After a Flat 2015

After a Flat 2015, Wall Street Faces Big Hurdles in 2016

by Louis Navellier

January 5, 2016

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

Puerto Rico Street ImageIn the first couple of weeks of 2016, the overall stock market will likely face some significant hurdles as evidenced by the 467-point decline in the Dow Jones Industrial Average (DJIA) yesterday, before the index finally rallied in the last 35 minutes of trading to close down “only” 276 points.

One big hurdle will be Puerto Rico, which on Wednesday confirmed that it would have a partial default on some of its interest payments due January 1st. On December 24, U.S. Treasury Secretary Jack Lew said that Puerto Rico is “effectively in default” and Congress must address the problem in the first quarter.

It will be fascinating if Puerto Rico is used as a trial balloon for corporate tax reform, since once its corporate tax breaks expired in 2006, the human and capital flight out of Puerto Rico accelerated in recent years (see Wall Street Journal, June 28, 2015: “Puerto Rico Has No Easy Path Out of Debt Crisis”); so it is possible that Puerto Rico will be used as a debating point in corporate tax reform negotiations.

The second hurdle that the stock market may face is a wave of analyst downgrades due to the negative impact of a strong dollar on bottom line profits. There is no doubt that fourth-quarter earnings are fighting a massive currency headwind, which is also fueling lower commodity prices. With 48% of the S&P 500’s sales outside of the U.S., in 2014 (see Wall Street Journal, July 15, 2015), the negative impact of a strong U.S. dollar should not be underestimated.

A third hurdle that the market must face is that the frothy 2015 leaders in the S&P 500 may face massive sell offs soon. For instance, Netflix trades at over 304 times trailing earnings and its quarterly earnings are forecasted to decline 80%, from 10-cents in the last quarter of 2014 to a projected two-cents in 2015’s final quarter, according to Yahoo Finance.  Amazon.com trades at an even more effervescent 968 times trailing earnings. (Please note: Louis Navellier does not currently own positions in NFLX or AMZN. Navellier & Associates does not currently hold positions in NFLX or AMZN in any client portfolios).

According to Bespoke Investment Group (in “Quite the ‘Flat’ Year,” December 31, 2015), what worked best in 2015 was the top 10% of stocks with (1) the highest market capitalization (up 1.52%), (2) the highest P/E ratios (up 0.26%), (3) the lowest dividend yields (up 3.85%), (4) the lowest short interest (up 3.44%), and (5) the biggest gains in 2014 (up 2.68%). In other words, the frothy, high-multiple, large-capitalization momentum stocks that “squeezed” the shorts did the best.  The resulting “bubble” is frankly very scary.

As a result of these challenges, I expect we’ll see a big leadership change in the S&P 500 in 2016!

In This Issue

As we enter the New Year, I want to introduce a change in Marketmail. I’ve asked Bryan Perry to take over Income Mail while moving Ivan Martchev to his specialty of international investing.  Bryan brings over 30 years of market experience, including 20 years as a financial adviser for major Wall Street firms including Bear Stearns, Paine Webber, and Lehman Brothers. For the last decade, he has specialized in income investing, with a focus on blue chip dividend stocks, high-yield assets, and covered-call strategies.

Income Mail:
High-Quality Income Should Shine in 2016
by Bryan Perry
Confident Consumers vs. “Crunch Time” for Factories
U.S. Remains an Island of Safety for Global Investors

Growth Mail:
2015: A Year of “Sound and Fury, Signifying Nothing”
by Gary Alexander
America’s First “$100 Billionaires”
Early January in Market (and Waldorf-Astoria) History

Global Investing:
Mind the Euro and the Yen in 2016
by Ivan Martchev
2016 S&P 500 Earnings May Be Similar t0 2015 - i.e., Negative

Sector Spotlight:
New Year's Day is Just Another Day
by Jason Bodner
The Sector Scorecard for 2015

Stat of the Week:
Oil Declined 30% in 2015 (and 65% in 18 Months)
by Louis Navellier
Asia's Slowdown Exacerbates the Commodity Crunch

Income Mail:

