August Volatility Frustrates Investors

August Volatility Continues to Frustrate Investors

by Louis Navellier

August 22, 2017

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

The overall stock market initially surged last week when hopes for a diplomatic solution to the North Korea crisis became suddenly more plausible.  Chairman of the Joint Chiefs of Staff, General Joe Dunford, landed at South Korea’s Osan Air Force Base last week and said, “As a military leader, I have to make sure that the president does have viable military options in the event that the diplomatic and economic pressurization campaign fails.”  General Dunford added, “We are mindful of the consequences of executing those options, and that makes us have more of a sense of urgency.”  In response, North Korean dictator Kim Jong Un pulled back from his bellicose threats, declaring that Guam was no longer a target.

North Korean Building Image

With the immediate threat of nuclear Armageddon fading fast, the stock market revived on the mostly positive economic news.  The 10-year Treasury bond fell below 2.2% last week and that brings out all the bargain hunters for dividend growth stocks.  In fact, anytime the 10-year Treasury gets close to the S&P 500’s dividend yield (currently 1.95%), it is a screaming buy signal for stocks over bonds!

President Trump continues to be a distraction after he disbanded two of his business advisory councils and outraged many Americans after his remarks following the mob violence in Charlottesville, Virginia.  Since President Trump stubbornly blamed both sides equally, multiple CEOs resigned from the business councils, as they did not want to appear to be affiliated with President Trump in the wake of relentless media criticism.  The fact that Vice President Mike Pence ended his South American trip early to return to Washington D.C. on Wednesday was a clear sign that a growing political crisis may ultimately undermine the Trump Administration’s pro-business agenda.  Although President Trump is under relentless media criticism, I suspect that Wall Street will not be overly worried unless raising the federal deficit ceiling in September becomes difficult due to the seemingly endless partisanship and infighting in Washington D.C.

In This Issue

This week, Bryan Perry highlights military-spending stocks, giving a new meaning to my advice that “the best defense is a good offense.”  Then, Gary Alexander looks beyond the myopic daily news to two ultra-bullish trends – a rise in wealth and a decline in violence (believe it or not).  Ivan Martchev covers two divergent central bank strategies in Japan and the U.S., while Jason Bodner covers the summer pennant race between InfoTech (the leader) and Energy (the cellar dweller).  In the end, I comment on Asian GDP growth rising, including once-dormant Japan, and the likelihood of GDP rising in the U.S. this quarter.

Income Mail:
Seeking Income from Robust Pentagon Spending
by Bryan Perry
When “the Best Defense is a Good Offense”

Growth Mail:
Is This Bull Market as “Fragile” as the Press Implies?
by Gary Alexander
Surprise: The World is Growing Much Safer and Richer

Global Mail:
The Yen Tracks a Flattening Yield Curve
by Ivan Martchev
Balance Sheet Normalization – QE in Reverse

Sector Spotlight:
Do Dreams Reflect Reality?
by Jason Bodner
Energy – The Long Nightmare Continues

A Look Ahead:
Economies in Asia (even Japan) Continue to Sizzle
by Louis Navellier
Outlook for Third-Quarter U.S. GDP Improves

Income Mail:

*All content of "Income Mail" represents the opinion of Bryan Perry*

Seeking Income from Robust Pentagon Spending

by Bryan Perry

When seeking out the most pristine stock market spaces to invest in, I would argue that the aerospace defense sector takes center stage. While technology and its glamour typically steal most of the daily headlines and seem to be all the rage these days, the tech sector tends to embark on some Kardashian-like tangents from time to time. On the other hand, there are some coveted attributes to describe just how prized the aerospace/defense sector is and why having a strong portfolio weighting to the sector is about as good as it gets in terms of historical performance accompanied by low volatility.

The following characteristics of the bluest of blue chip stocks define an elite fighting force of stocks:

  • Embedded government spending that is set to increase for the next decade
  • High barriers to entry due to technological advances
  • Wide moats that are defined by long-term contracts, thereby limiting competition
  • Steady top-and bottom-line growth with insulated profit margins
  • An oligarchy of only a few companies that dominate the space
  • Coveted core holdings by long-term buy-and-hold institutional owners
  • Aggressive year-over-year dividend growth averaging 10%-20%

The companies that define the aerospace defense sector are world-class U.S.-based enterprises that deserve a place in every portfolio. The iShares U.S. Aerospace & Defense ETF (ITA) encapsulates the top 11 stocks that dominate 90% of that industry’s spending. I prefer owning and trading the individual stocks within the top holdings. One can locate these individual holdings on Yahoo Finance within the Holding section under the ITA statistics. Suffice it to say the Dow component Boeing (BA) is the largest holding (11.5%) of the ITA ETF followed by a “Who’s Who” around the Washington D.C. beltway within close range of the Pentagon. (Please note: Bryan Perry does not currently hold a position in BA. Navellier & Associates does currently own a position in BA for client portfolios).

