending (further below), the consumer is not deterred in any kind of significant manner by short-term setbacks brought about by events beyond our shores.

Standard and Poor's 500 Two Year Index Chart

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

As it turns out, the stock market wasn’t a barometer for consumer demand last year. The labor market and real estate market were displaying good strength during this period of stock market weakness, so most consumers didn’t get that rattled – since there were no glaring signs that the economy was stalling.

United States Consumer Spending Bar Chart

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

From the table above, we can see that the consumer is steadily buying more “stuff” each quarter.

Pay no Attention to Fake News About an “Over-Extended Consumer”

Spending as a whole is at an all-time high while household debt as a percentage of GDP is near a 10-year low (see chart below). The low cost of money (due to super-low interest rates) and a big drop in the price of gasoline have had a materially positive effect on consumer behavior and now, with wage inflation returning, there is good reason to believe more gains are in store for the consumer and the economy.

United States Household Debt to Gross Domestic Product Ratio Chart

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

Even as bank lending rates have climbed from 2.00% to 3.75% for those with sterling credit, the Commerce Department announced last week that new home sales in February surged 6.1% (vs. January) to an annual rate of 592,000, significantly higher than economists’ consensus estimate of 571,000. In the past 12 months, new home sales are at a seven-year high, running 12.8% higher than they were a year ago. The Fed’s rate increases aren’t hurting home sales. Instead, consumers are likely sensing the Fed’s intent to further raise interest rates so they’re getting off the fence to secure low mortgage rates while they last.

In summary, I have laid out the growing evidence that 2017 is shaping up to be another solid year for the U.S. consumer’s balance sheet, and this doesn’t take into account positive catalysts from tax reforms that are now on a fast track after the healthcare repeal and replace effort was scrubbed. My point in this short article is to highlight the durable nature of our consumer-led economy as it defies all the doomsayers.

United States Balance of Trade Chart

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

Although GDP data may be revised lower due to a massive trade deficit in the first quarter of 2017, what defines much of the underlying health of the broad economy is whether job growth, wage growth, savings growth, home appreciation, and household debt are moving in the right direction. I would argue that they are. And I would also argue that the stock market agrees with this line of thinking and that as much as the mainstream media is trying to have us think otherwise, the U.S. consumer is doing fine.

Growth Mail:

*All content in "Growth Mail" is the opinion of Navellier & Associates and Gary Alexander*

Back to the Basics – Tax Reform and Deregulation

by Gary Alexander

Well, that was a wasted month in Washington!  The drive to “repeal and replace Obamacare” ended up with a middle-of-the-road hybrid which many Republicans scorned as “Obamacare light.”  House Speaker Ryan admitted defeat.  When he didn’t even put the new plan up for a vote, the stock market sagged on Friday, only to recover quickly when it dawned on investors that the Trump White House can now turn its attention to two initiatives the business world can get more excited about – tax reform and deregulation.

If the White House and Congress indeed turn their attention to tax reform and deregulation, investor sentiment and the stock market should return to the “mojo” we saw from November through February, when the S&P 500 rose 14.9% – rising from 2,085 on November 4, 2016 to 2,396 on March 1, 2017.

Business sentiment remains at lofty levels.  On March 14th, the Business Roundtable’s CEO Economic Outlook Index – a measure of expectations for revenue, capital spending, and employment –rose a huge 19.1 points to 93.3, the largest quarterly bump since 2009.  Since readings above 50 indicate economic expansion, a reading of 93.3 is absolutely euphoric.  This index, says Ed Yardeni in his March 20th Morning Briefing, “Is highly correlated with the y/y growth rate in capital spending in real GDP, in general, as well as in spending on business equipment, structures and intellectual property.”  Here is the correlation with spending on structures:

Chief Executive Officer Outlook and Capital Spending on Structures Chart

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

Backing up this correlation, the National Association of Home Builders’ confidence index rose six points this month to 71, its highest reading since June 2005 – up from 63 last October, just before the election.

The Business Roundtable survey is based on responses from 141 member CEOs who responded between February 8th and March 1st.  Over half (52%) of the participants said that tax reform would be the single best policy change to create the most pro-growth environment for businesses.  (Is Washington DC listening?)

On the surface, tax reform should be simple.  Shorn of favoritism and tax preferences, a lowering of tax rates and a removal of excessive deductions simplifies the law-making and tax-compliance challenges.  The key is to keep the special interests from rising out of the Swamp Goo and complicating the process.