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

High-Quality Income Should Shine in 2016

by Bryan Perry

After a year of exceptional market volatility, the Fed finally made good on its rhetoric – that the economy had progressed to a point that warranted the first rate hike in nine years, bumping up the range of the rate it controls to between .25% and .50%, which Fed Chair Janet Yellen said would be followed by “gradual” tightening as officials watch for evidence of higher inflation. After adding $3.5 trillion to its balance sheet since 2008, one can only wonder about the angst in the Fed’s meeting room amidst all of the pressure to raise rates and tighten monetary policy when the third-quarter GDP was revised lower to 2.0%.  To say that the ‘unanimous vote’ for a rate hike was a political move may be the understatement of the year.

Though markets tend to trade on the notion that “perception is greater than reality,” the Fed’s attempt to create the perception that the economy was on a runway to higher growth (and 2% inflation) just doesn’t jibe with reality. U.S. inflation, as measured by the Consumer Price Index (CPI) for November, was 0.5%, the highest reading of the year but well below the trend of the past four years (see the table below). Costs for rents, autos, healthcare, and eating out were responsible for the uptick over the 0.2% rise in October.

Total Consumer Price Index Table

As this chart shows, in retrospect, the Fed should have raised short term rates in the middle of 2011, when the annualized CPI rate was running over 3.5% from May through October. It’s important to differentiate between Total CPI (above) and Core CPI (yellow line, below), which excludes food and energy. In the eyes of the Fed, the Core CPI for November provides a reasonable basis to rationalize the rate hike on December 16 – the day after the latest CPI report was released. In turn, the Fed also believes that the report lends credibility in that it shows progress toward meeting the Fed’s long-run inflation target of 2%.

Consumer Price Index Chart

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

In a guest article published on December 30, 2015 for the German newspaper Handelsblatt, International Monetary Fund (IMF) Managing Director Christine Lagarde said that the prospect of rising interest rates in the U.S. and an economic slowdown in China were contributing to uncertainty and a higher risk of economic vulnerability worldwide. Adding to that, growth in global trade has slowed considerably and a decline in raw material prices is posing problems for any economy based on commodity production. From “all that,” she concluded: “All of that means global growth will be disappointing and uneven in 2016.”

Back in October, the IMF lowered their growth forecast for the global economy from 3.6% to 3.1%. In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, along with increasing financial market volatility, downside risks have risen even more.

Here are the comparative 10-year sovereign debt rates as of January 1, 2016:

Sovereign Debt Rates Table

Source: Trading Economics.com

The takeaway from this table of 10-year sovereign yields is that real yields – after stripping out taxes and inflation – are at or below zero on German, Japanese, French, Dutch, and Swiss debt. The commodity-dependent economies of Brazil, Russia, and South Africa are in recession with yields in the higher range, 10% to 16%. This leaves the U.S.’s 2.27% yield (in a strong currency) looking like the best in class on a risk-adjusted basis. As long as the dollar remains firm, U.S. Treasury yields will stay low while the short end of the yield curve rose with the Fed hike. (The 2-yr T-Note is 1.06% vs. 0.91% this time last year.)

Entering 2016, the same headwinds that plagued the market all throughout last year are still present. Fed policy is moving in the opposite direction to that of the European Central Bank, the Bank of Japan, and the Peoples Bank of China and thus we have the making of a move that may take the dollar to parity with the euro in the next 3-6 months. The greenback’s persistent strength will continue to weigh heavily on fourth-quarter profits for U.S.-based multinationals and commodity prices, though many have already crashed.

The chart below is the PowerShares DB Dollar Index Bullish Fund (UUP) that tracks the Deutsche Bank Long Dollar Futures Index, which in turn measures the dollar’s strength against a basket of currencies that includes the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. (Please note: Bryan Perry does not currently hold a position in UUP; Navellier & Associates does currently hold a position in UUP for some of its client portfolios).

Power Shares United States Dollar Index Chart

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

In mid-December, the International Monetary Fund elected to include the Chinese yuan in its elite global basket of reserve currencies, so currency ETFs will soon begin incorporating the yuan into their profiles.