Just to give you some perspective, shares of ITA have rallied roughly 65% in the past 18 months vs. the S&P 500 up by about 35% and the FANG-rich NASDAQ up around 45%. It’s not a very close horse race.

ITA iShares United States Aerospace and Defense Exchange Traded Fund Chart

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

This performance has occurred under the guise of the so-called “sequestration,” a fancy word for across-the-board budget cuts. Overall spending on national security increased in 2010 and 2011, but it has fallen every year for the last five years by a cumulative 15%. Another way to look at it is that national security spending made up 20.1% of the federal budget in 2010, but only 15.9% in 2015 (source: PolitiFact Sheet: “Military Spending Under Obama,” December 14, 2015). That is about to change with the Congressional budget that will be set in the next couple of months. With mid-term elections coming up next year, a big bump in military spending is a sure bipartisan bet for a sure stump-speech winner for every politician.

From the 11 stocks that dominate the ITA ETF, investors can build a blast-proof portion of their portfolios supported by the anticipated rise in spending from a Pentagon that is committed to rebuilding an aging military and defending America’s interest in a world fraught with large-scale risks (North Korea, Iran, Syria, ISIS, etc.). In my view, these key companies will flourish as long as we live in a dangerous world.

When “the Best Defense is a Good Offense”

I haven’t met anyone lately that believes peace is going to break out any time soon. John Lennon was the last guy who sang about the prospects for peace and he was gunned down in cold blood outside his own apartment by Central Park, New York City. Instead of “imagining” that all could be peaceful and loving, we need to recognize that the human condition has not been that way since Cain attacked brother Abel.

Instead, we live in a violent world of power-hungry maniacs and nations that want to wreak havoc on good people because of religion, territory, natural resources, financial greed – in general, evil intensions of controlling other people. Hence the need for a strong defense system that provides a good offensive to thwart evil aggression on all fronts. Being in the business of providing weapons and intelligence systems is a powerful investment theme with an even more fantastic recent track record of performance.

For income investors looking for a way to play it safe with their risk capital and derive an outsized cash-on-cash yield at the same time, I recommend employing a ‘locked and loaded’ covered-call strategy that has been stress-tested during the most uncertain of times. Selling near-term out-of-the-money calls month after month can generate an extra 5%-10% of yield for a sector that sports one of the higher-dividend payouts to choose from. It delivers serious income and capital gains in a sector that is typically trading in the green when the market is selling off on fear and often leads the market when stocks are getting bid up.

ITA Compared to Standard and Poor's 500 and NASDAQ Charts

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

This recent strong performance over the last 18 months isn’t some extraordinary occurrence. When comparing the Aerospace/Defense sector to that of the S&P 500 and NASDAQ over the past decade – from just before the 2007 top through the Great Recession and onto present day – there is no competition. It’s been like riding Secretariat for 10 years. Some events in life and investing are indelible. Many of us racing fans know exactly where we were when Big Red won the Belmont Stakes by 31 lengths to take the Triple Crown in 1973. Additionally, investors that are fortunate enough also remember when they decided to buy those few stocks that delivered exponential returns that transformed their financial well-being.

Secretariat Race Horse Image

While the market is now moving into a place in time where a much higher level of uncertainty exists, including the future of the Trump organization, we need to see North Korea scale back its nuclear program, while assessing risks associated with re-working trade with China. We need to keep staying a step ahead of ISIS, while preventing events like that which occurred in Barcelona, or countering Iran’s next move, anticipating Russia’s next move, or circumventing any civil wars erupting in oil-rich countries.

There is no better place to be invested in the stock market than the aerospace and defense sector. Period.

