After Another Retest

After Another Retest, Third-Quarter Earnings May Lift Selected Stocks

by Louis Navellier

October 6, 2015

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

The S&P 500 staged another successful “retest” of its August 24th lows on Monday, September 28th but trading volume was eerily light; so my 35+ years of experience is whispering in my ear that another retest is still possible.  Low volume sell-offs are inconclusive.  There was capitulation selling in many healthcare names last week, which was a bit surprising, since these companies largely have predictable and reliable earnings.  Good stocks – including good healthcare stocks – tend to fall like “fresh tennis balls,” so I am expecting a big rebound when their third-quarter earnings announcement emerge in the next few weeks.

According to the good folks at Bespoke Investment Group, the stock market is tracking the sharp decline and recovery of 2011 in a nearly-lockstep pattern, so a big fourth-quarter rally is indeed possible.

Standard and Poor's 500 Year to Date Changes Chart

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

In the meantime, the 10-year Treasury bond yield fell below 2% on Friday, while the annual S&P 500 dividend yield is 2.26%, or 27 basis points above the 10-year Treasury yield. Also, many sectors were grossly oversold so yield-hungry investors went bargain hunting, especially into high-yield energy stocks, as Jason Bodner verifies in his “Sector Spotlight” column, below.

The other factor that rattled the stock market last week was that Carl Icahn said that he saw “danger ahead” over the Fed’s 0% interest rate policy and the junk bond market.  Even though the Fed’s 0% interest rate policy is causing Corporate America to sell a record number of bonds that are fueling aggressive stock buy-back activity, which in turn boosts the underlying earnings per share, the market sold off on Icahn’s scary headlines without reading the details.  There is no doubt that Carl Icahn is correct and there has been a bunch of speculative junk bonds fueling the energy boom in the U.S. that may soon be characterized by growing defaults.  However, good stocks will remain an oasis amid the junk bond chaos.

In This Issue

Income Mail:
“The Russians are Coming, the Russians are Coming”
by Ivan Martchev
Beware of a Strong Yen

Growth Mail:
October Fears = “Déjà vu all over again”
by Gary Alexander
Buy When Others Want to sell (like now)

This Week in Market History:
America –Born on Wall Street, 250 Years Ago Tomorrow
by Gary Alexander
Early October Days of “Maximum Pessimism”

Sector Spotlight:
What are the Chances Disaster Will Strike?
by Jason Bodner
Energy Sector Revives – but in a Volatile Manner

Stat of the Week:
Job Totals are Disappointing – but Premature
by Louis Navellier
Consumer Spending and Confidence are Rising

Income Mail:

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

“The Russians are Coming, the Russians are Coming”

by Ivan Martchev

In the 1966 comedy “The Russians Are Coming, the Russians Are Coming,” a Soviet submarine captain runs aground near a small island in Massachusetts. He sends a couple of his English-speaking crewmen and quite a few non-English speakers to find a boat with enough power to pull them off. The Russians stick out like sore thumbs and the town is convinced that they are being invaded. In the end peace and harmony are restored but not until a human shield of Americans prevents the U.S. Air Force from destroying the Soviet submarine, which ultimately escapes to safety.

The reactions to the aerial bombardment by the Russian Air Force on terrorist targets in Syria resembles the one from locals that have stumbled onto a grounded Soviet sub near the Massachusetts shoreline. It was certainly impressive for the Russian military to build a fully-functional air force base in a month and commence air strikes on a list of targets that seem to be preparing the battlefield for a ground assault by the Syrian army, the arriving Iranian Revolutionary Guards Corps (separate from the regular Iranian military and much better-trained), as well as Shiite militia from Iraq and Lebanon.

For all intents and purposes, the massive Syrian counter-offensive has started.

Russian Air Strikes Reported in Syria Chart

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

It has become a political problem that the Russians do not discriminate between ISIS – or ISIL as the Obama administration insists on calling them – and the more “moderate” rebels. There is nothing moderate about the Al Qaeda-affiliated Al Nusra front and as to how moderate the Free Syrian Army is I cannot be sure. There is an element of Islamic extremism exhibited by all rebels with the caveat that ISIS has so far proven to be the most extreme and regrettably best-financed terrorist organization. It would be fascinating to find out who was the original financier of ISIS, as it seems inconceivable that such rapid growth in such a short period of time could come from self-financing activities, like selling captured oil. It would be even more fascinating to find out if those original backers are still supporting ISIS.