Corporate tax reform is more urgent than tax reform for our individual tax returns.  We can live with the current tax rates as individuals, for now, but business rates are way too high and punitive.  When corporate tax rates are cut and companies can repatriate their cash back home, it should boost earnings and growth.

Repeal Counterproductive Regulations in Five Major Industries

In contrast to tax reform, deregulation implies the repeal of countless large and small nuisances.  Over-regulation causes a “death by 1,000 cuts” to small businesses.  In the 2016 election campaign, candidate Trump said he intended to cut regulations 70%.  If he can repeal 700+ of the worst 1,000 regulations, then maybe most of those 1,000 stinging cuts can gradually heal – and most small businesses can thrive again.

According to Ed Yardeni (“Unchained,” March 23, 2017), Within 10 days of moving into the White House, Trump signed an executive order requiring federal agencies to slash two old regulations for every new regulation they write.  In addition, any costs generated by the new rule must be offset by costs eliminated by the two revoked regulations.”  Yardeni proposed regulatory reforms in these five major industries:

* Financial companies face more regulations than any other industry, thanks mostly to Dodd-Frank, passed in 2010 as a law containing 2,300 pages and designed to spawn ever-growing lists of regulations. According to Bloomberg, 73 million hours and $36 billion were spent in Dodd-Frank paperwork from 2010 through mid-2016.  Big banks can handle this.  Small banks can’t.  A study by the Minneapolis Fed found that adding two extra members to their compliance team pushed a third of small banks into the red.

Trump also delayed the implementation of a fiduciary rule from the Labor Department, scheduled to go into law this April, affecting up to $3 trillion in retirement assets.  As I wrote last November, this law could force companies to offer index products with low risk, even if they didn’t fit a client’s risk profile.

* Automobile regulations require U.S. auto fleets to have an average 60 miles per gallon by 2025, or 50 mpg for light trucks.  California is pushing for even tougher standards.  Auto dealers say customers won’t buy such wimpy cars.  The National Automobile Dealers Association said these regulations shut seven million people out of the new car market, since these regulations add $3,000 to a new car’s price.

* Energy companies are already prospering from Trump’s actions.  In his first month in office, Trump approved the Keystone XL pipeline and Dakota Access pipeline.  His proposed federal budget would cut Environmental Protection Agency’s (EPA) funding by 31%.  Much of what the EPA does is important but some zealots there have trampled upon common sense.  Trump seeks a balance between the EPA’s core mission of protecting our air and water, while not attacking businesses that attempt to create clean energy.

* Homebuilders face a wide array of regulations and building codes, some of which make sense, but most of which don’t.  Last August, candidate Trump told the National Association of Home Builders that “25% of the cost of a home is due to regulation. I think we should get that down to about 2%.”  One example is “The Waters of the U.S. Rule,” which expanded the reach of the Clean Water Act to “wetlands and other waters.”  This law subjects ponds, creeks, and ditches on private property to federal oversight.

* Pharmaceutical companies are subject to long testing requirements and those maddening disclosures for TV or print ads – like “you may die from this drug,” even though dying may be a one-in-a-million chance.  Drug industry CEOs met with President Trump in late January and were told to bring their production facilities back to America and bring drug prices down in exchange for reduced regulations.

By singling out these five sectors, I am not saying that stocks in these sectors are your best investments.  The algorithmic traders will be all over the ebb and flow on anticipation of deregulation in all five sectors. I’m more of an investor than a trader, so I believe in owning good companies in each of these five sectors.

Global Mail:

*All content in "Global Mail" is the opinion of Navellier & Associates and Ivan Martchev*

Trouble with the Reflation Trade

by Ivan Martchev

When the Trumpnado hit the bond market after the U.S. election last November, the majority of investors assumed that we were going to have higher interest rates, faster economic growth, a stronger currency, and all the wonderful things that stemmed from the election promises of the new Trump administration.

While the failure to repeal Obamacare last week does not mean that all his election promises will follow the same fate, it does suggest that negotiating skills in business are very different than negotiating skills within the multiple factions of the Republican Party. Perhaps the President is a fast learner and by mid-summer he will show notable progress on the multilateral intra-party negotiations front. Still, I remain convinced that his tenure as President so far could be described as Presidential Apprentice, Season 1.

Comical parallels aside, the reflation trade in the stock, bond, and currency markets as a consequence of the Trump victory is showing signs of fatigue and, in some cases, reversal. Here are two examples.