Growth Mail:

*All content of "Growth Mail" represents the opinion of Gary Alexander*

Is This Bull Market as “Fragile” as the Press Implies?

by Gary Alexander

You can count on seeing scary stories whenever the market starts to correct.  After a sharp drop Thursday afternoon, Friday’s Wall Street Journal blared on page 1: “Stock Market’s Late Day Selloff Makes Some Investors Uneasy.”  The first paragraph said the Dow’s decline “lays bare the fragility” of the recent rally.

Fragility?!  This bull market has recovered from dozens of major shocks in the last eight years.  The cause of Thursday’s dip (says the Journal) was “a round of disappointing earnings from companies ranging from big-box retailers to technology behemoths.”  But this is what Louis Navellier has been saying here all along – that weaker earnings come out late, and August is often the most dangerous month of the market’s annual cycle.  We’ve seen this before in August corrections as recently as 2011 and 2015.

Last Friday, economist Ed Yardeni published a detailed record of 57 panic attacks during this 8-year bull market, including two panics in the last few months – and surely more will come in the next few months.

Standard and Poor's 500 Panic Attacks of 2017 Chart

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

Last Tuesday, while you were (presumably, hopefully), reading my positive views of the stock market, the news media was focused like a laser on … President Trump’s latest remarks.  In an amazing display of tunnel vision, the Big Three Networks (ABC, CBS, and NBC) spent 77.6% of their evening news broadcast on a single statement by the President.  According to the Media Research Council, CBS Evening News dedicated all 21 minutes and 13 seconds of their total evening news time to the Trump statement.

It takes just one minute to show what the President said.  The other 20 minutes was a parade of talking heads pouring outrage into an echo chamber which added no new facts, just a long and boring filibuster.

CBS found NO time for the dramatic developments in Korea, in which the murderous North Korean dictator “blinked” in his game of chicken with the U.S. military.  They also ignored the radical leaders of Iran threatening to pull out of the nuclear agreement, with their parliament chanting “death to America.”

Also missing from Tuesday’s evening news was any follow-up on their previous fixation with Trump’s alleged connections with Russia.  In doing so, they ignored a Politico report about how the “Obama team was warned in 2014 about Russian interference,” but were “too quick to dismiss the possibility that the Kremlin incursions could reach the United States.”  Likewise, the networks did not discuss the President’s infrastructure proposal in any detail.  NBC was the lone network to mention it, but only in passing.

This Sunday, I watched the entire 60-minutes of “Meet the Press,” which onlycovered Charlottesville.  Not a word about Barcelona, North Korea, Iran, Congress, the eclipse, Russia, China, or the stock market.

Surprise: The World is Growing Much Safer and Richer

The sad news is that there will likely be deadly terrorist attacks almost every month for the foreseeable future.  There is no way that the good guys (the majority) on Planet Earth can put into place the necessary mechanisms to stop sick lone-wolf terrorists from driving into crowds or shooting up a public square.  Any new “Big Brother” means of tracking any and all suspicious people would probably end up harming more innocent folks without preventing major terrorist acts.  Likewise, there will always be hateful people on all sides leading destructive demonstrations, facing off with angry intent against their stated enemies.

But the press doesn’t have to cover it, ad nauseum, and we don’t have to watch it.  If and when we do watch the coverage, we need to bear in mind that deaths in the ongoing War on Terror are measured in the dozens rather than the millions.  Violent deaths around the globe are down dramatically since the 1970s.

There has been a dramatic decline in military deaths, murder rates, and terrorism deaths in recent decades:

Death by Government Chart

Tens of millions of Europeans died from 1914 to 1945 in two world wars.  In previous centuries, it was dangerous to walk the streets of the city at night, or to travel between cities.  Robbers, pickpockets, and murderers threatened the normal course of commerce or travel throughout Europe from 1300 to 1900:

Homicide Rates in Five Western European Regions Chart

When it comes to terrorism, the risks were far greater in the 1970s, during the heyday of the Irish Republican Army (IRA), in addition to Basque separatists (ETA), the Red Army Faction (RFA), which grew out of the Baader-Meinhof gang, neo-Nazi thugs, and others.  Over 250 Europeans died in most (9 of 17) of the years from 1972 to 1988 – greater than any single year since the Berlin Wall fell in 1989. *

Terrorism in Western Europe Bar Chart

It’s now safer to live in Europe, America, and most other countries than at any time in history, but random tragedies will continue to dominate the news, assaulting us 24/7/365, courtesy of our electronic media.

