Best Season Approaches

Despite September Fears, the Market’s Best Season Approaches

by Louis Navellier

September 11, 2018

The S&P declined each day of the holiday-shortened first week of September, but it only fell 1% in all. That’s nothing to worry about, but the bears were out in full force warning about the potential of a September crash, especially in light of the upcoming 10th anniversary of the 2008 financial panic. We may indeed have a “flash crash” or a normal correction, but I expect we’ll see quarter-ending window-dressing and ETF rebalancing, which typically benefits stocks. At the same time, the Fed will likely raise rates on September 26th and then issue a “dovish” statement, which should boost the market as September ends.

Thanksgiving Dinner Image

Then, beyond September, we have the year’s strongest quarter to look forward to. October in the past 20 years has been seasonally strong. Furthermore, forecasted third-quarter sales and earnings are expected to remain strong, thanks to 4.4% estimated GDP growth, so “peak earnings momentum” has yet to arrive. I expect wave after wave of strong announcements to propel stocks higher in October. I also expect the market to rally after the mid-term elections in early November, regardless of the results, since most of the political distractions will finally be over. Finally, as Thanksgiving nears, typically an early “January effect” commences as small-to-mid capitalization stocks tend to end the year on a strong note.

In This Issue

In Income Mail, Bryan Perry focuses on the Fed’s favorite yield curve measure, which indicates more shelf-life in this economic recovery and bull market. In Growth Mail, Gary Alexander looks at the added caution evident among most investors as well as “Gen-Z” youth in their savings after the trauma of 2008. Ivan Martchev returns to the precious metals market to examine the “great gold/silver divergence,” as well as the sagging mining stock sector. Jason Bodner’s Sector Spotlight contrasts the yin-yang of weak sectors winning in down weeks while strong sectors still dominate the year-to-date gains. Then, in the end, I’ll return with my answer to the latest doomsday theory, the coming “Great Liquidity Crisis.”

Income Mail:
Bulls Find New Catalyst to Bankroll More Gains
by Bryan Perry
A Better Interest-Rate Indicator Gives the Bulls a Green Light

Growth Mail:
The Trauma of 2008 Created More Cautious Investors
by Gary Alexander
Economic and Market Fundamentals are Still Strong

Global Mail:
The Great Gold/Silver Divergence Continues
by Ivan Martchev
What Mining Stocks Are Telling Us

Sector Spotlight:
A Week of Worries Assaulted Investors Once Again
by Jason Bodner
Get Prepared Now for a Strong Fourth Quarter

A Look Ahead:
Are We Headed for a “Great Liquidity Crisis”?
by Louis Navellier
Unlike 2008, We’re Nowhere Near a Recession Now

Income Mail:

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

Bulls Find New Catalyst to Bankroll More Gains

by Bryan Perry

The bullish camp is mounting a serious campaign for staging a pre-election rally that could really sizzle. Second-quarter real GDP growth was 4.2% on an annualized basis and the Atlanta Fed's GDPNow model is estimating 4.4% real GDP growth for the third quarter. But even a stellar set of economic figures can’t prevent a sharp pullback for what was simply an overbought market that still rose by over 3% in August.

There is no denying the economy is on a roll. Undergirding robust factory production, strong employment news, and services data released last week, business investment continues to trend well, which is more of a long-term indicator than most other data points, and GDP has reached cruising speed at 4% and above.

So, if all is well for the economy in terms of fundamentals, what is driving the bearish conversation lately about how the Goldilocks economy is on the verge of hitting the wall? Let’s look at the leading concerns:

  • There is a widespread belief among market pros that we are in the late stages of the expansion.
  • There are deep-seeded concerns the Federal Reserve will tighten too much and kill the expansion.
  • There are legitimate fears that growth in other developed economies has stalled or declined.
  • Likewise, fears of a protracted trade war with China could negatively impact Asian economies and weaken global markets outside the U.S.
  • Deficit spending in the U.S. and abroad at all levels has created fears of a massive credit bubble.

Guiding the collective fears of those on a “recession watch” is the spread between the 10-year and 2-year Treasury notes, which currently stands at 22 basis points, just off the recent low. There is a credible reason for investors to be watchful of the “10/2 spread,” as a recession has occurred every time since 1980 when this spread has “inverted,” meaning that the rate on the 2-year is higher than the 10-year rate.

Inversion of the 10/2 spread doesn’t mean a recession is just around the corner, though. There have been five recessions since 1980 and the average time between the first inversion and the following recession has been just over 18 months, with a range that has spanned 10 to 24 months. But, as most investors are keenly aware, the stock market will begin to adjust well before the economic contraction actually occurs.