(1) The U.S. Yield Curve Is Flattening Again

While the difference between 2-year Treasury note yields and 10-year Treasury note yields expanded sharply right after the election, it peaked in December at 134 basis points. Last week it declined to 115 basis points. This is still significantly better than what we saw in August 2016 at 76 basis points, but it is not inconceivable that we will see the 2/10 spread continue to shrink as the election season in Europe intensifies, Brexit negotiations heat up, and tax reform in the U.S. Congress grinds toward passage.

United States Ten Year Government Bond Versus United States Two Year Note Chart

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

While tax reform may be easier to pass than Obamacare repeal, many conservative Republicans ran on platforms to shrink the federal deficit. As I understand it, the President's tax reforms assume a rise in the federal deficit in the first two years after implementation. Longer-term, if a large part of the corporate cash parked abroad comes back to the U.S., corporate taxes are reduced, and a sensible infrastructure program is in place, the economy may see a boost resulting in higher tax receipts. But such tax reform needs to pass the House and the Senate, so Trump’s still-to-be-honed intra-party negotiation skills will have to play a major role. Some economists are already factoring in a smaller tax cut than first proposed.

(2) The U.S. Dollar is Weaker Than Expected

Taking its cues from a flattening yield curve, the U.S. Dollar Index has slumped a bit below 100 (from 103). I don't think that this decline is purely interest-rate-driven, as the Dutch parliamentary election on March 15th was a victory for pro-EU political parties. This caused a relief rally in the euro – the largest component of the U.S. Dollar index (at 57.6%) – and a relief rally spillover in other currency crosses.

United States Dollar Index Chart

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

The political risk in Europe is reflected in the action in the 2-year bundesschatzanweisungen (“Schatz”) yield, which closed at -0.74% last week. While I would admit that this is an improvement compared to the record low -0.96% registered on February 24, the “Schatz” yield is firmly stuck in negative territory.

A retired commercial banker told me last week that he did not understand why depositors place money in accounts with negative yields. I explained that a negative Schatz yield is an “insurance premium” against the domino effect expected upon a dissolution of the EU and eurozone, which would likely result in sovereign defaults and bank failures. Since the German federal government is the least likely to default in such a scenario, it gets to charge investors 0.74% a year to hold their money safely for up to two years.

Germany Two Year Schatz Yield Chart

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

Still, I expect to see pressure on the euro as the French Presidential election draws near on April 23rd, followed by the all-important runoff on May 7th. Then there is the German federal election on September 24th. Along the way come the Brexit negotiations, which may be problematic for both the EU and Great Britain as I do not believe that the powers in Brussels will want to give any other EU member incentive to leave. The euro still carries quite a bit of political risk for it to be considered home-free at the moment.

But it is the Japanese yen – the second heaviest weighted component of the U.S. Dollar Index at 13.6% – that is raising the most interesting questions as to the viability of the “reflation trade.”

Japanese Yen Index Chart

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

The yen should be under a lot of pressure, given Japan’s QQE (“quantitative and qualitative easing”) policies. QQE is the closest thing to unlimited QE that central banks have so far devised. Despite QQE, the yen is holding its ground. (For more, see my February 11, 2017 Marketwatch article, “The stronger yen may be a warning for stock-market bulls”). The yen tells me that global growth, including growth in Japan, may be reducing the yen-funded carry trades – a sign of caution.

The Latest News from the Energy Patch

The oil price is weakening at the beginning of the strong-demand season. Some other commodities are performing similar swan dives, but oil is the most important commodity, so it draws the most attention.

GSCI and CRB Commodities Index Chart

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

I keep an eye on the major commodity indexes because they are doing exactly the opposite of what they are supposed to do this time of the year – going down, not up. I realize that there was a lot of euphoria following the Trump election victory, but reality seems to be creeping back into the commodity markets.

The #1 consumer of oil, and most commodities for that matter, is China. I think this weakness in major commodity indexes is a combination of weak Chinese demand and abundant oversupply. While a couple of weeks of weak commodity prices is no big deal, it will become a very big deal if it extends deep into the spring and summer. The fact that the commodity indexes are weak with a somewhat weak U.S. dollar indicates to me that this reflects a weak-demand problem.

Crude Oil Chart

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

Oil prices are now seeing deepening contango – in which near-term contracts are getting cheaper relative to longer-dated contracts. This is precisely the opposite of what should be happening as seasonal demand picks up. (Contango simply means oversupply – too much oil on the market.)