By the speed of the rollout of operations, it is clear that the Russian involvement is well-thought out and well-coordinated with Iran, Iraq, and Syria. The Russians have opened an anti-terrorist coordination center in Baghdad and invited willing parties to join in the operation on the terms of their four-country coalition.

It would seem logical that if this four-country coalition manages to push ISIS to the Iraqi border it would be in the Iraqis’ best interest to ask them to continue towards Mosul. It seems that the well-organized and well-financed ISIS just got a better-organized and better-armed enemy. From a purely tactical perspective, ISIS is spread too thin, fighting on multiple fronts. It is one thing to be terrorizing civilians with atrocities, it is quite another to be facing Special Forces with modern weapons.

Crude Oil WTI - Monthly Nearest OHLC Chart

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

The above-mentioned geopolitical maneuvers are highly relevant for the price of oil, which would probably be declining if it were not for the coming major ground offensive in Syria. Oil is seasonally weak in the fall and winter; and this seasonality is compounded by the spectacular bust of the Chinese epic credit bubble, which promises to push the world’s second largest economy into a bad recession or a real depression by the end of 2016.

If this Syrian offensive goes well in the next couple of months and whatever is left of ISIS gets pushed into Iraq, I can see the price of oil becoming increasingly volatile with an upward bias as there is a lot of oil infrastructure and production capacity right in the path of the overstretched ISIS jihadists. I have written that the price of oil has the risk of breaking $20/bbl. based on the troubles in emerging economies in South America and Asia, caused in big part by the Chinese economic unraveling. Still, there is no telling how high a geopolitical spike could go during the upcoming ground offensive against ISIS.

Commodity Research Bureau Index Chart

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

For now, the area of support in the 180-200 range in the CRB commodity index likely holds, even though in 2016, after the campaign against ISIS is (hopefully) concluded, that support may not hold.

Commodities are not operating companies; they are all about supply and demand. If all that supply capacity that was built in the past five years comes online and is met by sharply decelerating demand courtesy of the Chinese economic unraveling, commodity prices could go lower. It seems that the only thing standing in the way of a further decline in commodity prices is this campaign against ISIS.

Beware of a Strong Yen

The most bastardized major currency in the world is refusing to go lower.

United States Dollar Japanese Yen Exchange Rate Chart

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

The Bank of Japan (BOJ) is pressing on with its QE operations – which are three times more aggressive than the Fed’s QE relative to the size of Japanese GDP. Since I did those calculations (see May 31, 2013 Marketwatch, “Repercussions from the Yen Surge”), the BOJ has upped the target for its monetary base, which is a subset of M1 money supply, and its balance sheet has gone parabolic. (see October 31 2014 Bloomberg “Kuroda Surprises With Stimulus Boost as Japan Struggles”)

Japanese Money Supply Chart

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

While the U.S. version of QE is not really “money printing,” in the technical sense of the word, the Japanese version of QE is printing. Japan’s QE is designed to create inflation and lower the exchange value of the yen. It has managed to achieve the latter although it has serious issues achieving the former.

The yen appreciated aggressively for three days leading up to the August 24 Dow 1000-point opening decline and has spent the whole time trading within that August 24 range. I think what happened on those memorable late-August days was a massive unwinding of carry trades that have not been put back on.

In a carry trade, an institutional investor borrows yen at low interest rates, sells the yen, and reinvests the proceeds in higher-yielding assets, preferably liquid, in higher-yielding currencies. The idea is to pocket the interest rate differential using the BOJ money-printing policy as a trade wind for the carry trade.

The trouble is that those formerly juicy foreign yields have become dangerous. Brazil is a good example, with the Brazilian real falling much faster than the yen in 2015. This has become a major catalyst for the unwinding of carry trades since there are many more examples all over Latin America and the world.

In other words, if you are looking for the U.S. stock market to rally, or for the carnage in emerging markets to stop, an appreciating yen would be an indicator that suggests the opposite. It suggests that institutional investors are unwilling to put on carry trades and probably are hiding in Treasury bonds.

Beware of a stronger yen.

Growth Mail:

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

October Fears = “Déjà vu all over again”

by Gary Alexander

“It’s like déjà vu all over again.”

-- Lawrence “Yogi” Berra (1925-2015)

During his 17 years with the New York Yankees, Yogi Berra’s team went to 14 World Series, winning 10 of them, including five in a row (1949-53), inspiring a 1955 Broadway parody, “Damn Yankees,” as well as Yogi’s famous quote, first uttered in the 1961 season, when teammates Mantle and Maris were hitting homers at a record pace.  The Yankees and the Fall Classic seemed like a case of Déjà vu every October.

