Best Earnings Season in Two Years

The Best Earnings Season in Two Years is Now Complete

by Louis Navellier

February 28, 2017

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

Now that the earnings season is over, we can see that the recent six-quarter earnings drought has ended. Our friends at Bespoke Investment Group issued a report last Tuesday (“Best Earnings Season for Stocks in Two Years”) which said that the fourth quarter of 2016 was the “strongest and the best since Q4 2014.”

Folded Dollar Bill Image

One of the biggest surprises this earnings season is how some big multinational companies posted better-then-expected earnings due partially to their aggressive stock buy-back activity.  I must admit that I was expecting many of these companies to complain about a strong U.S. dollar hindering their sales and earnings.  However, many multinational companies were able to sell new corporate debt overseas at ultra-low interest rates, and there is no doubt that many companies use this new cash to buy back their shares.

Although the stock market is overbought near-term and some type of consolidation is overdue, I don’t expect to see a major correction anytime soon.  Last week we saw consolidation in leading technology names, but this kind of consolidation typically happens at the end of earnings announcement season.  At the same time, stock buy-back activity also tends to surface quickly after recent consolidations.  Although I expect to see more rotational corrections, I think every dip should be viewed as a new buying opportunity.

In This Issue

In Income Mail, Bryan Perry evaluates the Trump agenda and then offers a blueprint for raising portfolio income, given that agenda.  In Growth Mail, Gary Alexander looks at the same fundamentals and applies them to America’s improving growth prospects.  In Global Mail, Ivan Martchev updates us on two markets he follows closely – the German bunds and the global oil market.  In Sector Spotlight, Jason Bodner applies the current climate change debate to our current “overheated” market.  Then, I’ll translate the Fed’s latest announcements in light of their latest FOMC meeting minutes and recent economic data.

Income Mail:
Generating Rising Income from the Global Reflation Trade
by Bryan Perry
Putting Together a Blueprint Plan for Raising Portfolio Income

Growth Mail:
Growth Isn’t So Limited After All
by Gary Alexander
March and April Look Promising for Stocks

Global Mail:
That “Short of the Century” is Still Not Working Out
by Ivan Martchev
The Missing Down Leg in Crude Oil

Sector Spotlight:
Are We in a Warming Spell or an Ice Age? (Or Maybe Both?)
by Jason Bodner
Short-term, the Market is “Way Overheated”

A Look Ahead:
The Latest Examples of Fedspeak
by Louis Navellier
What to Look for in Friday’s Jobs Report

Income Mail:

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

Generating Rising Income from the Global Reflation Trade

by Bryan Perry

The stock market is off to a red-hot start with investor expectations rising on the hopes of several major themes taking hold that could positively impact asset valuations. Factors favoring market gains include improving economic growth and potential reductions in tax rates for corporations and individuals.

When it comes to priorities, President Trump is targeting healthcare reform first and tax reform by the August Congressional recess, with infrastructure spending, repatriation of capital from corporations’ offshore accounts, deregulation, fair trade, and immigration reform all woven in along the way.

This list is a massive undertaking, but when considering the long-term benefits of such an aggressive agenda, it does not surprise me in the least that the equity markets are trading firmly higher on the notion of global reflation of economic growth as measured in GDP, which can lead to higher asset valuations.

Focusing on growing the economy more rapidly would enhance the president’s public standing as he seeks to win support for some of his other, more divisive and politically charged agenda items. Crafting a pro-business tax plan coupled with initiatives for slashing government waste is falling on receptive ears.  Such an approach could smooth out the Trump transition, because everyone loves a strong economy.

To pad this effort through Congress, the new tax plan will target more take home pay for individuals and families as well as corporate tax reform. Try telling your constituents – as a Congressional representative or Senator – that lowering taxes isn’t a good idea for them. The plan is yet to be revealed, but preliminary estimates show that the top 1% of wage earners will be the biggest winners. I’m not a big fan of this part of the plan, and it will surely be a bone of contention when the plan comes up for debate and votes.

