As the FOMC Meets

As the FOMC Meets, Enjoy the Silence (While it Lasts)

by Louis Navellier

September 20, 2016

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

The S&P 500 rose 0.53% last week and NASDAQ shot up a sparkling 2.31%, led by an 11.4% gain in its biggest-cap stock, Apple.  We may see a more significant rise in the market over the next 10 days since that will be the last chance for portfolio managers to complete their quarter-ending, window dressing trades. (Please note: Louis Navellier does not currently own a position in AAPL. Navellier & Associates, Inc. does currently own a position in AAPL for some client portfolios.)

Farm Field Image

We are now in the last day of the “quiet period” before the Federal Open Market Committee (FOMC) emerges from its deliberations to tell the world its decision tomorrow.  Fed officials have not been allowed to talk to the media over the last week.  Since the financial media loves to fixate on the question of whether or not the FOMC will raise key interest rates tomorrow, I want to assure you that I still believe that the Fed will NOT raise key interest rates – due to an incredibly bearish Beige Book survey that did not foresee any significant GDP growth in the second half of 2016, and other downbeat economic data.

On the day the Fed’s ‘cone of silence’ began last Tuesday, we saw very poor demand for new 30-year Treasury bonds; so the yield curve tilted up last week, putting many long-term bonds and dividend stocks under pressure.  Apparently, all the gossip about the Fed raising rates spooked long-term investors.  However, the demand for intermediate-term Treasury securities was much better, with a higher bid-to-cover ratio, so bond investors apparently now prefer the more intermediate-term Treasury securities.

In This Issue

Our esteemed columnists offer something more informative than Fed chatter.  Bryan Perry looks at market sentiment, Gary Alexander examines the U.S. dollar’s major swings, and Ivan Martchev takes a closer look at the oil market and U.S. bond yields vs. Deutsche Bank’s stock price.  Jason Bodner examines the sector swings in light of High-Frequency Trading assaults and I cover oil and the data behind the Fed’s decision.

Income Mail:
All’s Quiet on the Federal Reserve Front – Finally!
by Bryan Perry
The Market’s Love Affair with Dark Clouds and Bearish Sentiment

Growth Mail:
Pay More Attention to the Dollar than to the Fed
by Gary Alexander
A Strong Dollar is Usually Good for Stocks

Global Mail:
The Oil Factor Revisited
by Ivan Martchev
Deutsche Bank and U.S. Bond Yields – Another Correlation Gone Berserk

Sector Spotlight:
Data Collection Defines the Information Age
by Jason Bodner
High-Frequency Trading Fuels Sector Volatility

A Look Ahead:
Crude Oil is Back on its Downward Slope
by Louis Navellier
The Latest Raft of Statistics Point to “No Action” by the Fed

Income Mail:

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

All’s Quiet on the Federal Reserve Front – Finally!

by Bryan Perry

A week ago, it seemed as though there was a public presentation by a Fed member every day of the week – for what seemed like forever. The rash of speeches by Fed officials is, in my view, way overdone and has tended to thoroughly confuse and frustrate market participants. Thankfully, the Fed is currently speechless.

The mixed signals prior to last week’s cone of silence demonstrated a divided Fed, but the softer-than-expected data for the months of August and early September leaves the Fed with little choice but to stand pat on rates despite the latest bump in inflation. Most of the prior data points for August came in light of expectations, including Non-Farm Payrolls, ISM Index, ISM Services, Retail Sales, Industrial Production, Michigan Sentiment, and the Beige Book Survey. Enough said: The Fed shouldn’t bump rates this week, which puts that body on ice until December. That is one box investors will gladly check off this week.

The energy sector posted the biggest percentage decline last week, falling nearly 3%, with crude oil closing the week at $43.03 per barrel. The materials sector also fell, as related commodities slid on concerns that some central banks' easy-money policies may be on the way out. Worries have also ramped up over the past week about whether or not central banks may be backing away from quantitative-easing policies that are seemingly becoming more susceptible to the law of diminishing returns.