Confident Consumers vs. “Crunch Time” for Factories

The global economy isn’t the only challenge. While U.S. consumers are converting savings at the pump into what is estimated to be a rise of nearly 8% for retail sales in the holiday season (according to MasterCard Advisors SpendingPulse), factory output within the largest region of manufacturing is enduring a severe slump. The latest read on the Chicago Purchasing Managers Index was a major disappointment, falling to 42.7 in December from 48.7 in November, well below the consensus estimate of 50.1 and the lowest reading since July 2009 when the economy was emerging from the financial crisis.

A number below 50 denotes a contraction. This was the third time in the last four months the Chicago PMI has been below 50 and the seventh time in 2015 it has registered a sub-50 reading. The December reading provided the lowest reading all year. According to data released by Briefing.com on December 29, the sharp drop in December was driven by a huge decline in the Order Backlogs Index, which dropped 17.2 points to 29.4, the lowest level since May 2009 and the 11th straight month in contraction. There hasn’t been a steeper monthly decline since March of 1951.

On a positive note, The Conference Board’s Consumer Confidence Survey increased to 96.5 in December vs. a consensus of 93.5, up from 92.6 in November. The December survey marked the first increase in consumer confidence since September. The improvement in December stemmed from a pickup in both the Present Situation Index (from 110.9 to 115.3) and the Expectations Index (from 80.4 to 83.9).

Consumer Confidence Chart

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

According to The Conference Board, consumers remain positive about the current state of the economy and particularly the job market. They aren't expecting much change in business conditions and the labor market in 2016, yet the optimists continue to outweigh the pessimists.

U.S. Remains an Island of Safety for Global Investors

Against the backdrop of what will likely be further strength in the U.S. dollar, a continuation of distressed commodity prices, low inflation, and a Federal Reserve committed to its version of normalizing interest rates based on its own interpretation of economic health, high-quality dividend growth stocks that conduct the majority of their business within the U.S. should outperform. Fund flows into U.S. equities leveraged to the domestic economy with dividend yields in the range of 2%-4% during the month of December were bullish as they provide U.S. Treasury-equivalent yields that avert forex currency risk and the perception risk of future Fed tightening while being sensitive to rising inflation and any acceleration in overall GDP.

Investors that agree with this line of thinking should make a New Year’s resolution to turn their attention toward comprehensive screening for the highest-quality stocks for income and growth investing. Navellier’s Dividend Grader measures and rates the trailing four quarters of dividend growth, trailing 12-month dividend growth, estimated dividend growth, consecutive dividends paid, and the current indicated annual dividend yield. Stock picking for 2016 will come at a premium and having the Dividend Grader to assist in fundamental stock analysis is how we can all be smarter, wiser, and more prosperous investors in 2016. Please keep in mind, this grader tool is not to be used independently to determine whether or not to buy or sell a security.

Growth Mail:

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

2015: A Year of “Sound and Fury, Signifying Nothing”

by Gary Alexander

The 15th year of the new century was a year of “Sound and Fury” (i.e., market volatility and several scary news stories) “signifying nothing” (delivering no long-term solutions to the many new problems facing us, and no clear market direction at year’s end).  Specifically, after a dismal December 31 market swoon, the major market benchmarks closed down for the year – the Dow fell 2.23% and the S&P shed 0.73% for the year just past – the first down year since 2008, but still up over 200% from the March 2009 lows.

I’ll admit up front that I overestimated 2015. Much to my consternation, 2015 defied all the calendar-based indicators I began discussing here in late 2014. I predicted double-digit S&P gains last year, based on a number of historical and fundamental indicators cited in my November 17, 2014 Growth Mail essay.