Take-Home Pay Raises Under Trump's Plan Chart

Trump is a businessman, but running the government like a well-oiled business is not feasible in its purest form because of the legacy of our broad and growing entitlement programs, which are necessary, but in my view, require more careful and responsible stewardship in how they are managed.

Social Security and healthcare currently account for over half of federal spending, per the chart below. Considering forward demographic trends, the time for procrastinating on how to finance these benefits for the rapidly rising number of elderly Americas, who are living longer than ever, is running short.

Government Spending Breakdown Pie Chart

The number of Americans 65 and older is projected to more than double from 46 million today to over 98 million by 2060, and the 65-and-older age group’s share of the total population will rise from today’s 15% to nearly 24% in 2060. The aging of the Baby Boomers could fuel a 75% increase in the number of Americans 65 and over requiring nursing home care to about 2.3 million in 2030 from 1.3 million in 2010. (Source: http://www.prb.org Fact Sheet – “Aging in the U.S.” January 2016)

Aging aside, getting leaner and meaner on the non-entitlement areas of a bloated Federal government is doable. As sobering as that might sound to fat and happy federal bureaucrats, their days are numbered.

The market seems to sense that Trump and Congress will take a rational approach to cost cutting. We’re now in the “wait-and-see” period, but we may yet see another buying binge led by improving jobs data. Strong economic data is a non-partisan green light for the stock market, fueling the next leg higher in the current rally with the Fed taking a more hawkish tone based on recent “good news” in the U.S. economy.

Putting Together a Blueprint Plan for Raising Portfolio Income

Low yields have devastated personal savings accounts for the past 10 years. Unless investors can enhance yield on their portfolios in a manner that covers monthly outlays, a growing number of retirees will outlive their nest eggs, making that federal spending pie chart above more ominous and challenging for our future generations. Even if the Fed raises rates three times this year, money markets will pay no more than 2.0% at best. With inflation running above that level, it remains a zero-sum game for savers of cash.

With the reflation trade on and the Fed taking a more hawkish tone, income investors have to consider how best to benefit from the tailwinds of the powerful combination of faster economic growth as the Trump agenda moves from the drawing board to Capitol Hill. This is no time to be a spectator, but rather a proactive income investor taking full advantage of this rapidly changing investment landscape. To that end I want to lay out some major themes and asset classes for income investors in 2017 and beyond:

  • Blue chip stocks with rapidly growing dividend payouts
  • Closed-end funds and ETFs focused on infrastructure
  • Floating-rate business development companies (BDCs)
  • Commercial finance real estate investment trusts (REITs)
  • Hotel, gaming, office REITs, data center and cell tower REITs, and industrial REITs
  • Short-term corporate and distressed credit debt funds
  • Private equity firms and big-cap bank stocks
  • Covered-call, closed-end technology funds
  • Liquefied Natural Gas (LNG) MLPs
  • Select gas pipeline/transfer/storage/logistics MLPs

In my view, these themes may gain momentum as the year progresses. With current earnings coming in strongly to bolster the underlying stocks in these asset classes, there is growing reason to expect several big income-generating winners this year. An action plan that has your investible capital dedicated for income is, for most retirees, a first and foremost priority. And if it’s not, it should be.

While interest rates may stay low for a period during which foreign capital is repatriated and the attractive spreads between U.S. Treasuries and other sovereign debt remains abnormally wide, it’s my view there will be an eventual adjustment where rising inflationary trends put upward pressure, gradual as that might be, on bond yields and downward pressure on long-date bond and bond-equivalent bond prices. I’m not forecasting any major spike in interest rates, but rather investors should consider where the tailwinds are for assets as a result of global reflation that is in the very early stages of becoming a multi-year trend. 

Growth Mail:

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

Growth Isn’t So Limited After All

by Gary Alexander

“The Trump tax cuts are an essential piece of the growth puzzle.  So, too are the combined effects of trade, regulation, and energy policies.”

– the concluding line of “Scoring the Trump Economic Plan: Trade, Regulatory & Energy Policy Impacts,”
by Wilbur Ross and Peter Navarro, September 29, 2016.