Following daily news too closely blinds an investor (or anyone else) to longer-term trends.  One example comes from the opening of a book I began to read over the weekend, “China’s Great Migration: How the Poor Built a Prosperous Nation,” by Bradley M. Gardner, a Foreign Service officer and former member of The Economists’ crack staff of financial reporters.  He starts his survey of recent Chinese history this way:

“Over the past three decades, the world has become a much better place for the poor.  Between 1990 and 2015, the percentage of the world living in absolute poverty declined by 72% despite the worst economic crisis since the Great Depression…. At the center of this debate is China. From 1981 to 2011, the size of the Chinese population living in absolute poverty declined by 753 million people.”

When he was a reporter stationed in China, Gardner “started asking shopkeepers, factory workers, taxi drivers and waiters how they came to be making money.”  Almost without exception they grew up dirt poor and starving and are now prosperous.  Their answers were all the same: “Every one of their stories was about migration.”  Millions of poor rural farm workers moved to the cities, where jobs awaited them.

If you pay attention to history, common sense, and provable facts, I think you will be a long-term bull, but we face important decisions every day: What will we read, watch, and believe?  Are we going to let the Internet and cable TV whip our emotions into a frenzy over instances of hate, stupidity, and strife, or will we sit back with a well-written, well-researched book and find out what is really happening in the world?

*A good place to start is Steven Pinker’s “The Better Angels of Our Nature: Why Violence Has Declined” (2011).

Global Mail:

*All content of "Global Mail" represents the opinion of Ivan Martchev*

The Yen Tracks a Flattening Yield Curve

by Ivan Martchev

Since early 2015, if one were to put the slope of the U.S. Treasury yield curve (the 2-10 spread) and the USDJPY cross rate on the same scale, one might confuse the two charts if one were not looking too closely. Still, one is the exchange rate between the currencies of the U.S. and Japan while the other is the difference in yield between U.S. 2-year and 10-year Treasury notes – not the most likely of bedfellows.

United States Treasury Yield versus the Yen Dollar Exchange Rate Chart

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

After the November U.S. election both the yield curve steepened and the yen sold off. Last December, the 2-10 spread was as high as 1.34% (134 basis points) and the yen was as low as 118.66 (on an inverted chart, where more yen per dollar is a weaker yen, so the higher the inverted chart goes, the lower the value of the yen). Last Friday, the yen closed at 109.04 per dollar and the 2-10 spread was at 87 basis points.

While the tango between the yen and the 2-10 spread is not an exact overlay, there is a heavy correlation lately. A flatter yield curve means a weaker economy in the future, which is understandable as we are in the third-longest economic expansion in U.S. history. The present economic expansion is now eight years and two months old as of the end of August, while only two economic expansions in the past 240 years were longer – one nine years long in the 1960s and the longest at 10 years in the 1991-2001 period.

A stronger yen means fewer carry trades, where the yen is used as a funding currency, which typically happens in recessions when global financial markets become more volatile and less leverage is used. In that regard, there is logic in this strong correlation between a flatter U.S. yield curve and a stronger yen.

Balance Sheet Normalization – QE in Reverse

There is a monetarist maneuver being readied by the Federal Reserve that might make reading the yield curve tea leaves a little harder. In September, the Fed is planning to begin a process to normalize its monstrous balance sheet – a tad over $4.4 trillion. This is supposed to be facilitated by decreasing the reinvestment of the principal payments the Fed receives from securities held in the System Open Market Account. Such payments will be reinvested only to the extent that they exceed gradually rising caps.

United States Central Bank Balance Sheet Chart

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

Here are some of the details from the June 14 Fed statement about the coming normalization process.

  • For payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month.
  • For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month.
  • The Committee also anticipates that the caps will remain in place once they reach their respective maximums so that the Federal Reserve's securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.

Now all this sounds fine and dandy, but as I have mentioned previously, it does not take a genius to figure out that if the accumulation of trillions of Treasury and mortgage bonds on the Fed’s balance sheet helped suppress long-term interest rates, as was the Fed’s stated goal at the time, the unwinding of the balance sheet might push them higher. It is very difficult to figure out ahead of time how the unwinding will affect interest rates as such a giant operation has never been done before, just the same way as the accumulation of the Fed’s balance sheet has never been done before on such a scale.