With the S&P 500, Nasdaq Composite, and Russell 2000 all hitting new record highs in recent weeks, there seems to be a sense that the narrowing spread between the 10- and the 2-year note is not going to invert even as the FOMC is widely expected to raise the target range for the fed funds rate again at its September 25-26 meeting. The latest move up in the 10-year yield from 2.82% to 2.94% during the past two weeks appears to have minimized any inversion fears, at least for now.

A Better Interest-Rate Indicator Gives the Bulls a Green Light

Given the narrowing yield curve, why did the market surge so much in late August? A recent white paper by the San Francisco Federal Reserve of San Francisco (“Information in the Yield Curve about Future Recessions,” August 27, 2018) gave the stock market reason to think calls for the death of the economic expansion emanating from the 10/2 spread are greatly exaggerated. This new white paper – which was also published in the Wall Street Journal – runs counter to the conventional line of thinking, noted above.

While the Fed’s research acknowledges the validity of the yield curve as a reliable predictor of recessions, the main takeaway from the San Francisco Fed’s August report is the notion that the spread between the 10-year note yield and the 3-month T-bill yield is the most reliable predictor of recession among the various short-term yield spreads. This conclusion has some “Wow” factor to it. Until this paper was released on August 27th, no one talked about the 10yr-3mo spread, not even Rick Santelli!

Because the spread between the 10-year yield and the 3-month yield is a wider 72 basis points, whereas the spread between the 10-year and 2-year yield is just 22 bps, institutional fund managers took this highlighted finding to heart and it could be the #1 reason why the market vaulted higher in the last week of August. It was like a free extended pass for the summer rally and buyer euphoria just took off.

Everybody Back in the Pool Image

For a bull market that wants to find more reasons to run, the added cushion provided by the 10-year-3-month spread could be one such reason. But will the stock market defer to this newfound line of thinking or react in historical bearish fashion if or when the 10/2 spread inverts? I think the SF Fed’s economic analysis is well-grounded, since it has been the tradition in the academic literature to focus on the 10-year vs. 3-month spread when it comes to pegging a recession, even though financial commentators emphasize the 10/2 spread. But market bears apparently don’t like the indicator the Fed uses to forecast recessions.

Yields Spreads Chart

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

The question going forward will be whether the stock market has the ability to look past an inverted 10-2 spread and to defer to a positive 10yr-3mo spread and whether the financial community embraces this line of thinking. For a bull market that has managed to bypass worst-case scenarios time and time again, I wouldn’t be surprised if it starts looking to the 10yr-3mo spread as its preferred yield-curve marker. This could set up the S&P 500 for a pre-midterm move up to and through 3,000 like a hot knife through butter.

Growth Mail:

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

The Trauma of 2008 Created More Cautious Investors

by Gary Alexander

This week marks the anniversary of the two most traumatic events of the 21st Century so far.

September 11, 2001 is a date that will forever live in infamy – 17 years ago today – and to a lesser extent so is September 15, 2008, when Lehman Brothers filed for Chapter 11 bankruptcy, the largest bankruptcy in U.S. history, despite Lehman’s then-holdings of over $600 billion in paper assets. The main culprit was bad real estate debt. The New York Federal Reserve Bank had engineered a Bear Stearns merger/bailout six months previously (March 14), but the government inexplicably let Lehman fail while one day later they loaned AIG $85 billion in exchange for an 80% stake in that giant insurer. A financial panic was on.

The market levitated for a couple of days, like Wile E Coyote running off a cliff, but then it entered a freefall not seen since 1987. In two months, the S&P 500 fell 40%, from 1255.08 on September 19 to 752.44 on November 20, 2008. In all, the S&P fell 57.7% from its peak in October of 2007 to its nadir in March 2009, the fastest and deepest bear market plunge in a major broad-based market index since the 1929-1932 market crash. (Nasdaq fell farther in 2000-02, but that was a narrower tech-focused index.)

I began writing these regular columns for Navellier & Associates in May 2009, shortly after this bull market began, and my second column (the first covered the rise of China) was how a bear market of such massive proportions implies a bull market of equally historic proportions to follow. I cited the all-but-forgotten 372% bull market from 1932 to 1937, which followed the 1929 crash. I explained the concept of “regression to the mean” and how the long bear of 1966-82 led to the long boom of 1982-1999. In the same way, I predicted that the “lost decade” for stocks from 2000 to 2009 should precede a great decade.