 

I think that $40 per barrel is where the bulls will start to panic. I also think that $40/bbl oil means a much weaker global economy than what consensus opinion presently estimates. Should we get there, that would be a clear sign that the Trump reflation trade is in trouble.

Sector Spotlight:

*All content in "Sector Spotlight" is the opinion of Navellier & Associates and Jason Bodner*

The Magic is Often in What is NOT Seen

by Jason Bodner

How many times have you heard a magician say, “Pick a card”? A good magician usually follows with feats that cause you to doubt your own eyes. David Blaine performed a card trick in which he correctly identified the card of choice by hurling the entire deck at a restaurant window from the street. The correct card was stuck to the inside of the glass. The art is in the presentation, but the science is in the psychology of deception. Obviously, deception is not limited to the world of entertainment and it can be used for beneficial or destructive purposes. Either way, deceiving people has been the intent of many leaders.

Card Trick Image

Take the case of a dead Welsh tramp. In World War II, the British dressed up a dead Welshman named Glyndwr Michael as “Major William Martin” of the Royal Marines. They delivered his body to Spanish shores, where it fell into the hands of German spies. “Martin” carried forged top secret documents that claimed Greece and Sardinia – not Sicily – were the sites for the first Allied invasion of Europe in 1943.

“Operation Mincemeat” was such a success that Hitler moved forces from Sicily to Greece and Sardinia. This operation also caused Hitler to be so skeptical of future information that he ignored accurate data about the D-day landings. So you could say this dead Welshman altered the course of the entire war.

Naval Identity Card Image

When deception is executed well, lies can seem true. Call it information alchemy. Consider these facts: George Washington did not have wooden teeth, Cleopatra was not Egyptian (she was Macedonian Greek), Napoleon was taller than the average man of his day, there is no evidence that Lady Godiva rode unclothed through the streets, and there is no archeological evidence that Vikings wore helmets with horns, even though composer Richard Wagner added horned helmets for his “Ring” operas in 1876.

The Trump administration, whether intentional or not, has brought us a shocking new level of distraction. New stories unfold on a daily or hourly basis – so quickly that it’s hard for the average person to keep up with the news. The commander-in-chief is having a hard time with public perception about his credibility. He is obviously an excellent businessman and very skilled at getting what he wants. This mix of talents creates a potential recipe for perception becoming reality, regardless of the facts. That may seem hard to swallow in our current Information Age, but just look at the daily struggle to get the “real story” on anything. Humans are impressionable but we tend to believe what we want to believe, regardless of fact.

How does this relate to the market? Unlike our divided politics, we must strive to remain impartial when it comes to matters of the purse. Nearly every metric out there shows the market to be heavily overbought.  This doesn't mean people won't keep buying, of course. One metric I value is institutional buying and selling. I believe that institutions lead the market and when they lighten their buying or start selling, it tends to act as a precursor of market reversions. I have noticed institutional buying drying up – and selling commencing – for a few weeks now. I have brought this to your attention in previous columns. That trend continues as the market appears to be losing steam – with previous winning steaks being snapped.

Energy & Financials are Falling Fast

Energy fell every day last week, bringing its selling streak to seven straight days. The week was not a pretty one for Financials. The S&P 500 Financials index slid -3.81%, with most of the decline coming on Tuesday. Financials had only one positive day (Thursday) and it was only +0.20%. Last week pushed the Financial sector into negative territory for the last three months, joining Telecom’s and Energy’s red ink.

The positives last week came from a rotation into Real Estate and Utilities. Consumer Staples, while down -0.72% for the week, was the third strongest sector. These sectors reflect a more defensive strategy.

Standard and Poor's 500 Sector Indices Changes Tables

Any enduring belief that the market is unstoppable will, of course, end badly, since markets invariably fall after rapid increases. The market over the next 50 years will likely vault to new highs, so we find ourselves in the midst of conflicting perception driven by varying time frames. Within the next few weeks, I feel cautious due to the prevailing overconfidence. I am seeing more indications of rising selling volume each week. This, of course, makes sense as the market seems “toppy.” The first likely people to get out are the “smart” money – the big boys. Along the way, long-term investors will likely buy into weakness, believing that they are once again able to pick up good deals whenever the market sells off.

Algorithmic traders love volatility, so I expect to see volatility rise near-term. The market has had an immense run and is naturally due for a pullback. When it comes, however, so will fear and negativity.