Traffic Light ImageAnother October tradition is the revival of spooky stock market stories, based on memories of the horrors of past Octobers.  Last week, for instance, Carl Icahn released a scary 15-minute video called “Danger Ahead.”  The biggest danger, he said, is low interest rates, which make corporate borrowing “like taking a drug.”  These low rates create “real estate bubbles” and “bubbles even in the art market.”  He then warned in a CNBC interview last week that “the joyride is over...this market is in very dangerous territory.”

Well, I don’t recall that much joy during this ride.  Mostly, I’ve seen an avalanche of doubts and concerns – the proverbial wall of worry. For instance, here is a series of headlines from Casey Research last week:

  • “Interest Rates Haven’t Been This Low Since 3,000 B.C.” (September 29)
  • “The American Public Will Get Screwed Again…Just Like in 2008” (September 30)
  • “I predict an aftershock of 2008 could cost you everything” (October 3)

These headlines help to create a specific type of “déjà vu all over again,” the fear of another 2008.  Few Internet warnings – to my knowledge – mention the recoveries in recent Octobers, just the crashes.  When folks say that “history repeats” (or “rhymes”), why do they seem to focus only on crashes, not recoveries?

Last year, for instance, there was a terrible downdraft in stock prices during the first half of October, only to be met by overwhelming buying power in the second half of the month.  As Louis Navellier put it then, October 15 was a “Capitulation & Reversal Day.”  Also, the major concern last October had a ghoulish overtone: Ebola. Here’s Louie’s opening paragraph from the week the market began to recover last year:

“Reno, NV (MarketMail) – October 21, 2014: Last Wednesday, during the most volatile market day of the year so far, I was in Alabama on a golf outing with a group of stock brokers and we were discussing how many days we all had left to live, due to how seriously some news outlets were reporting the Ebola outbreak…. Clearly, Ebola is a deadly disease for those in its proximity, but I believe the news media is once again over-hyping a story.”*

In the same MarketMail last year, I repeated my oft-spoken mantra that “October Often Offers the Best Buying Opportunity of the Year.”  October may bring some notable crashes, but – except for 1929 – the month usually marks a market low – a superb buying opportunity – not the Beginning of All Sorrows. Panic sales in October are often the “washout” low – the psychological capitulation – before stocks rise.

*See our MarketMail archives going back almost two years for verification of past MarketMail quotes.

Buy When Others Want to sell (like now)

One lesson from history is to buy when everyone else wants to sell, i.e., when the market seems riskiest.

That often occurs in October.  When the third quarter mercifully ended last Wednesday, the negative performance in nearly all the market indexes provided rich fodder for the bears. Here’s a sample from CNN/Money on Friday, October 2 (“Doom and Gloom is all the Rage on Wall Street. Time to Buy?”)

“The latest sentiment survey from Investors Intelligence offers further evidence of pessimism on Wall Street.  Just 25% of financial advisors who responded are bullish on U.S. stocks. That means there are fewer optimists out there than in March 2009 when the S&P 500 touched its bear market low of 666. It's almost as bad as October 2008 – just after the implosion of Lehman Brothers.”

“Bank of America Merrill Lynch said on Thursday that strategists have been recommending investors allocate just 53% of their portfolio to equities, compared with a traditional long-term average weighting of 60% to 65%. ‘It has historically been a bullish signal when Wall Street was extremely bearish, and vice versa,’ B-of-A Merrill wrote in a report.”

Economist Ed Yardeni wrote in his September 28 Morning Briefing (titled “What’s the Matter?”): “The plunge in the Investors Intelligence Bull/Bear Ratio in recent weeks has been extraordinary, exceeding the freefalls during 2010 and 2011, but similar to the plunge in 1987.” Three days later (in “Dow Theory & Reality”), Yardeni added that the Investor’s Intelligence ratio “doesn’t get much more bearish than this.”

Investors tend to run for the exits (selling stock funds to hide out in money market funds) when stocks fall. According to research from Bank of America Merrill Lynch and EPFR Global, investors (see CNBC, Friday, September 25, “Cash flows beat stocks for first time since 1990”), cash is now more popular than bond and equity funds for the first time in 25 years.  In the week ending September 23, investors sold a net $3.3 billion in stock ETFs and mutual funds while adding a huge $17 billion to money market funds.