That column seemed so out of tune with the times that Matt Krantz of USA Today called me up and seemed incredulous that I could write such heresies. He wrote a column quoting me and Louis Navellier saying such things back in May 2009, but it turned out to be true. The S&P 500 is up 331% in the 9-1/2 years since the market bottom of March 9, 2009. Some scare-mongers like to say 2008 can happen again but I showed you last week that Americans are saving more. The scars of 2008 have sobered most of us.

All this has happened before, of course. A whole generation of Americans was sobered by the Great Depression. Thankfully, no Depression followed the 1987 or 2008 crashes, but there are some parallels.

Gross Domestic Product Change from a Year Earlier Bar Chart

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

The Wall Street Journal showed us last Friday (in “Ready, Set, Strive – Gen Z is Coming: Battle-scarred, they are sober, driven by money and socially awkward, a 1930s throwback”) that “Generation Z” (born 1996 and later) are also saving more and spending less. They don’t want to run up college debt like their parents. They don’t drink, drive, or party as much and are more serious. (I can attest this is true for my three college-attending grandsons!) This represents a fallout from the pain of 2008, the article says.

Freshman Thoughts on Wealth and Partying Chart

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

Crises are unavoidable. How we handle them is optional. This time around, investors have been cautious in re-entering the market. Most have saved more, and now our children are taking precautionary measures against future crises. That’s a positive reaction, which makes another “bubble” situation far less likely.

Economic and Market Fundamentals are Still Strong

The latest array of economic and market indicators points toward a healthy economy and a rising market, nothing like the storm clouds that appeared on the horizon a decade ago this week, or in 2000-02.

The Atlanta Fed’s GDPNow model computes third-quarter GDP at a 4.4% annual rate. Their range of growth expectations for the current quarter has ranged from 4.1% to 5.0% (see chart, below).

Gross Domestic Product Prediction Chart

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

U.S. consumer confidence in August rose to its highest level since October 2000, according to the Conference Board, exceeding economists’ expectations by a long shot. Only one in eight (12.7%) said “jobs are hard to get,” the lowest reading since March 2001. Lynn Franco, who runs these surveys, says “these historically high confidence levels should continue to support healthy consumer spending.” 

According to the BEA, second-quarter corporate profits are up 16.1% from the second quarter of 2017, the best year-over-year increase in six years (as measured by the National Income and Product Accounts, NIPA, which measures both public and private companies). Part of this was due to the tax cuts. The tax cuts are permanent, but the year-over-year comparisons will be more difficult in 2019. Still, lower tax burdens imply more bottom-line earnings and profits for Corporate America for many years to come.

S&P operating earnings shot up 25.5% (year over year) in the second quarter to a record $1.3 trillion annual rate, up 5.4% from then-record first-quarter earnings – both a product of the latest tax cut. Due to record share buy-backs, S&P operating earnings per share rose 25.9% and revenues per share rose 10.4%.

As a result of these (and other) fundamentals, the major MSCI stock price indexes show the U.S. market is up 8.7% year-to-date, while the rest of the world is suffering: The European Union is -1.8% and the UK is -3.6%. Within Europe, some of the biggest economies are worse off: Germany is down 5.4%, Spain -7% and Italy -8.1%. In Asia, China is -9%, South Korea -6.4%, and Japan -4%. Emerging Markets are -3.5%.

The U.S. is still the best place to invest – a decade after the 2008 crisis and 17 years after 9/11.

Global Mail:

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

The Great Gold/Silver Divergence Continues

by Ivan Martchev

The price of “poor man’s gold,” aka silver, traded at multi-year lows last week, dipping below $14/oz. marginally and barely closing above that key level at the end of the week. Do you know where the price of gold was the last time silver hovered around $14 in late 2015 and early 2016? Below $1,050/oz.

Gold versus Silver Chart

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

I do not believe that silver will “hold” $14, as they say in the trading business, and will go much lower, as we have rising interest rates in the U.S., combined with late-cycle fiscal stimulus. Such an environment is ripe for a continued dollar rally, which is being helped by the Trump administration’s aggressive attempts to rebalance the U.S. trade deficit. The Broad Trade-Weighted U.S. Dollar Index is up sharply this year, and the precious metals tend to trade in an inverse ratio to the dollar. As the dollar rises, gold tends to fall.

Broad Trade-Weighted Dollar Index Chart

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

As I have mentioned here previously, President Trump does not have to completely eliminate the trade deficit for the broad trade-weighted dollar to reach an all-time high. As we are in the middle of the trade battle to rebalance the biggest problem in the U.S. trade deficit – namely, the situation with China – it is worthwhile to point out, again, that the trade picture is not nearly as bad as it was during the years of the George H.W. Bush administration, when the trade deficit reached 6% of GDP.