Here are three of the calendar indicators I cited in late 2014, pointing (falsely) toward a bullish 2015:

  • The third year of a Presidential cycle (the pre-election year) has averaged 10.4% gains since 1833, according to The Almanac Investor, vs. 1.9%, 4.2%, and 5.8% for the other three years.  Every pre-election year since 1943 (i.e., the last 18 in a row) had been positive. The previous 18 pre-election years averaged a phenomenal +17.9% DJIA gains – until the streak ended in 2015.
  • Years ending in “5” are usually super-bullish.  In the 20th century all the years ending in “5” delivered double-digit DJIA gains, averaging gains of 29.4%. The years ending in “5” that doubled as pre-election years (namely 1915, 1935, 1955, 1975, and 1995) averaged +34.6%.
  • The second half of the decade (beginning in 2015) is historically better than the first half of the decade. Going back to 1881, The Almanac Investor found that the first five years (ending in 0 through 4) delivered 7.5% gains vs. 71.7% gains for the second half (years ending in 5 to 9).

In early 2015, I cited several other fundamental indicators pointing to a positive 2015. In the first two Growth Mail editions of 2015, I showed how the U.S. market usually goes up when oil prices are falling (January 5, 2015) and how the U.S. market usually goes up when the dollar is rising (January 12). Those theories also came a cropper as the U.S. dollar continued to rise and oil fell, but the market finished flat.

Historical indicators don’t guarantee future results, of course, but they can often provide clues to cycles of human behavior. This time around, 2015 may be a case of “deferred gratification.” Specifically, we often see double-digit gains in years following “boring” (mediocre, near-zero) market performances, like we saw in 2015. Here are the five most recent years in which the S&P 500 has gained or lost 1.5% (or less).  The average gain after a flat year since 1970 was +19.4%, and all five years were double-digit positive.

Standard and Poor's 500 Last Five Flat Years Table

Turning to longer-term market history, I want to take a holiday break to examine America’s first multi-billionaires (inflation-adjusted) to find some lessons they offer about growth (and giving) in America.

America’s First “$100 Billionaires”

“Astor’s genius turned in part on his ability to look far beyond the obvious horizons of time and place and meld fragments of information on geography, politics and trade potential into a much greater vision.”

– Peter Stark, “Astoria,” page 15

On January 4, 1877, Cornelius Vanderbilt died at age 82, the wealthiest man in America to that date. He began as a teenage entrepreneur undercutting the state-sponsored ferry boats around New York City. He built ships and railroads. He was also one of the most successful Wall Street investors of the Civil War era. He left most of his fortune to charity, funding several libraries and Vanderbilt University in Nashville. I’ll tell his story in more detail later, but this week I want to introduce you to our first great entrepreneur.

I’ve just finished reading “Astoria,” Peter Stark’s superb business biography of German-American John Jacob Astor. Subtitled “A Tale of Ambition and Survival on the Early American Frontier,” it’s an exciting (movie-like) tale of danger on the high seas and overland, as the two Astor-funded parties fought death, disease, starvation, and violent Indian encounters to converge at the mouth of the Columbia River in 1811.

America's Richest Billionaires Table

To this day, these surnames are attached to several foundations and charitable institutions. Both Astor and Andrew Carnegie were also foreign-born immigrants to America. (Carnegie was called a “Robber Baron” early on, but he gave away all his wealth by the time he died.) Astor funded the Astor Library which was later consolidated into New York’s Public Library. He also built a poorhouse and orphanage in Walldorf.

Johann Jakob Astor was born in Walldorf, Germany in 1763, in a forest village near Heidelberg. At 16, with the proverbial “bundle over his shoulder,” he made his way to the Rhine River and then to England, arriving in Baltimore at 20. From his youth, Astor “showed a precocious grasp of international markets” (“Astoria,” page 11) but his success came from his drive and perseverance: “His personal drive and vision served as a template for later American entrepreneurs. Astor possessed the resilience and confidence to fail, along with the focus and drive to keep going despite failure” (“Astoria,” page 301).

Astor's Global Trade Scheme Image

Astor made musical instruments to fund his first fur trading business in upstate New York. Shortly after Lewis & Clark returned from their overland survey, Astor hatched the plan to expand his fur trade to the Pacific Northwest. No sooner did his ship, the Tonquin, reach Fort Astoria (Oregon) than the captain and most of the crew were killed in an explosive battle on Vancouver Island.  The last surviving sailor ignited 9,000 pounds of the ship’s powder, causing a massive explosion, killing 200 Clauoquot Indians.