Six weeks before the November election, Wilbur Ross (later Trump’s Commerce Secretary nominee) and economist Peter Navarro released “Scoring the Trump Economic Plan,” in which they proposed solutions to America’s slow GDP growth since 2001 – under both Bush and Obama.  They began with these facts:

“From 1947 to 2001, the nominal U.S. grow domestic product (GDP) grew at an annual rate of 3.5% a year. However, from 2002 to today, that average has fallen to 1.9%. This loss of 1.6% real GDP growth points annually represents a 45% reduction of the U.S. growth rate from its historic, pre-2002 norm.”

Many economists have called this new century’s slow-growth economy “the new normal.”  Navarro and Ross disagree.  They prescribe a recipe for a return to 3.5% growth rates through removing impediments in trade, regulation, taxes, and energy policy, in that order.  Making better trade deals, in the authors’ view, would be the greatest spur to higher GDP growth.  The repeal of costly regulation comes next: Regulatory costs are in the range of $2 trillion a year – 10% of GDP, a “hidden tax” amounting to nearly $15,000 per U.S. household per year.  In 2015 alone, the Federal Register listed over 3,400 final rules issued, and in 2016 “82% of Business Roundtable members said they find the U.S. regulatory system more burdensome than those of other developed countries.”  Repressive corporate tax policies – at 39%, the highest in the world – also inhibit U.S investment and growth as trillions in cash sit idle in more favorable jurisdictions.

The skeptics have been arguing against the possibilities of faster growth for a long time.  In March 1972 – 45 years ago – the world was warned in no uncertain terms that there were severe limits to future growth. That’s when The Club of Rome hired world-class researchers from Ivy League institutions to research and publish “Limits to Growth,” selling more than 10 million copies and translated into 30 languages.

In brief, this team of world-class researchers used a mathematical model with five dependent parameters –population growth, pollution, resource depletion, industrialization, and food production – to predict when various resources would dry up.  For example, they said the world could run out of oil and natural gas in 1990 and 1992, respectively.  Today, however, reserves of both are larger than they were in 1970, although we are consuming more, but these scientists and their adoring press could not foresee technological changes which made the extraction of the earth’s resources more affordable.  Nobody factored in the micro-chip or the computer/Internet revolution or the “fracking revolution,” creating low-cost supplies in new oil fields.

The authors of Limits to Growth also said we would run out of mercury (1985), tin (1987), zinc (1990), copper, and lead (1992-93).  But since World War II, “Supplies of copper, aluminum, iron, and zinc have outstripped consumption, owing to the discovery of additional reserves and new technologies to extract them economically” (from “The Growth of Panic,” by Bjorn Lomborg, June 26, 2013).  Turn loose these technologies and the human spirit and there’s no practical limit to the kind of clean growth we can enjoy.

March and April Look Promising for Stocks

We’ve not only weathered the normal winter doldrums, but we’ve managed to thrive.  On Friday, we were two minutes away from a Dow decline, but traders pushed us into the 11th straight all-time high. Here is the tale of the tape from Bespoke Investment Group (“This One Goes to Eleven,” February 24, 2017):

  • “In the DJIA’s history, there have only been eight other winning streaks that lasted 11 or more trading days. Looking at how the index performed after the first down day that ended the streak, returns have generally been positive, but what really stands out is that in the three months that followed each streak, the DJIA was higher every time, by an average of 7%.”
  • “Along with the DJIA this week, all of the major averages hit new bull market and all-time highs, as one of the most unloved bull markets of all time continues to chug along. For the S&P 500, the current bull ranks as the second longest and third strongest of all time.”
  • “With a gain of 10.48% in the 72 trading days since the Election, the only President who had a stronger first 72 trading days was JFK (+13.12%)…. For the other four Presidents who saw positive returns in the 72 trading days following their election, all four saw positive returns over the next three months.”
  • “It has been 73 trading days since the S&P 500 last closed below its 50-day moving average (50-DMA) … The S&P has now closed above its 200-day for the last 167 trading days…”

Deep within this same report, Bespoke said that the Dow rose 1.8% in January 2017 and 3.3% so far in February.  Whenever the DJIA goes up in both January and February, it has risen for the rest of the year in all but one case (2011), but that decline was a trivial 0.003%!  In the 27 times since 1945 when the Dow has gone up in each of the first two months of the year, the average gain for the entire year was 19.9%.