Japan Central Bank Balance Sheet Chart

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

It is ironic that as we are pondering how the unwinding of the Fed’s balance sheet will affect the U.S. yield curve and its strange bedfellow, the Japanese yen, the Bank of Japan is going full throttle on its balance sheet expansion with its own aggressive QE policies and the yen is appreciating! All this more aggressive QE relative to the size of the Japanese economy has not managed to produce the necessary inflation, which after a brief spike because of a weaker yen and tax reform in 2015 is back to 0.4%.

Japan Inflation Rate Chart

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

The yen may strengthen further if there is escalation of hostilities on the Korean peninsula, particularly the kind involving nuclear-armed ICBMs. Such events tend to cause spikes in carry trade unwinding, which cause spikes in the yen as the yen loans used to fund those carry trades are covered. Treasuries should also see a safe haven bid in such a scenario, even though from a longer-term perspective they may be more volatile as the market gets a grip on what it is that Fed balance sheet unwinding actually means.

Sector Spotlight:

*All content of "Sector Spotlight" represents the opinion of Jason Bodner*

Do Dreams Reflect Reality?

by Jason Bodner

So, I had this crazy dream last night. I was walking along a path in the late evening with Al Pacino as the character of Lieutenant Colonel Frank Slade from the 1992 movie, “Scent of a Woman.” He was wearing a cream-colored suit and giving me his expert advice on the financial markets as he was spouting all sorts of wisdom on commodities, REITs, and the S&P 500. He distinctly told me that, being in the middle of August, the market was primed for a major move down. He was so convinced of this analysis that he was counting his profits on a trade he hadn't even placed yet – a short bet on S&P futures. This dream quickly devolved, however, once I deduced that he was blind. Suddenly I was being chased by a bad guy, had to defend myself, and promptly woke up. Any of you readers who are therapists, have fun with that one!

Frank Slade Image

It was all so real and clear but once awake, I couldn't shake the memories. I had to remind myself that I am a man of science. I act on empirical evidence. I identify trading opportunities based on statistical probability. As boring as that sounds, acting when you have the odds in your favor is just good sense, right? Acting out of information derived from a dream makes no sense and has no place in the market.

Or does it?

Dreams have long been thought of as a way to deal with thoughts and emotions that can't be processed while awake. There's no time or desire to deal with this subject during a busy day, so out it comes in a dream that most of us would forget the moment our eyes open and some coffee jolts us back to reality.

But there have been some fascinating cases where dreams foreshadow real events. Lincoln dreamt of his own assassination; Mark Twain dreamt of his brother’s demise; some 9/11 victims dreamt of warnings beforehand; and there were 19 confirmed dreams about the Titanic sinking - before it happened.

Dreams have also spawned great things like Larry Paige's dream of Google, Nicola Tesla's dream of the alternating current, and James Watson’s dream vision of the double helix of DNA. So, my dream apparently told me to prepare for a downdraft in the stock market. But what does the actual evidence say?

Energy – The Long Nightmare Continues

Sector-wise, Energy disappointed yet again with a weekly performance of -2.65%. When energy seemed to be snapping out of a losing streak in late July, I wrote (on July 30): “With that said, the fundamentals do matter. Energy is surging on better than expected revenue and crude oil screaming towards $50 again. But looking at a chart of oil, I still see us at the upper boundary range of a down trend channel.  In the coming month, we may find pressure in oil resumes in a seasonally weak time of year. If this happens and liquidity dries up as earnings season peters out, it sets the tone for some potential choppy waters ahead.”

Since then, the S&P 500 Energy Index has toppled 6.7%. Last week, selling was also seen in Telecom and Consumer Discretionary. Utilities saw an influx of cash as investors looked toward traditionally “safer” securities in the wake of some cracks in the equity market.

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

I've been writing for a while now that the second half of August and part of September usually deliver a bump in market volatility and some downward price action. This is based, in part, on a seasonally weak period of time marked with lower liquidity and more absenteeism as Wall Street goes on vacation.

We continue to witness a weak trend in energy. It’s the worst sector this past week, month-to-date, as well as the last three months and six months. We may see short-term bargain hunting as we touch a lower channel. I expect a pop soon but a long-term reversal to stronger energy prices may not come for a while.

Standard and Poor's 500 Energy Sector Chart

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

As earnings season winds down, second-quarter earnings have been largely positive and, despite some profit taking in the Information Technology sector, InfoTech continues to be the strongest sector:

Standard and Poor's 500 Information Technology Sector Chart

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

Last week brought some seriously outsized moves, most notably in the retail space. One large move downward was clearly visible in the footwear industry last week. That said, I see no immediate catalyst to derail this bull market, longer-term. For instance, sentiment is still not bullish, there is still cash available on the sidelines, most companies are beating earnings estimates, and the economy continues to strengthen.