In addition, the latest sentiment poll from the American Association of Individual Investors (AAII) shows that the bearish sentiment leaped from 28.7% for the week ending September 23 to 39.9% in the week ending September 30.  As this chart shows, there was a slightly higher reading (just above 40) in July, but other than that, the last time bearish sentiment topped 40% was 2013.

American Association of Individual Investors Sentiment Chart

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

We’re entering earnings season this week.  Reuters ran an article on September 25, headlined “Wall Street is bracing for a Grim Earnings Season,” but that’s getting to be an old song, repeated every quarter this year. Michael Arone, Chief Investment Strategist for State Street Global Advisors, put it this way:

“Earnings have consistently been one of these things where it’s natural for folks to under-promise and over-deliver. We’ve seen that time and time again. Both in the first quarter and the second quarter, the actual results were dramatically better than the expectations heading into that quarter and that’s also what I am expecting now.” (From: “No Need to be Glum on Earnings,” an interview with Michael Arone for the Austin American-Statesman, September 27)

Attention Wall Street shoppers! There are only 19 more trading days before November arrives.

This Week in Market History:

*All content in Market History is the opinion of Navellier & Associates and Gary Alexander*

America –Born on Wall Street, 250 Years Ago Tomorrow

by Gary Alexander

The seeds of a new nation were sown 250 years ago tomorrow – on Wall Street, no less. On October 7, 1765, 28 delegates from nine American colonies convened at City Hall on Wall Street, New York City.  They called themselves the Stamp Act Congress. They met for nearly three weeks, until October 25, to protest the British Parliament’s Stamp Act. In the end, they drafted a Declaration of Rights and Grievances, a series of resolutions they sent to the British Parliament and the young King George III.

Nearly 25 years later, the same building on Wall Street became the first U.S. Capitol, the site of George Washington’s inauguration, and the spot where the Bill of Rights was introduced. In that sense, the nation was both begotten and born on Wall Street, based on something as seemingly trivial as tax stamps. (The relics from these events can be seen in the Federal Hall National Memorial, located on 26 Wall Street.)

Early October Days of “Maximum Pessimism”

Turning to more recent events, let’s hearken back to the contentious quarter century from 1973 to 1998:

Army Tank ImageOn Friday, October 5, 1973, the S&P 500 closed at 109.85. The next day, Egyptian and Syrian forces launched a surprise attack against Israel on the holiest day of the Jewish calendar, Yom Kippur.  Israel was caught off guard but eventually reversed the enemy’s gains before a cease-fire ended the war two weeks later. The S&P stayed above 110 most of October. Then came the OPEC oil embargo and rising inflation, which lasted about a decade.  The S&P 500 careened down 44% to 62.28 by October 3, 1974.

On Tuesday, October 8, 1974, Franklin National Bank of New York failed, the biggest bank failure to that date. That night, President Gerald Ford went on national TV to unleash his “Whip Inflation Now” (WIN) programs and gimmicks, including “WIN” buttons. The market reaction was positive. The S&P 500 rose 4.6% on October 9.   For the lucky week of October 7-11 (“7 come 11”), the S&P 500 rose 14.1%.

Five years later, inflation wasn’t whipped. On Friday, October 5, 1979, the Federal Reserve Board announced a raise in the discount rate, from 11% to 12%, as they proceeded to tighten the money supply, in order to fight inflation.  By the end of October, the Fed had raised the Fed funds rate 400 basis points, from 11.5% to 15.5% and banks had raised the Prime Rate to 14.5%. The S&P fell 10%, October 5 to 25.

The situation improved dramatically on Thursday, October 7, 1982, when the DJIA rose more than 2%, soaring above 1,000 from a base of 777 just 10 weeks earlier.  The DJIA added another 20.88 points the next day; it soon closed at a new record of 1059 on October 21, 1982, rising 36% in just 10 weeks.

On Monday, October 5, 1987, the “Crash of 1987” began to gain momentum.   Here are the three core weeks of the 1987 crash, each week building into a crescendo, leading up to Monday, October 19:

  1. In the week of October 5-9, 1987, the DJIA fell by 159 points (-6%), from 2641 to 2482.
  2. In the week of October 12-16, the DJIA fell 236 points (-9.5%), from 2482 to 2246.
  3. And in the week of October 19-23, the DJIA fell 296 points (-13.2%), to 1950.