Commodities Research Bureau Index Chart

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

Commodity price inflation on a global scale has been elusive as every short-term rally in the CRB Index (above) is met with selling pressure. Oil isn’t the only culprit. In the materials sector, gold prices sank to a fresh two-week low amid strengthening in the U.S. dollar. Gold has trouble competing with yield-bearing assets when borrowing costs rise. The rest of the commodity sub-groups – including grains, meats, industrials, and soft commodities – are all trading at or near the low end of their respective ranges.

Here is a component listing of the six subgroups, their component commodities, and their subgroup weight. As you can see, each of the 17 single commodities carries an equal (5.88%) weighting.

Commodities Research Bureau Sub Components Table

The Market’s Love Affair with Dark Clouds and Bearish Sentiment

Pessimism has jumped to a three-month high as more than one out of three individual investors described their short-term outlook as “bearish” in the latest AAII Sentiment Survey (source: Forbes – Sep. 15, 2016, “Intelligent Investing”). Bullish sentiment fell by 1.8 percentage points to 27.9%, putting investor optimism at its lowest level since June 22, 2016 – right before the Brexit vote and the stock market’s summer string of all-time highs. It’s been shown time and time again that the herd mentality tends to be counter-intuitive, with greed and fear usually correlated with market tops and bottoms, respectively.

During the summer highs, it seemed that the market had priced in a Clinton win, but the latest polls and her fainting episode are showing that her victory is no slam dunk. Meanwhile, the Federal Reserve has been playing a tennis match with investor sentiment – one day trotting out hawkish rhetoric only to walk it back the next day after a market sell-off. The energy sector, once thought to be out of the woods, is now coming back under pressure with a new decline in oil prices in reaction to the IEA forecasting lower global demand for 2017 and lower optimism heading into the September 26th OPEC meeting.

Another recent negative element comes from a particularly bearish warning by Goldman Sachs, which cut its rating on the S&P 500 Index to “underweight” and commented that “excess liquidity and the lack of alternatives” had helped stocks to be “more resilient than we expected” (source: FINSUM, 9-15-2016 “Goldman Slashes Bond & Stock Ratings and Predicts Plunge”). Additionally, some high profile hedge funds attending the CNBC Delivering Alpha Conference last week in New York City talked down the stock market, thereby casting a pall on sentiment; but since some of these performance-based funds have dismal year-to-date performance numbers, they may just be “talking their book” (their short positions). (Please note: Bryan Perry does not currently own a position in GS. Navellier & Associates, Inc. does not currently own a position in GS for any client portfolios.)

Against this rising backdrop of institutional and retail investor doom and gloom, it’s impressive that the S&P is only 2.4% off its recent highs. Once the FOMC and OPEC meetings are history (by this time next week), investors will turn their attention to the upcoming third-quarter earnings announcements.

The next vital number on the economic calendar to be released will be the third and final estimate for Q2 GDP, released September 28th. If this number is adjusted lower one more time, as I believe it will be, this could provide a boost for Treasuries.

If the current high level of bearish sentiment maintains its role of being a reliable contrary indicator, then there is reason for optimism about this summer’s rally, based on the perceived lack of other investment alternatives; improved third-quarter earnings led by the tech sector; and sustained, albeit slow, growth.

Growth Mail:

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

Pay More Attention to the Dollar than to the Fed

by Gary Alexander

Do you remember those golden days of yore when there was only one face speaking for the Federal Reserve – the Chairman – and that Chairman (think of Paul Volcker or Alan Greenspan) was stony silent until issuing a surprise announcement.  When called to talk before Congress, the Chairman obfuscated his intentions by using impenetrable double-speak, saying nothing.  Then, he would strike like lightning!

Alan Greenspan (Fed Chairman, 1987 to 2006) issued two lightning bolts in his attempt to fight inflation fears.  Once, in his first month in office, he precipitated a market earthquake on September 4, 1987, when he raised the Discount Rate 0.5% (50 basis points). The Dow fell 1.5% that day and 33% by October 19th.