On top of that disaster, America declared war on Britain in mid-1812, bringing a swift end to Astor’s enterprise. Astor re-launched his fur business in 1817 and then went on to become the richest American (to that date) at the time of his death in 1848, and the fourth richest person in American history.

Early January in Market (and Waldorf-Astoria) History

Most of Astor’s wealth came from land in Manhattan, including what became the first Waldorf-Astoria hotel. Astor’s namesake hotel has been the site of several market-related events in early January:

On January 4, 1923, Boston’s Joseph F. Kennedy, Sr., opened his New York brokerage office in the Waldorf Astoria, using several telephone and telegraph lines to the stock room floor.  In the next six years, he made a $2 million fortune trading stocks, before becoming the first head of the SEC in 1934.

On January 6, 1933, in the depth of the Depression, Alfred P. Sloan (chairman of GM) launched the first “Motorama” (GM Motor Show) at the Waldorf-Astoria – the world’s tallest and largest hotel at the time. The 1933 Motorama introduced the Cadillac V-12 Cabriolet among many other flashy new GM models.

Other new models making their debut at the January Motorama at the Waldorf were the Chevy Corvette (1953) and the first Kaiser-Frazer cars (1946). Henry J. Kaiser made his fortune in shipbuilding during World War II. By late 1945, he thought he could challenge the “Big Three” in Detroit, but his $500 million could only buy “one white chip” in a very tough poker game.  Kaiser Motors folded in the 1950s.

Turning to Wall Street, New York stock indexes have occasionally peaked in the first week of January:

  • On January 5, 1953, the DJIA reached an interim high of 293.79 and then began a 13% decline through September of that year – which was President Dwight Eisenhower’s first year in office.
  • On January 5, 1960, Ike’s last year in office, the DJIA peaked at 685.47, and fell 17.4% by the election, perhaps costing Richard Nixon the presidency in a very close and controversial contest.
  • On January 4, 2000, Alan Greenspan was re-nominated to head the Federal Reserve for a fourth consecutive term, but stocks soon began their long descent. The DJIA fell 360 points (over 3%) to 10,997; the S&P 500 fell 3.83% and NASDAQ fell 5.56%, by a then-record 229 points. Overseas, it was the same: Brazil (-6.4%), Mexico (-5.7%), France (-4.2%), Britain (-3.8%) and Germany (-2.4%). Y2K didn’t bring the computers of the world down, but it brought stock markets down.

Global Investing:

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

Mind the Euro and the Yen in 2016

by Ivan Martchev

While the euro has briefly been below parity, and it finished 2015 on a weak note, just above $1.08, the USDJPY cross rate was appreciating at the end of 2015.  So far, all trading in the USDJPY cross since August has been inside the range of that month, which marked a flash crash in the U.S. equity market driven by the Chinese currency devaluation. The yen is the ultimate funding currency for carry trades (see September 4, 2014 Forbes, “Carry Trade: The Multi-Trillion Dollar Hidden Market”) and as such it does not like rising volatility in financial assets as that disrupts the very carry trades it funds. If you see the yen rise sharply with the present aggressive easing policy by the BOJ, that means risk in global financial assets is rising.

United States Japanese Yen Exchange Rate - Monthly OHLC Chart

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

One indicator that may or may not get triggered in 2016 is for the USDJPY cross rate to take out its 2015 highs at 116 (the chart is inverted). This is something the bulls in the U.S. stock market should not root for as it would mean that uncertainty in the global economy has risen past 2015’s highest point.

United States Dollar Euro Exchange Rate - Monthly OHLC Chart

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

As for the euro, I think we are marching toward parity with the dollar (1:1) which may come as soon as Q1 but probably no later than Q2. This is because the Fed has not yet officially given up on its next rate hike, however misguided it may be. At the same time, the ECB is in QE mode, actively experimenting with negative interest rates in the wholesale funding markets for the financial institutions it regulates.

Dollar Euro Currency ImageThe euro has briefly been below parity before – once after the introduction of the euro banknotes at the turn of the century and earlier as an electronic basket of its constituent currencies, if one extrapolates their exchange rates back in time following the ratio used to fold them into the euro. We are headed in that direction in 2016. If it weren’t for the ECB surprise in December 2015, when the market was expecting a much more aggressive easing stance by the ECB, but did not get it, we could have been at parity already.