On top of those historical parallels, we enter March tomorrow.  Taken together, March and April are historically great months for stocks, even in the most recent dismal years of 2008 and 2009.  The days get longer (we will set our clocks forward on March 12th), the snow is melting, heating bills decline, flowers start to bud, and the nation is transfixed with March Madness in basketball and baseball’s hopeful spring training season.

In stock market history, March is a good month and April is the best month in the last 20 and 50 years.

Dow Jones Industrial Average Market History Bar Chart

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

The Dow and the S&P 500 have risen in nine of the last 10 years during the March/April time period:

March and April Market Gains in the Last Ten Years Table

Short-term, we’re in one of the two sweetest spots in the calendar (November-December is the other).  Long-term, we’re in for more growth in global GDP – if the engines of growth can be unleashed again.

Global Mail:

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

That “Short of the Century” is Still Not Working Out

by Ivan Martchev

On May 2, 2015, Randall Forsyth of Barron’s penned a piece in his Up and Down Wall Street column (“German Bunds: The Short of the Century”) in which the veteran financial journalist discussed some famous bond traders who were making comments about German government bonds, known as bunds.

Here are two notable paragraphs from Forsyth’s column currently under discussion:

“The bizarro state of affairs has been much discussed here and elsewhere. In recent days, this weirdness has spurred the once and current Bond Kings to suggest that negative interest rates not only are unsustainable, but also tradeable as short sales. Bill Gross, the former head of Pimco before exiting for Janus Capital, called betting against Bunds the short ‘of a lifetime,’ while his rival, Jeffrey Gundlach, who heads DoubleLine Capital, similarly termed it the short ‘of the century’ that’s just 15 years old.

“As Gundlach expounded in a Bloomberg television interview, shorting two-year Bunds that yield minus 0.2%, and leveraging that position 100 times—not unheard of with relatively short-term, high-grade debt instruments—should return 20%. It’s a mathematical certainty that the bond will lose value by the time it matures at par in two years, resulting in that leveraged return.”

While I opined on several occasions at the time that bunds were no short of the century, I was reminded of those proclamations two months short of their two year anniversary when the German two-year note yield, dubbed as” the Schatz yield” (Schatz = Treasury), fell to an all-time low of -0.96% last Friday!

Germany Two Year Schatz Yield Chart

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

If that two-year Schatz was a no brainer to short at -0.20%, it must be a quintuple no brainer to short at -0.96%, as the yield is almost five times deeper in negative territory today, right? The thing about such dramatic phrases like “the short of the century” or “the short of a lifetime” is that they imply some sort of urgency to do the trade, which was obviously not the case two years ago. If it hasn’t worked out in two years, it would suffice to say that this was no short of the century.

To be fair to Mr. Gundlach, if he had shorted German two-year notes at -0.20% and met the margin calls on that 100X leverage, he would have actually made money as all bonds mature at par. The two-year notes he may have shorted in 2015 would have been one-year notes in 2016 and would be maturing in May 2017. Let’s hope he does not short the German two-year note approaching -1% as political risk is simply difficult-to-quantify at the moment in Europe. I think the impending Brexit and the threat of a Frexit, pending the outcome of the French presidential election, have a lot to do with this action in German bunds now.

Germany Government Ten Year Bond Chart

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

While Mr. Gundlach was referring to German two-year notes at the time, Mr. Gross was referring to 10-year bunds. Yes, they did turn from 5 basis points in yield all the way to 1% in mid-2015 after he made his “short-of-a-lifetime” comments, but later they turned negative with persistent pressure on the bund yield ever since. Bund yields rebounded after the U.S. election but look to be headed again for negative territory as the election cycles in France, the Netherlands, and Germany promise much drama in the months ahead. In fact, I think it is likely that both the two-year and 10-year bund yields will end up in negative territory at the same time. When that happens two-year bunds, or bundesschatzanweisungen as they are called in Germany, will likely be much deeper in negative territory than 10-year bunds. Then, the Germans will actually have a positive yield curve (as when you deduct a bigger negative number from a smaller negative number you get a positive difference).