Years later, on February 4, 1994, Greenspan shocked Wall Street again when he began a year-long pre-emptive strike against barely visible inflation by issuing his first of seven rate hikes.  On that day, the Dow careened down 96 points (-2.4%), from 3967 to 3871.  Then it kept going down.  It took well over a year for the market to eclipse its record (set earlier that week) of 3978.36.  Mr. Clinton fumed at the Fed’s actions, as the dismal 1994 market may have fueled the Republican Revolution in November of 1994.

By the time of the Fed’s latest rate-raising cycle – spanning the tenures of Greenspan and his successor Ben Bernanke – the Fed raised rates in 17 consecutive FOMC meetings from mid-2004 to mid-2006, but these actions were widely advertised and did not hurt the market.  The Fed was more transparent by then.  The S&P 500 doubled from 2002 to 2007 and kept rising all during the 2004-to-2006 rate-raising cycle.

Over the last decade, “transparency” has gone too far.  Now, we have the formerly inscrutable and opaque Federal Reserve Board talking way too much.  Too many Fed governors are spouting their own opinions rather than speaking from a coordinated team playbook.  They call it transparency, but I call it confusion.

In his morning briefing last Tuesday (“Talking Feds,” September 13), economist Ed Yardeni called these spokesmen for the Fed’s various positions, “The Federal Open Mouth Committee.”  (He also called the market reaction to any hawkish comments, “tightening tantrums.”)  The Fed has said they are “data-dependent,” but that only means they react to various statistical releases by the government.  This makes them reactive, not proactive, betraying a lack of overarching strategy in favor of shorter-term tactics.

The Fed’s double-speak came into play once again, right before the “quiet period” began last Tuesday.  First, on Friday, September 9th, Boston Federal Reserve President Eric Rosengreen said that postponing another rate hike could create problems for the economy if it starts to “overheat,” although no evidence of economic “heat” is evident in recent statistical releases.  Then, on Monday, Federal Reserve Governor Lael Brainard gave a talk entitled, “The ‘New Normal’ and What It Means for Monetary Policy.”  She was more dovish, counseling “prudence in the removal of policy accommodation.”  She said, “This approach has served us well in recent months, helping to support continued gains in employment.”

Buried deep in her speech – under the third of her five characteristics of “the new normal,” namely “foreign markets matter” – she made a startling connection between Fed policy and the U.S. dollar:

“Headwinds from abroad should matter to U.S. policymakers because recent experience suggests global financial markets are tightly integrated, such that disturbances emanating from Chinese or euro-area financial markets quickly spill over to U.S. financial markets. The fallout from adverse foreign shocks appears to be more powerfully transmitted to the U.S. than previously…. In particular, estimates from the FRB/US model suggest that the nearly 20 percent appreciation of the dollar from June 2014 to January of this year could be having an effect on U.S. economic activity roughly equivalent to a 200 basis point increase in the federal funds rate.”

--Federal Reserve Board Governor Lael Brainard in a speech, “The ‘New Normal’ and What it Means
for Monetary Policy,” delivered on Monday, September 12, 2016 at the Chicago Council on Global Affairs.

This is a very important distinction.  The Fed doesn’t actually have to raise rates to create the impact of raising rates.  The Fed’s other recent policy decision – to end quantitative easing (QE) in the fall of 2014 – made the dollar more attractive after the central banks in Europe and Japan continued their QE policies.

A Strong Dollar is Usually Good for Stocks

As Louis Navellier has pointed out, a strong U.S. dollar tends to erode the profits of U.S.-based multi-national corporations when they translate their earnings from a weaker foreign currency into the dollar. On the other hand, domestic U.S. stocks will not be hurt and can even be helped by a stronger dollar.

The widely-touted U.S. Dollar Index (DXY) is heavily weighted (57.6%) toward the euro, with the rest divided into 19.8% for three other European currencies, 13.6% in the Japanese yen, and 9.1% in the Canadian dollar.  For that reason, I prefer to use the Federal Reserve’s “trade-weighted” dollar index, which seeks to reflect the real world impact on U.S. exports and imports.  The following chart traces the swings in the trade-weighted dollar index since currencies began to trade freely in global markets in 1973.