2016 S&P 500 Earnings May Be Similar to 2015 – i.e., Negative

As things stand in early January 2016, Q4 2015 estimated earnings for the S&P 500 are expected to drop by 4.7%. If the index indeed reports a decline in earnings for Q4, it will mark the first time the index has seen three consecutive quarters of year-over-year declines in earnings since Q1 2009 through Q3 2009. A lot can change by the time earnings are reported, but I doubt we will be able to avoid a Q4 EPS decline.

The 2016 projections (above) are bottom-up consensus estimates compiled by Factset on December 31, 2015. In reality, there is no telling where sales and earnings will end up 2016. At the end of December 2014, the consensus estimates from the same source (December 19, 2014 Factset Earnings Insight) for 2015 called for 7.9% EPS growth and 2.8% sales growth. A year later we are slated to register declines on both fronts.

On the sales front, Q4 revenue shrinkage is estimated to be 3.2%. If reports are negative, that would mean four consecutive quarters of declining sales in 2015. The present estimates for full-year 2015 S&P 500 EPS call for a 0.6% decline while sales are presently estimated to decline 3.2% in total.

As things stand now, S&P 500 EPS are forecasted to grow 7.6% in 2016 while sales are forecasted to grow 4.3%. It is peculiar to note that on September 30, 2015, those same 2016 estimates for the S&P 500 Index called for EPS growth of 10.1% and sales growth of 5.2%. As the fourth quarter progressed and companies reported 3Q numbers and offered guidance, consensus estimates for 2016 drifted slowly lower.

I would think that four quarters of shrinking sales and three quarters of shrinking EPS would indicate global deflation. The U.S. inflation rate has remained eerily close to zero in 2015, and 2016 does not look all that great, either. I don’t think the Fed should be hiking interest rates in a deflationary environment but for the time being they have not given up on that erroneous strategy. I think they will give up on hiking short-term interest rates by the end of 2016 and possibly embark on QE 4 in late 2016 or early 2017.

Consumer Price Index for All Urban Consumers Chart

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

The CRB Commodity Index in November and December did the unthinkable and took out 40-year support at the 180 level with multiple daily closes below 180 to reach 170.7. I think in 2016 we will see new lows in the CRB index below 170. I don’t have a more specific target for that index as commodities are not operating companies and supply needs to equal demand for the marker to clear. If lower prices mean more production, as it has been happening in the U.S. oil sector, then prices can go lower.

Commodities Research Bureau Index Chart

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

The reason why U.S. oil producers in the aggregate have responded with raising production is too much debt issuance which has left them with little choice but to pump more in order to make coupon payments, even though pumping more will help drive prices lower and ultimately hurt the revenues they are trying to raise by raising volumes of oil produced. In 2016, I think we will see many bankruptcies of overleveraged U.S. oil producers that have been caught up in the above-mentioned self-destructive dynamic.

Sector Spotlight:

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

New Year’s Day is Just Another Day

by Jason Bodner

Happy 2016! As we nurse our hangovers (or start diets), very few of us ask the question, “Why is it 2016?” We assume that this is the 2016th year after the birth of Christ, which marked the beginning of calendar time for much of the modern world. But how we got to today is actually a fascinating story.

When Rome became a world power, there was actually a superstition that even numbers (like 30) were unlucky, so when they sought to make a calendar, their months were either 29 or 31 days long, with the exception of February, which had 28 days. But, four months at 31 days, seven months at 29 days, and one month at 28 days add up to only 355. To solve this, the Romans created an additional month called Mercedonius of 22 or 23 days. It was added every second year. Even with all this maneuvering, the months eventually drifted far off from their appointed seasons. At this time, priests in the Roman Empire exploited the calendar for their own motives. They would add days and even months to the calendar to keep their favored politicians in office. Julius Caesar was tired of the mayhem caused by this system and he decided to fix the calendar problem once and for all, so 46 B.C.E. was imperially decreed to be 445 days long to bring everything back in line. The new solar year (365 days and six hours) became the new calendar. The months were 30 or 31 days. To account for the extra hours, every fourth year was 366 days.