United States Government Ten Year Bond Chart

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

All this drama in German bunds due to the political uncertainty in Europe is also beginning to be felt in the U.S. Treasury market where 10-year yields closed at 2.3117% last Friday. Keep in mind that there is talk that the Fed is “behind the curve” and that we may have to have more rate hikes in 2017 to catch up with inflation. There is also talk that a rate increase is “on the table” in March, yet Treasuries are rallying?

I think the Treasury market will continue to appreciate as the French election draws near. The EU cannot survive a Frexit, even though it may be able to survive a Brexit, although in a weakened condition. But since there are also elections in the Netherlands and Germany this year, this makes it very problematic for the Fed to undertake an aggressive rate-hiking cycle.

I also think that the chances are better than 50-50 for the 10-year Treasury to drop below 1% before President Trump’s first term in office ends in January 2021. I know President Trump has a very ambitious agenda of deregulation and tax reform, but we have never had an economic expansion longer than 10 years in this country (March 1991 to March 2001) and I cannot see how the Trump administration will be able to beat that record. The present U.S. economic expansion will be eight years old in June 2017, which at that point would become the third longest recovery in history.

I think bonds in the U.S., or Germany for that matter, are not quite the “short of a lifetime” yet.

The Missing Down Leg in Crude Oil

I thought we had a better-than-even chance to have another dramatic winter in the crude oil markets – similar to what we saw in 2015-2016 – because inventories were high and production was not all that low.

I was wrong.

Crude Oil Chart

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

The key has been the November 30, 2016 OPEC deal to cut production, which has stabilized the price of crude oil. At the time, OPEC decided to cut production in 2017 by about 4.5%, or 1.2 million barrels a day, which was the first cut in eight years. Even the Russians agreed to participate, cutting production by 300,000 barrels per day.

This is where the plot thickens, as they say in the movie business.

U.S. crude oil production is reported with a lag, so in February we got the November data, reflecting a sharp uptick. Crude oil production in the U.S. increased to 8.904 million barrels per day in November, up from 8.807 million barrels per day in October. Crude oil production in the U.S. hit its all-time high of 10.044 million barrels per day in November 1970 – a level that was largely assumed to be impossible to reach again, but we more than doubled production from a record low of 3.983 million barrels per day in September 2008 and were likely headed for a new all-time high if it had not been for the price downturn.

United States Crude Oil Production Chart

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

With the massive amounts of money borrowed to develop high-cost shale production, the incentive to create a sharply rising rig count is here to stay. I think both production in the U.S. and rig counts will rise sharply in 2017. While that won’t likely be enough to cover the OPEC cut, it will be substantial.

United States Oil Rig Count Chart

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

But all those are supply considerations. We may also have a drop-off in demand depending on some pending economic developments in Europe and China, so we are not completely out of the woods yet.

Sector Spotlight:

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

Are We in a Warming Spell or an Ice Age? (Or Maybe Both?)

by Jason Bodner

According to the terminology of glaciology – the scientific study of glaciers – we are actually in an ice age. An ice age is defined as a period of long-term reduction in the temperature of the Earth’s surface and atmosphere, which causes an expansion of the continental and polar ice sheets and alpine glaciers.

Within an ice age, there are periods of cold climate and intermittent warm periods called “interglacials.” The current period we are in is an interglacial period called Holocene – a warmer period of the ice age which began 2.6 million years ago at the start of the Pleistocene epoch. Basically, we are in an ice age (although a warmer period of it) because there are still Arctic, Antarctic, and Greenland ice sheets.