Trade Weighted United States Dollar Index Chart

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

After global currencies began to float in a free market of exchange rates in 1973, the dollar fell in the late 1970s but then it staged three bull market rallies that lasted 6-7 years.  These major dollar bull markets were (1) 1978 to 1985, (2) 1995 to 2002, and (3) an ongoing rise since 2011, accelerating sharply in 2014.

Trade Weighted United States Dollar Index Versus Major Currencies Table

The S&P 500 stock market index has performed well during each of these three U.S. dollar bull markets:

Standard and Poor's 500 Stock Market Index Table

So far in 2016, the dollar is down.  Year-to-date, the WSJ Dollar Index is down 3.73%, according to the weekend (September 17-18) Journal, so we don’t know if the current dollar bull market is over yet.  The sagging dollar is, in part, a response to the failure of the Fed to raise rates as promised last December.

So what should the Fed do?  With the dollar down a bit, can they afford to goose the dollar with a 0.25% rate increase?  Perhaps, but the last thing the Fed should do now is to undertake a series of rate increases.  This could cause much of the $12 trillion earning negative yields in Europe and Japan to cross the Pacific and Atlantic Oceans in search of higher yields, driving long-term Treasury rates ever lower in the process.

When the Fed governors start talking again, ignore them.  Monitor the dollar and bond markets instead.

Global Mail:

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

The Oil Factor Revisited

by Ivan Martchev

With crude oil futures weakening on schedule – at the beginning of the seasonally-weak September-March period – one has to wonder what would happen to other highly-correlated risk assets, like emerging markets and junk bonds. (Crude oil should be weaker in the next six months because 88% of the world’s population lives in the Northern hemisphere, where fall and winter demand is lower.)

Making matters worse, the global oil glut has only grown deeper over the past year, with the decline of production in the U.S. being picked up by an increase of crude oil supply elsewhere, most notably in Iran.

Still, one has to wonder why emerging markets and junk bonds have been resilient while the oil price has weakened. Historically, such divergences have not lasted long. A sharply weakening oil price is not a factor of just ample supply, but also weak demand. I am of the opinion that China is facing a generational downshift in growth rates and is likely headed for a hard economic landing. As the largest consumer of commodities, most notably oil, the Chinese hard landing will show up in the commodity markets. In many respects their economic slowdown has already shown up in commodity prices, but since I believe that their economic slowdown will deepen in 2017, I think we may yet see new lows for the oil price.

CrudeOil-Crude Oil West Texas Intermediate - Weekly Nearest OHLC Chart

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

The 2016 topping pattern (in the chart, above) started this June and accelerated in July. Save for the August short-squeeze rebound, it is very similar to what we saw in 2015. One has to wonder where the crude oil price will be in early 2017. Right now, my working hypothesis is that it will be somewhere in the $20s.

Such a negative view on crude oil causes me to be quite skeptical of other risk assets that are correlated to it. Both junk bonds and emerging markets have been holding up well. That divergence first became apparent in July as crude oil was heading towards $40 per barrel. As time has passed and the markets have zigged and zagged, the divergence has only gotten bigger (See August 11, 2016 MarketWatch article, “One of these two risk assets is sending the wrong signal — but which one is it?”)

MCSI Emerging Markets Free Index Chart

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

There is some weakening in the MSCI Emerging Markets Index in September and it may be the start of a much bigger move if crude oil falls to $20/bbl early in 2017. Many of the economies in the MSCI Emerging Markets Index are driven by trade with China, either via export of commodities or manufactured goods. If China sneezes, its giant $11 trillion economy could cause most emerging markets to catch a cold.

Sixty Years of the Commodities Research Bureau Index Chart

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

You can see what has happened to the CRB Commodity Index over the past couple of years as the Chinese economy has decelerated. The CRB was cut in half at one point, falling from 310 to 155 in January of this year, when it hit 40-year lows not seen since before the oil embargo in 1973. If we see a Chinese recession, which is coming sooner or later, in my view, I don’t believe the 155 low will hold.

The sharp weakening in the price of oil also raises interesting questions about the junk bond market, as much of the surge in production in the U.S. since 2008 has been financed via junk bonds. The new supply of shale oil is also very high-cost in nature. It is not uncommon for cash production costs per barrel to be in the $40s, $50s, and $60s, and in some cases even higher. You could say that the seasonal rebound we saw in mid-2016 saved many high-cost producers – some of them only temporarily – from bankruptcy.