Julius Caesar Image

Caesar also decreed that the year began with the first of January, not with the vernal equinox in late March. This calendar was cleverly named the Julian calendar (after Julius Caesar) and it is still used by Eastern Orthodox churches for their holiday calculations to this day. However, despite the six-hour correction, the Julian calendar was still 11½ minutes longer than the actual solar year. Over the course of many years, that adds up to cause even the Julian calendar to drift off course. In 1582, the calendar was more than 10 days off, so Pope Gregory XIII reformed the Julian calendar. Interestingly, even though science had illuminated the error, the church that decreed the change had lost the power to impose it. So the Gregorian calendar (which we use today) was not adopted widely across Europe until the 18th century.

One final note on the subject: Dionysius Exiguus established “Year 1” in the 6th century. Dionysius let Year One start one week after what he believed to be the birth of Christ. Unfortunately, Dionysius’ calculations were wrong. The Gospel of Matthew states that Jesus was born during the reign of King Herod the Great, who died in 4 B.C.E. It is more likely that Christ was really born around 7 B.C.E. The date of his birth, though, is actually unknown. It may or may not have been December 25.

What does all this tell us? New Year’s Day is just another day… Yet, as another year begins and we put another year in the history books, I imagine many money managers are overjoyed, not so much for a New Year beginning, but for an Old Year ending: 2015 will surely go down as an immensely frustrating year for the markets, but now that it’s over, let’s take an official look at the sector scorecard for 2015.

The Sector Scorecard for 2015

Despite the futility of measuring time in solar units, let’s look at 2015’s scorecard. Drumroll please:

Standard and Poor's 500 Yearly Sector Index Table

Consumer Discretionary won in what looked more like a geriatric crawl than an Olympic sprint, while Energy lost 30.8%, followed by Materials and Utilities. The six other sectors rose or fell less than 5%.

The small 2015 net decline of the S&P 500 was caused by a weak New Year’s Eve market. Until then, the S&P was narrowly positive. Here’s how the 10 sectors performed in the dismal final week of trading:

Standard and Poor's 500 Weekly Sector Index Table

Once again, the laggard was energy. The S&P 500 Energy Index was down 2.23% for the week. It clearly dragged everything down with it as the S&P 500 finished down roughly 0.82% for the holiday-shortened week. Energy was particularly weak on Monday and Wednesday. The market continues to trade lock step with crude. The week’s next biggest loser was the S&P 500 Materials Index, -1.67%. The weekly winners were so because they were the least negative, namely Consumer Discretionary, Utilities, and Healthcare.

According to S&P Dow Jones Indices, the S&P 500 finished the 2015 year -0.73%. On the surface, that doesn’t seem so bad. Leaving out Energy for a moment, we see some sectors holding up okay while others are struggling a bit. But as I’ve been harping on for a long time now, energy was just abysmal this year. Many think an energy price bottom is either here or around the corner. In fact, I read an interesting year-end article about energy’s performance, suggesting it may be time to dip toes in. The article was titled “Show a little guts: Time to tiptoe back into energy stocks.” And I quote:

“…at some point, there has to be a bottom in oil prices, and investors who look past the obvious (and understandable) fear will make a lot of money, right? C'mon, you know you've been thinking about it. And if you haven't been, you're violating Warren Buffett's No. 1 rule of investing: The best time to be greedy is when everyone is fearful.”

The logic is sound and it plays on our most human of instincts: bargain hunting. But the really interesting point about this article is that it is dated December 31st 2014. I believe in solid fundamentals, but I can’t escape the trend follower within. One of the basic tenets is to not step in front of a freight train hurtling towards you. Since that article was penned (by a CNBC contributor on New Year’s Eve of 2014), the S&P 500 Energy Index put in a shameful -30.8% performance for 2015. In early 2015, there was hope for an oil recovery, but that evaporated in the second half. Here’s a two-year chart of the S&P 500 Energy Index:

Standard and Poor's 500 Energy Sector - Daily OHLC Chart

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

Since New Year’s Day is just another day, I see more of a chance of continued fallout from energy’s drag in early 2016 than a sudden New Year’s turnaround. We shall see as the New Year unfolds, but keep this in mind: Publius Cornelius Tacitus, a senator and historian of the Roman Empire, said, “He that fights and runs away may turn and fight another day; but he that is in battle slain, will never rise to fight again.”