Perception has a way of becoming reality. We see it everywhere, whether it’s inadvertent or forced. Just as a dead Welsh tramp was perceived to be a Major carrying military secrets, or Cleopatra is assumed to have been Egyptian, or Napoleon short, information has a way of getting warped. Lately, the market is perceived to be unstoppable. Sometimes that deception is an intentionally-created illusion. When it is, watch out.

Verbal Kint in Usual Suspects had a memorable quote which was actually paraphrased from Charles Baudelaire: “The greatest trick the devil ever pulled was convincing the world that he does not exist.”

Verbal Kint in 'Usual Suspects' Image

A Look Ahead:

*All content in this "A Look Ahead" section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

What to Expect in France Next Month

by Louis Navellier

My European contacts tell me that they think Marine Le Pen will not become the next President of France, despite her impressive showing during the first Presidential debate – which lasted a grueling 3-1/2 hours last week.  Currently, Le Pen leads all the five other candidates with 27% support (the other four range from 3% to 24%).  It is widely anticipated that Le Pen will face a runoff on May 7th against either Emmanuel Macron or Francois Fillon, who currently poll at 24% and 20%, respectively.  However, even though the French elite dismiss Le Pen, she leads widely in “secret” polling.  Just like President Trump, who never got a majority in public polls, but won the Republican primary and general election, Le Pen has the momentum against any less opinionated “coalition” choice, who would appeal to the moderate voters.

Interestingly, the euro has rallied steadily against the U.S. dollar in the past six weeks, but a Le Pen victory on April 23rd (or, more likely, in the runoff May 7th) would be a bigger shock than either Brexit or Trump’s victory.  The simple fact of the matter is that nationalism is on the rise in Europe as well as America.  That was evident at last week’s meeting of G-20 finance ministers, who admitted that free trade agreements are now less likely to pass in Britain, continental Europe, or the U.S.  As a result, the EU will likely continue to lose its influence, especially if nationalistic movements, like those of Le Pen, grow in popularity.

OPEC Production Restraints are Crumbling

OPEC’s production restraints, drafted November 30, 2016, are crumbling.  Libyan ports reopened last week and put more downward pressure on worldwide crude oil prices.  The Wall Street Journal reported last Tuesday that Saudi Arabia is losing its grip on controlling crude oil prices due to higher production from Iran, Russia, and the U.S.  Russia has apparently outmaneuvered Saudi Arabia on supplying China’s oil needs.  Additionally, Iran has outmaneuvered Saudi Arabia on supplying major European customers in France, Italy, and Spain, according to the International Energy Agency.  Saudi Arabia has curtailed its crude oil output by almost 800,000 barrels per day since October – 60% more than it promised last November – but Iran and many smaller OPEC producers are not abiding by their pledge to curtail production.  As a result, the next OPEC meeting is not expected to be very friendly, especially between Iran and Saudi Arabia.

In North America, seasonal demand is poised to rise significantly as the weather warms.  Specifically, U.S. shale producers have boosted their drilling rig count by 14 to 631, the ninth consecutive weekly increase, according to data from Baker Hughes.  In fact, shale producers have added 106 drilling rigs so far this year.

Drilling Rigs Image

Inflationary fears are fizzling fast, especially after the Energy Information Administration reported on Wednesday the U.S. crude oil inventory rose by five million barrels for the tenth increase in the past 11 weeks.  The declining oil price is also bringing first-quarter GDP down to an estimated 1% or less.  As inflationary forces fizzle, the 10-year Treasury bond yield has fallen from 2.62% to 2.40% in the last two weeks.  Naturally, lower bond yields are great news for high dividend stocks and more stock buy-backs.

As Bryan Perry wrote, above, lower longer-term bond yields mean that mortgage rates may moderate a bit and help boost home sales.  In the past 12 months, new home sales are running 12.8% higher than a year ago, which is good news for homebuilders and their suppliers.  Over the same 12 months, inventories of homes for sale have fallen by 6.7% while median prices are up 7.7%, a clearly tightening housing market.

In a final piece of good news, the Commerce Department announced that durable goods orders surged 1.7% in February after rising a revised 2.3% in January.  Like January, commercial aircraft orders led the way, rising almost 48% vs. a 1% decline in automotive orders.  Excluding transportation, durable goods orders rose 0.4% in February – up for the sixth consecutive month.  Defense spending was also a drag on durable goods orders but it is expected to perk up in the upcoming months due to Trump’s higher defense spending.  Overall, the manufacturing resurgence continues and will undoubtedly help boost GDP growth.


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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 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. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

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 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. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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