Many over-leveraged, high-cost producers produced oil at a loss in 2015 and early 2016 hoping for a rebound to bail them out; and they had to keep making payments on their bond and bank loans. What happens to those producers if oil makes a lower low in price and the seasonal rebound next year is much smaller than this year? There should be a notable pickup in bankruptcies in the sector under that scenario.

Bank of America Merrill Lynch Adjusted Spread Chart

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

The BofA Merrill Lynch B Option Adjusted Spread – a measure of the yield premium bond buyers are seeking to buy B-rated “junk” bonds over the comparable maturity Treasuries – topped out near a 900 basis point (9%) premium over Treasuries when the oil price went to $26/bbl in January. This spread index got as low as 498 bps at the end of August and it had only recently turned up to 524 bps at last count. Where will it be come next January if oil is at $26 or lower? My guess is near 900 bps or higher.

Deutsche Bank and U.S. Bond Yields – Another Correlation Gone Berserk

While it is easy to see how emerging markets and junk bonds can be correlated to commodity prices and more importantly crude oil, the case of Deutsche Bank’s share price (green line in the chart below) and the 10-year Treasury note yield (black line) is a bit of a head scratcher. This could be caused by the decline in the 10-year U.S. Treasury yield being seen as a deflationary sign, which in turn pressures DB’s stock, while a rising U.S. 10-year Treasury yield is seen as a sign of easing deflation, therefore a boost for DB. (See June 24 MarketWatch article, “A look at the global economic malaise through Deutsche Bank.”) (Please note: Ivan Martchev does not currently own a position in DB. Navellier & Associates, Inc. does not currently own a position in DB for any client portfolios.)

The peculiar point of this correlation is that one part of this equation is the risk-free interest rate in U.S. debt, while the other is the stock of the largest financial institution in Germany and continental Europe.

Ten Year Treasury Note - Daily Line Chart

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

The source of the latest divergence is Deutsche management declining to accept an offer from the U.S. DOJ to settle claims of mortgage-backed securities (MBS) for $14 billion. Deutsche’s point is that other MBS players had to settle for way smaller amounts, so it is going to defend its ground against the DOJ. (see Bloomberg.com, September 19, 2016, “Deutsche Bank Extends Losses as Analysts See Capital Threats.”)

The market didn’t like Deutsche management’s attitude and sent both its stock and its bonds lower last week by the largest magnitude since Brexit.

Somehow I do not see the DOJ pressing its case against DB in the middle of the Brexit mess while DB is in a weakened position and may not even have the money to settle unless it forces a dilution on its shareholders. DB stock has a market capitalization of $18.3 billion and it trades at 24 cents on the book value dollar. Needless to say, this reflects a crisis valuation that is below the bank’s 2008 low.

If this DOJ drama continues, it has the potential to push DB stock to fresh 52-week lows faster, which were probably coming anyway due to the deflationary dynamics playing out in Europe. The trouble with such a depressed share price in a time of falling bond prices and surging credit default swaps is that DB’s counterparties may simply lose confidence in the company. As we saw in 2008, particularly in the Bear Stearns situation, such “death spirals” can develop rather quickly.

In this case, I think the German government, the Bundesbank, and even the Fed will step in as Deutsche Bank has a bigger balance sheet than Lehman Brothers at the time it went bust eight years ago this week. The fact that DB stock may be imploding surely does not seem reassuring at the moment.

Sector Spotlight:

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

Data Collection Defines the Information Age

by Jason Bodner

Unless you chose to tune out the whole Edward Snowden leak of the treasure trove of National Security Agency (NSA) documents in 2013, it’s no surprise that the NSA is watching us. They are collecting data and monitoring our communications on an ongoing basis. For the two years from February 2013 to February 2015, the number of warrantless searches on Americans doubled! And that’s already a year and a half ago. (This information comes from the Office of the Director of National Intelligence.) Some of this is supposedly restricted, with the assumption that NSA adheres to the laws laid down for surveillance. However, there is no restriction if you are not an American. Should you live in the U.S. with another nation’s passport, the NSA has the authority to monitor everything about your communications.