Now, unless you have been completely tuned out, there is a lot of talk about climate change, which the human population explosion of recent years has been affecting. There is spirited debate over this: There are those who embrace it as truth and those who deny it as folly. This is not a debate I wish to enter into right now, but one thing is for sure: In 1800 there were about one billion people on Earth. Today we have more than seven billion. Each one of us releases heat energy as each of us is 98.6 or so degrees. Couple this fact with the many studies which say our planet’s temperatures have been rising for the last century or so, and the correlation starts to seem strong. Burning fossil fuels to keep warm, travel, and make products only contributes to the planet’s heat energy. The ice sheets are indeed still there, but shrinking rapidly.

Shrinking Arctic Polar Ice Cap Image

The climate change argument is extremely alarming to those of us who think in terms of hundreds of years: What are the implications for us, our children, and their children? But if you think in longer terms, human existence itself is only a momentary blip of the Earth’s overall life. In fact, Carl Sagan’s popular “Cosmic Calendar” (below) reveals that human/chimp divergence took place at 8:10 p.m. on December 31st of the “year” since the Big Bang. Our Solar System, including Earth, formed sometime in August.  Columbus discovered America just one second before midnight on New Year’s Eve – 525 years ago.

Evolutionary Time Chart Image

Once again, everything is relative. People could certainly drive the planet to the brink of climate collapse, and it could be catastrophic for all of us or our descendants. In the long term, however, Earth will go from this warm period into another ice age. There will be evolution and new forms of life springing up along the way. Basically we may flame ourselves out, but life will go on. By most scientific estimates, the Earth has another three billion years to go, with or without human occupation.

Short-term, the Market is “Way Overheated”

These divergences in time scales become relevant when we look at prices in the stock market from day to day. Short term, we are way overheated. In fact, my own metrics have flashed a decisively “overbought” scenario for both the Technology Sector as well as the broader market as a whole.

Everyone knows we can’t see price increases every day into infinity – knowing the precise future is less likely than the odds of being eaten by a shark on land. The long term, however, is most favorable for stocks. This is historically true, as we learn from Jeremy Siegel and Warren Buffett. In the long-term, the game of owning little pieces of well-run companies stacks the odds in favor of the investor. In the near-term, however, we may be seeing the market’s equivalent of “climate change.”

I for one am bullish for the long term. The near-term however, finds me fully expecting corrective price action. Fundamentals may indeed be catching up to technicals, however. Valuations are increasing, institutional selling is very low, and a one-way market typically doesn’t stay that way.

Sector behavior is a good way to find where leadership begins – and also to find the first signs of cracks.

Looking at the past four-day trading week, the first thing we see is that the favorite sectors since the November election came up as the weakest of the crop. Materials, Industrials, Financials, and Energy were the four weakest sectors of the week, with the last three posting negative performance. This is understandable, given the meteoric rise we have seen in these sectors since the election, especially Financials. Every sector needs a breather after a sharp rise. But as we see, Information Technology, while posting a +0.77% short-week performance, sustained some pressure stemming from profit-taking in some key leading stocks. Utilities, Telecom, and Real Estate were the top three performers, posting solid short-week gains. This may indeed be the beginning of a rotation. We see the recent strongest sectors swapping places with defensive, yield-intensive sectors. This represents a red flag that we need to watch closely.

Standard and Poor's 500 Daily Sector Indices Changes Table

Financials still reign supreme over the last three months, far above any other sector. Looking at 12-month performance, however, we see Information Technology is the #1 performer, albeit by just a smidge.

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

Moving into March, things may resume course and keep right on chugging along. Or this could be the first crack foreshadowing a market about to roll over. Only time will tell, just as only time will tell us what impact mankind is having on the climate, and what the long-term implications will be. We are technically in an ice age, but I’m sure we can all agree it doesn’t feel like it. The market is hitting new highs almost daily, but we need to ask ourselves if it is sustainable short term.

We can’t possibly know what tomorrow will bring. Warren Buffett also knew this when he said, “In the business world, the rearview mirror is always clearer than the windshield.”