The two-week decline from October 5 (DJIA 2641) to October 19 (1738) was over 34%.

Thursday, October 8, 1998 was a day of maximum pessimism (John Templeton’s phrase).  From July 17 to October 8, the S&P 500 fell 19%.   That week, I was MC of an investment seminar in Switzerland.  Two of our Swiss speakers were in near-panic mode over the market’s decline, but the seminar organizer calmly told the audience on Friday morning (before New York opened) that he was buying stocks and advised they do the same. On Friday, October 9, the DJIA began to rise strongly, up 167 points to 7900.  Within six weeks, the DJIA hit a new all-time high, on November 23, at 9374, up 21% in 32 trading days.  (Note: All daily prices for the DJIA or S&P 500 are from “The Almanac Investor,” by Jeffrey Hirsch.)

Sector Spotlight:

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

What are the Chances Disaster Will Strike?

by Jason Bodner

Human imagination has created works of amazing beauty and terrible horror. We are capable of stretching our thoughts through mental boundaries limited only by our imaginations. While imagination has been overwhelmingly productive for the advancement of society, it can also cause self-perpetuated destruction.

Let’s face it, fear sells. A particular disaster movie comes to mind: it’s the story of a large space object on an imminent collision course with earth. Despite the best efforts of humanity's finest minds, an impact becomes inevitable and life as we know it changes forever. While this scenario is indeed likely over the next few billion years, it is very unlikely over the next 100,000 years. Carl Sagan once put the odds of a catastrophic collision between earth and a meteor asteroid or comet at 100,000-to-1 every 100,000 years.

Sagan also points to the misleading way the solar system is represented in schools and textbooks. Planets seem reasonably close, next to the sun. In reality, if the earth were the size of a baseball, the sun would be the size of a beach ball, more than half a mile away. This means that a small rock from miles away must somehow find and destroy our little baseball. But the Doomsday scenario sells more movie tickets.

As Louis Navellier has often said, Wall Street has a tendency to act first and think later. For the moment, even with all of the automated trading algorithms, financial markets are still very much impacted by the collective emotions of its participants. The tendency for people to panic before digesting information is evident everywhere. Last Friday, for instance, the pre-market saw the broad indexes up until the jobs report soured the mood. In a bloody morning session, we saw the U.S. equity markets fall close to 2% only to finish the day up nearly 2% for the NASDAQ. In a normal market, Friday's session would have seemed wild; but markets are not trading normally, unless you count high volatility as the new normal.

Energy Sector Revives – but in a Volatile Manner

The 10 S&P 500 market sectors are a nice barometer to quickly identify where strengths and weaknesses lie. In looking at the screens throughout last week, everything was red at one point. But on Friday, lo and behold, when the dust settled, 8 of the 10 S&P sector indices were higher than the previous Friday's close.

 Source: Bloomberg 
  Sector Index    % Change For Week 
 S&P 500 Utilities Index +1.35%
 S&P 500 Cons Staples IDX +0.64%
 S&P 500 Health Care IDX +2.07%
 S&P 500 Cons Discret IDX +1.55%
 S&P 500 Energy Index +2.81%
 S&P 500 Info Tech Index +0.77%
 S&P 500 Industrials IDX +1.18%
 S&P 500 Financials Index  -0.60%
 S&P 500 Telecom Serv IDX  -1.06%
 S&P 500 Materials Index +2.71%

 

The week's best performer was energy at +2.81 followed closely by materials at +2.71%. Yet volatility still prevails. Energy was down 3.58 % on Monday and had a +2.45% Wednesday and +4.01% Friday.

With health, energy, and materials finishing the week strongly, the weakest sectors were financials and telecom. Health Care seemed to dodge more headline-driven destruction and finished the week +2.07%.  Given all the recent attention, you may be surprised to find that the S&P Health Care index has fallen only 0.39% since September 1! Looking at the 3-month chart, below, we see the sector still under pressure.

Standard and Poor's 500 Health Care Sector - Daily OHLC Chart

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

The wild fluctuations in the market continue to be driven by global slowdown fears and rate-increase speculation.  Overall sentiment seems really low. Just perusing the headlines – college shootings, Russia bombing CIA-backed targets in Syria, hurricanes, poor jobs numbers, China woes, and emerging market wealth destruction – it’s enough to make one want to tune out. With the markets finishing a wild weekly session higher in the face of negative news, this might just be what's happening. The U.S. equity market, even in the face of slowing earnings, seems to be the best place for money flows in the near future.  The dividend yield of the S&P 500 is higher than Treasuries and we are still ‘best in show’ in the global arena.