Although the NSA is restricted on what it can do with communications mined within the U.S., outside the U.S., all bets are off. So if you send an email to your neighbor but the email server relays the message to a server in London, or Bangalore, and then back again to the U.S. (very common), that communication is no longer a U.S. communication. It can now be monitored freely.

Surveillance Flag Image

From a nondescript-looking data center in Bluffdale, Utah (presumably one of several), as of 2013 the NSA collected data on unwitting Americans in the following manner: 

  • More than 200 million text messages per day
  • A record of most phone calls made in America each day - more than 3 billion
  • Mobile phone records continually every day
  • Email, Social Media posts, and Instant Messages
  • The NSA is also believed to have direct access to the servers of most other major technology companies.
  • The NSA spies on nearly everything a user does on the Internet including emails, social media posts, web sites you visit, addresses typed into mapping applications, files sent, and more. 

It has been reported that VOIP (Voice Over Internet Protocol) phones all have computers in them. This would allow a “listen mode” even when the receiver is down. That means a normal conversation with your spouse in your room is thus fair game as well.

While all this may be deeply disconcerting, it is obviously nothing new. The Information Age has been the talk for a long time now, but each successive year that goes by makes the prior year look tiny in terms of capability. Technology and data collection is the name of the game everywhere. If NSA can get into your cell phones, emails, web-browsing, debit card, and even listen while you’re just near a phone, let’s just think about the technological capabilities in the financial markets for a moment.

High-Frequency Trading Fuels Sector Volatility

The reality is that when markets jerk around these days, it’s not like years ago when it was primarily caused by people behind phones executing orders acting on coincident fear. Now it is more like many thousands of machines trading on algorithms that read each other’s movements, acting in choreographed stages. The reality is that your trading order is known long before it is executed. High-frequency Traders have eons of time to act in the split second between when you enter an order and when it is executed.

It is reasonable to assume that sector volatility and trends have much to do with data collectors and their technology. So when we see a market rally that is fiercely led by weak stocks recovering (all through August), only to give way to weakness in September, what are we to think? I for one think that near-term volatility is due in large part to High-Frequency Trading firms, which typically seek trades devoid of risk.

These rotations are visible, so let’s look at how the S&P sectors moved around this week:

Standard and Poor's 500 Daily Sector Indices Table

Financials began the week with some strength but ended the week on a downer with the big pressure applied from the U.S. Justice Department’s polite request that Deutsche Bank pay $14 billion in fines for mis-selling mortgage securities in the U.S. Energy, however, won the dubious distinction of being the most volatile sector this week. Two up days and three down days saw the S&P 500 Energy Sector Index finish -2.91% when the dust settled. With crude prices resuming their slide consistent with seasonal trends, energy is vulnerable to further pressure. Oversupply continues and there is not much in the way of bright spots for the sector, news-wise. Headlines continue to drive volatility, jerking prices around. (Please note: Jason Bodner does not currently own a position in DB. Navellier & Associates, Inc. does not currently own a position in DB for any client portfolios).

Standard and Poor's 500 Weekly Sector Indices Table and Energy Sector Chart

Info tech again saw strength this past week and was the best-performing sector. While it is encouraging to see leadership in this sector, much of this week’s strength can be attributed to Apple, whose shares surged 11.4% for the week on iPhone sales momentum as seen in the spike at the far right – here:

Yearly Apple Stock Index Chart

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

It remains interesting and noteworthy that Utilities and Telecom are seeing relative strength lately as they have been the poorest-performing sectors for the last three months.

Standard and Poor's 500 Monthly and Quarterly Sector Indices Changes Tables

Although the U.S. market, especially NASDAQ, sits near all-time highs, this past week saw pretty much the entire market boosted by one stock. That is not ideal by anyone’s standards. What we have seen lately are volumes increasing on down days, which leaves us at a crossroads. Either this is a healthy, much-needed correction after months of regained ground by the majors, or the market is more vulnerable than it seems.