Warren Buffett Quote 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.*

The Latest Examples of Fedspeak

by Louis Navellier

There is an Academy-Award nominated Best Film of 2016 called “Arrival,” which stars Amy Adams as a linguist who bravely tries to translate the visual language of a newly-arrived army of aliens, so that we can coexist with them in peace instead of going to war.  Of course, I thought immediately of the Fed and their convoluted “Fedspeak,” which they use whenever speaking in public or testifying before Congress.

On Tuesday, San Francisco Fed President John Williams told Bloomberg that historically low interest rates are here to stay.  Williams wrote in the San Francisco Fed’s latest economic letter that a low-rate world is “likely to be very persistent” as an aging population and lagging productivity hold down growth.

In his best Fedspeak, Williams also pointed out that it might make sense for the Federal Open Market Committee (FOMC) to raise key interest rates soon.  What Williams’ confusing comments really mean is that the yield curve flattens as bond yields moderate and the Fed raises short-term interest rates.  Longer-term, Williams does not see dramatically higher bond yields due to very strong demand.

On Wednesday, the Fed released the minutes from their most recent FOMC meeting, in which they discussed raising key interest rates “fairly soon” in light of an improving economy and the possibility of renewed inflationary pressures.  As always, the Fed remains data dependent and since healthcare reform is being introduced first and meaningful tax reform may not be implemented until August, the economic data in the upcoming weeks will likely be crucial in influencing its upcoming mid-March FOMC meeting.

Ironically, while the Fed continues to talk about raising key short-term rates, long-term corporate bond yields are pushing the yield curve lower.  Furthermore, the demand for intermediate-to-long Treasury bonds remains robust, so the yield curve has flattened out a bit.  Ironically, if Congress and the Trump Administration can get corporate tax reform passed, there is a growing belief that the 10-year Treasury bond might approach 2% due to relentless buying pressure if we see mass repatriation of overseas cash.

The FOMC minutes also cited “heightened uncertainty” from Trump’s tax reform and spending increase plans.  Essentially, the FOMC implied that excessive stimulus might spark inflation, which would give the Fed “ample time to respond” if inflation materializes.  Translated from Fedspeak, the FOMC appears to be in a waiting mood, but all that could change if the February jobs report is stronger than anticipated.

What to Look for in Friday’s Jobs Report

One of the most important economic reports that will likely influence the Fed most will be the February payroll (released this Friday).  Even though we are near “full employment,” the labor force participation rate is near historic lows, so we need to see over 200,000 new jobs created monthly to generate meaningful GDP growth and wage growth.  Janet Yellen trained as a labor economist, so the wage growth component in the February payroll report will be especially crucial.  Wage growth decelerated in recent months as companies continued to curtail healthcare benefits, which tends to suppress wage growth.

Family Silhouette Image

Today, after we go to press, we will see the second iteration of fourth-quarter GDP, which will likely be around 2%.  According to the Atlanta Fed’s GDPNow, first-quarter GDP is running at about 2.4%.

The other key indicators this month will be released as the Fed meets in mid-March.  Ironically, on March 15, the Consumer Price Index, Retail Sales, and the Empire State Manufacturing Survey will all be released at 8:30 a.m. on a day in which the FOMC will announce its next rate decision (at 2:00 pm).

Speaking of interest rates, despite a recent uptick in mortgage rates, the National Association of Realtors announced on Wednesday that existing home sales rose to a 5.69 million annual pace in January, a 10-year high.  The inventory of existing homes for sale remains unusually tight at a 3.6-month supply, so home prices are expected to continue to rise.  The inventory of existing homes for sale actually declined 7.1% in January, which deepened the supply shortage.  I should also add that on Friday, the Commerce Department reported that new home sales in January rose 3.7% to an annual pace of 550,000.

Overall, the strong pace of new and existing home sales is a sign that consumer confidence remains high, even though the University of Michigan announced on Friday that its final consumer sentiment index slipped to 96.3 in February, down from 98.5 in January.  This is the first month in which the Michigan consumer sentiment index has dipped since the Presidential election.  The impending battle in Congress over healthcare and the delay in tax reforms may be adversely impacting consumer sentiment.


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.

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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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