Dreams are great for reconciling hard-to-process information during the day. I think there is valid information in our dreams. Perhaps this dream was a prescient warning, perhaps not. In the meantime, it is useful to look at growing sales, growing earnings, and growing market share to help identify the winners of tomorrow. As far as where the market goes, I believe we’ll see price pressure in late August and September with October and November bringing a rally through to December. As to whether or not that actually happens, I am just like what Lieutenant Frank Slade said: “I’m in the dark here! Who-ahh!”

Through a glass darkly, I foresee a longer-term bull trend remaining intact, despite short-term volatility.

A Look Ahead:

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

Economies in Asia (even Japan) Continue to Sizzle

by Louis Navellier

The global engine of growth continues to be the greatest story seldom told.  With all our focus on overseas hot spots and dissent at home, the global economy continues to soar, especially in Asia.

For example, Japan’s GDP grew at a 4% annual pace in the second quarter, which is truly amazing for a nation with an aging population and a long history (since 1990) of slow growth.  The 4.0% GDP figure was well above economists’ consensus estimate of 2.5%.  Furthermore, Japanese business spending on new equipment and capital expenditures grew at a robust 9.9% annualized pace.  This amazing GDP growth has ignited a whiff of inflation in Japan, with prices rising at a 0.4% annual pace.  This is raising the prospects for higher interest rates and a lower level of quantitative easing by the Bank of Japan.

Mount Fujiyama Image

According to the Economist’s weekly scorecard, several Asian economies are growing by 4% or more:

Asian Economies Latest Quarter Table

This robust growth is not just limited to Japan and the rest of Asia.  The euro-zone is growing at a healthy 2.5% rate, well above its historic average.  Most Latin America economies (with the notable exception of troubled Venezuela) are growing 3% or more, and the latest U.S. GDP growth rate is a 2.6% annual rate.

Outlook for Third-Quarter U.S. GDP Improves

With statistics now coming in for July, it looks like the U.S. third-quarter GDP growth will improve. Last Tuesday, the Commerce Department announced that U.S. retail sales in July soared 0.6%, the highest level in seven months and significantly higher than economists’ consensus estimate of 0.4%.  In addition, June’s retail sales were revised up substantially to a 0.3% increase from initial reports of a -0.2% decline.  Due to June’s substantial 0.5% upward revision, economists will upgrade second-quarter GDP estimates.

As I have suspected, the primary reason for this upward revision is that the Commerce Department was underestimating consumer spending by not properly measuring the growing influence of on-line sales.  In fact, the catalyst behind July’s robust retail sales was a 1.3% increase in on-line sales (thanks largely to Amazon’s Prime Day), plus a 1.2% increase at auto dealers and home improvement/garden stores.  In the past 12 months, retail sales have risen by a healthy 4.2%, so GDP may reach Trump’s desired 3% rate.

Speaking of the Trump Administration’s economic goals, the goal of being truly energy independent is getting much closer.  This will help narrow the trade deficit further, resulting in sustainable GDP growth much closer to a 3% annual pace.  The Energy Information Administration (EIA) raised its forecast for Permian basin crude oil output by 64,000 barrels a day in September to a record output of 2.6 million barrels per day.  This incremental shale crude oil production is largely responsible for the crude oil glut in the U.S. and lower prices at the pump.  I should add that the EIA reported on Wednesday that overall U.S. crude oil production rose by 79,000 barrels a day to 9.5 million a day, the highest level since mid-2015.

Other great news emerged on Thursday, when the Conference Board announced that its leading economic index (LEI) rose 0.3% in July following an explosive 0.6% rise in June.  Meanwhile, the Fed reported that industrial production rose 0.2% in July, slightly below economists’ consensus estimate of 0.3%.  In the past year, industrial production has risen 2.2% and is expected to continue to steadily rise this quarter.

As the second-quarter earnings announcement season winds down, the S&P 500’s earnings are up 12.1% and sales are averaging a 5.6% annual gain.  For the third quarter, the S&P 500’s earnings are forecasted to grow at a 6.8% annual pace.  Since GDP growth is accelerating in the third quarter, do not be surprised if there are some positive upward analyst revisions and some big earnings surprises in the third quarter.


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.

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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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