Here’s wishing you a happy, healthy, and prosperous 2016… and every day thereafter!

Stat of the Week:

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

Oil Declined 30% in 2015 (and 65% in 18 Months)

by Louis Navellier

According to the weekend (January 2-3, 2016) Wall Street Journal U.S. crude oil prices fell 30.47% in 2015 (after falling nearly 50% in the second half of 2014). At year’s end Brent oil, the global benchmark, reached near-parity ($37.28) with WTI-crude ($37.04). According to the same Journal survey, the CRB Commodity Index fell 23.35% in 2015. By comparison, gold had a great year – down only 10.44%!

Despite the disaster in the energy patch, the stock market continues to be heavily influenced by high-dividend ETFs, which continue to pour money into high dividend-yielding energy-related stocks that will likely follow Kinder Morgan by cutting their dividends in the upcoming months if energy prices do not recover significantly.  This is a dangerous precedent, since ETF investors are generally not focused on fundamentals and are stepping into a trap by chasing dividends in stocks that may not be able to sustain their high dividend payments; so I continue to worry that more high profile dividend cuts are coming.

The chaos in the energy patch caused the Russian ruble to hit an all-time low last week relative to the U.S. dollar. Other commodity-linked currencies, like the Canadian dollar, also remain weak.  The Energy Information Administration (EIA) reported that crude oil inventories rose 2.6 million barrels in the past week, while gasoline inventories rose 900,000 and distillate inventories rose 1.8 million barrels, so the energy glut is just getting worse despite a mild winter for much of the U.S. and increased holiday travel.

Oil Refineries ImageSpeaking of energy, on Wednesday, Saudi Arabia’s oil minister, Ali al-Naimi, said that the kingdom no longer limits crude oil production and stands ready to meet any rise in demand. Specifically, Ali al-Naimi said, “If there is demand, we will respond. We have the capacity to respond to demand.” With sanctions against Iran now being lifted, it is obvious that Saudi Arabia wants to crowd out any potential business that Iran is seeking by stepping ahead of them and providing long-term contracts with growing Asian clients at an attractive discount. In the meantime, crude oil inventories continue to rise in the U.S. and around the world, which is why tanker companies are doing well, since crude oil is being stored in tankers waiting for a price increase. Even though crude oil demand typically rises in the spring due to higher worldwide demand, it will be interesting to see if the current inventory glut combined with Saudi Arabia’s record production will allow crude oil prices to rise significantly in the upcoming high-demand months.

Asia’s Slowdown Exacerbates the Commodity Crunch

For commodity prices to finally firm up, we need to see manufacturing activity recover in China and other major Asian economies, like South Korea, which saw its exports decline 7.9% in 2015. South Korea exports a lot of refined petroleum products, which accounted for 64% of its 2015 export decline. For 2016, South Korea’s exports are forecasted to rise 2.1%, but a lot of that will depend on crude oil prices. (See Marketwatch, January 2, 2015: “South Korea exports fall in every month of 2015.”)

On Friday, China’s National Bureau of Statistics announced that its official Purchasing Managers Index (PMI) rose slightly to 49.7 in December, up from 49.6 in November; but this was the fifth month in a row that China’s PMI remained below 50, which signals a contraction. The new factory orders component rose to 50.2 from 49.8 in November, so that was encouraging. The National Bureau of Statistics on Friday also announced that its non-manufacturing (service sector) PMI rose to 54.4 in December, up from 53.6 in November. So, like the U.S., the service sector in China remains healthy, while the manufacturing sector is struggling. The People’s Bank of China expects GDP to grow at a 6.8% annual pace in 2016, so China’s economic growth may have slowed, but it is still one of the world’s fastest growing economies.


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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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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