As big data helps to push around the market, I sometimes think that if the NSA is literally watching our every move, they are certainly monitoring the markets, too. In the 80’s Rockwell (and Michael Jackson) sang these lines: “I always feel like somebody's watching me. And I have no privacy.” No, you don’t!

Robert DeNiro Watching You 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.*

Crude Oil is Back on its Downward Slope

by Louis Navellier

My crude oil prediction on CNBC on August 31 is looking very good (see “Energy stocks are heading for a correction, Louis Navellier says,” on CNBC’s Web site).  Initially, I looked wrong when crude oil prices rose the following week to $47.62 on September 8th, but now we are down to $43/bbl as of last Friday’s close.

Last Tuesday, the International Energy Agency (IEA) said that “supply will continue to outpace demand at least through the first half of next year.”  The IEA added that “global inventories will continue to grow: OECD stockpiles in July smashed through the 3.1-billion-barrel wall.  As for the market’s return to balance … it looks like we may have to wait a while longer.”  Interestingly, the IEA blamed OPEC for the current supply glut and said, “What we’re going to need to see is some serious discipline from the OPEC producers.”  Specifically, increasing crude oil production from OPEC members Libya and Nigeria caused more fear that the crude oil supply glut will get even worse in the upcoming months.

Speaking of the current crude oil supply glut, on Tuesday, the American Petroleum Institute reported that U.S. crude oil inventories rose by 1.4 million barrels in the latest week.  The bottom line is that worldwide demand is declining due to seasonal travel patterns and lackluster economic growth, so crude oil, diesel, and gasoline prices are expected to continue to steadily decline in the upcoming months.

The Latest Raft of Statistics Point to “No Action” by the Fed

While anything’s possible – the Fed may act irrationally and raise rates tomorrow – deflationary forces are still stronger than inflation, so any Fed rate increase will prove to be counterproductive.  In addition to falling crude oil prices, we are also seeing falling food prices.  Last Wednesday, the Labor Department reported that import prices declined 0.2% in August as a stronger U.S. dollar put downward pressure on imports from China, Canada, and the euro-zone.  In the past 12 months, import prices have declined 2.2%.  Largely due to falling food prices, U.S. export prices are also off over 2% (-2.4%) in the past 12 months.

I should add that Eurostat reported on Wednesday that industrial production declined 1.1% in July as the euro-zone seems to be suffering from a manufacturing recession.  Especially notable is that mighty Germany’s exports declined 2.6% in July vs. June, and are down a startling 10% vs. July 2015.  As long as economic output is contracting like this around the world, deflationary forces will continue to spread.

On Thursday, the Commerce Department announced that U.S. retail sales declined 0.3% in August, the first monthly decline since March.  July’s retail sales were revised up to a 0.1% increase, from an initial estimate of “unchanged.”  Excluding vehicle sales, August retail sales declined 0.1%, which was a big disappointment, since economists were estimating that retail sales excluding autos would rise 0.2%.  In addition, vehicle sales declined 0.9% in August as consumers are clearly becoming more cautious.

Since consumer spending is responsible for virtually all of economic growth, now that the manufacturing sector is contracting, the fact that overall retail sales are struggling in the first two months of the third quarter should cause most economists to trim their third-quarter GDP forecasts.  In fact, U.S. economic growth may actually now be on the verge of contracting unless consumer spending improves.

On Friday, the Labor Department announced that the Consumer Price Index (CPI) rose 0.2% in August, but that is somewhat misleading since the rise was almost entirely due to a 1% increase in medical care, the largest monthly increase since 1984.  Specifically, the cost of prescription drugs soared 1.3% in August and has risen 6.3% in the past 12 months.  More importantly, inflation-adjusted wages declined 0.1% in August and have only risen 1.3% in the past 12 months.  This lack of wage growth will definitely cause the Fed to postpone any key interest rate increase for now, since Fed Chair Janet Yellen is a labor economist who has repeatedly said that she wants to see wages rise before raising key interest rates again.

Clearly, the “data dependent” Fed should not raise key interest rates at its FOMC meeting this week if the U.S. economy is on the verge of slipping into a recession and most prices are essentially flat or falling.


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.

Marketmail Archives Trade Summary

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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