This recent stretch of volatility may go on for a bit, but it seems likely that we may settle down in the near future. When this happens, a wind-down in sector volatility should accompany it.  At that point we should see leadership emerge. In the meantime, the market seems engaged in various stages of self-indulgence in doomsday scenarios. With a globally coordinated effort to find ways to improve the health of the world’s economy, however, it seems unlikely that a large-scale financial comet or meteor is headed our way.

But then again, anything is possible . . .

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.*

Job Totals are Disappointing – but Premature

by Louis Navellier

Naturally, the big news last week was Friday’s payroll report, in which the Labor Department announced that only 142,000 payroll jobs were added in September, substantially below economists’ consensus estimate of 200,000, but these numbers are only a first guess.  Later revisions can be large – up or down.

This time around, the July and August payrolls were revised down by a cumulative 49,000 to only 136,000 jobs in August (down from 173,000 initially estimated) and 223,000 in July (down from a revised 245,000).  Clearly, the “double accounting” of temporary jobs remains a big problem.

The unemployment rate remains unchanged at 5.1%, due largely to a shrinking labor force.  Labor force participation declined 0.2% to a new 38-year low of 62.4% in September, down from 62.6% in August.  Wages actually declined by $0.01 per hour in September to $25.09 per hour, which will likely be very upsetting to Fed Chair Janet Yellen, who wants to see real wage growth before raising key interest rates.

I should also add that on Wednesday, ADP reported that the private sector added 200,000 new payroll jobs in August.  Overall, the payroll data confirmed that the U.S. economy continues to create jobs, but at a frustratingly slow pace.  If this continues, the Fed will not likely raise key interest rates in December.

Welder ImageAs if the September payroll report were not depressing enough, the other economic news that spooked Wall Street on Friday was the Institute for Supply Management (ISM) manufacturing index, which slipped to only 50.2 in September, down from 51.1 in August.  This is the lowest reading in over two years and is dangerously close to falling below the 50 level, which would signal a contraction.

There is no doubt that a strong U.S. dollar and low commodity prices are hindering manufacturing in the U.S., which is why Caterpillar recently announced 10,000 layoffs.  Of all the industries that ISM surveys, only seven of the 18 industry categories surveyed expanded in September.  Furthermore, ISM’s new orders component slipped 1.6 points to only 50.2 in September, down sharply from 51.8 in August.

Overall, the ISM manufacturing index is now raising serious concerns about more layoffs in the manufacturing sector and the lack of competitiveness from U.S. manufacturers due to a strong U.S. dollar.

Consumer Spending and Confidence are Rising

In a larger sense, the U.S. economy is fine, due largely to rising consumer spending.  Specifically, the Commerce Department announced that personal spending rose 0.4% in August, which bodes well for third-quarter GDP growth.  There has been a steady rise in consumer spending in recent months. This trend should continue, due to the fact that $2 per gallon gasoline is spreading throughout the U.S.

Shopping Bags ImageSpeaking of the consumer, on Tuesday, the Conference Board announced that its consumer confidence index rose to 103 in September, up from 101.1 in August. It is now at its highest level since 2007.  The “present situation” component (measuring current conditions) was especially strong, reaching its highest level in eight years.  Since consumer spending accounted for about three-fourths of the second quarter’s 3.9% GDP growth rate, continued strong consumer spending is crucial for robust GDP growth.

Finally, I should add that the global mood improved a bit last week, since China’s official Purchasing Managers Index (PMI) rose to 49.8 in September, up slightly from 49.7 in August, according to the Shanghai Daily on October 1.  Economists were expecting China’s PMI to remain unchanged at 49.7, so China’s official PMI was a pleasant surprise! This improvement may also have helped to cause the volatile Asian markets to stabilize a bit last week.

The other significant international financial development last week was that on Tuesday the Reserve Bank of India cut its key interest rate 0.5% to 6.75%, its fourth interest rate cut this year, according to CNBC and other sources.  This interest rate cut was a pleasant surprise, since economists were only expecting a 0.25% cut.  Since the people of India spend a high percentage of their income on food and energy, they will have more disposable income due to falling commodity prices; so their economic growth should remain strong.  Last week’s interest rate cut will help India’s GDP to continue to help make up for any slowdown in China for the foreseeable future.


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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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