At 2.4% of GDP, the U.S. trade deficit is exactly where it was 30 years ago, while the U.S. economy has grown more than four-fold. I realize that the absolute numbers seem horrific – like the $375 billion imbalance with China – but the situation is not nearly as bad as Mr. Trump portrays it to be. That said, the U.S. trade policy was badly in need of an overhaul and his aggressive actions are addressing that issue.

United States Trade Deficit Chart

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

That said, some of the moves in the emerging markets currency space are horrific. It is not only the Argentine peso and Turkish lira that are under pressure. All emerging markets’ free-floating currencies – including the ones with “dirty pegs” – are under pressure, which has caused a rather disconcerting dive in the JPMorgan Emerging Markets Currency Index, which at last count is at an all-time low.

JP Morgan Emerging Market Currency Index Chart

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

Could it be that such profound weakness in the EM currency space is causing safe-haven buying of gold bullion and hence we have this divergence between a really weak silver price and a less-weak gold bullion price? Yes, that could be; but based on historical correlations, if the non-trade-weighted U.S. Dollar Index rallies meaningfully past 100, it would be surprising to see such gold strength continue.

Gold versus United States Dollar Chart

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

What Mining Stocks Are Telling Us

Just like silver bullion tends to be weaker than gold bullion during tough times for the precious metals, and vice versa (silver is stronger when investor interest is high), the same is true for the mining stocks relative to the metals. This is because of the operational leverage in mining stocks where, in theory, if they are not hedged, a 10% rise in the price of gold tends to produce a bigger boost in EPS growth to the tune of 20%-30%, depending on the cost structure, in mining shares. At least this is what theory says.

Gold Miners Exchange Traded Fund Chart

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

In practice, all gold mining companies are different. Cost structures vary wildly where strip mining tends to be cheapest, while deep mining tends to be the most expensive. Then we have to get into the grade of the deposits. Still, if one views the gold mining space via broad ETFs like the Van Eck Vectors Gold Miner ETF (GDX) and the Van Eck Vectors Junior Gold Miners ETF (GDXJ), one would see that they have both taken out the lows they saw in late 2016, when gold traded down to $1120/oz.

It is worth pointing out that smaller-capitalization mining stocks tend to be more leveraged to the price of gold as they are also a lot more speculative. You know the precious metals market is hot when a mining company with no production and no clear plans to start mining – which in effect is a call option on its mineral rights – sees its stock price flying. Those are the types of stocks that also experience spectacular crashes when the precious metals market is weak, as is the case at the moment.

This is where they say, the plot thickens. Based on the outlook for the U.S. economy, Fed policy, and trade policy, I expect the dollar rally to continue well past the end of 2018. Whether the gold price will take out $1000/oz. by year end is unknowable at the moment, but secondary indicators for precious metals prices surely say that the precious metals market is a lot weaker than the present level of gold prices suggests.

Sector Spotlight:

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

A Week of Worries Assaulted Investors Once Again

by Jason Bodner

It shouldn’t surprise you that worry is everywhere. Anxiety disorders are the most common mental illness in the United States. According to the Anxiety and Depression Association of America (ADAA), 40 million Americans over the age of 18 are affected by anxiety — roughly 18% of the nation’s population.

Chimpanzee Image

Last week was a worry week. The stock market showed this clearly in the price action. The S&P 500 fell every day, totaling -1.03%. All sorts of headlines ripped through the landscape covering all sorts of topics. There were Senate hearings implying possible regulations for tech companies, a new book painting President Trump in a negative light, an op-ed piece also painting Trump in a negative light, and several other wild leaks. There was even an “Elon Musk Smokes Pot” interview. The truth is, the media loves to test negative headlines to see where they can get traction. Last week they scored big, and markets reacted.

Nail Biter Image

On top of all the news headlines, I saw an old favorite phrase, “Tech-Wreck,” pop up several times last week, since the Information Technology index fell nearly -3% last week. Energy shed -2.3%, Real Estate lost -1.23%, and Consumer Discretionary fell -1.22%. The selling started with tech stocks being punished for fear of possible regulation. Talk of Attorney General Jeff Sessions eyeing tech companies and Senate hearings were enough to trigger a slide. This quickly rippled into related growth stocks and sectors.

Standard and Poor's Weekly Sector Indices Changes Table

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

This is yet another example of algorithms kicking in. When bad news hits, many times the market shrugs it off and keeps on chugging higher, but the bad news headlines never stop coming and occasionally they cause a reluctance to keep buying stocks. When algorithmic traders see this, they sell stocks aggressively.

The moves down can be sharp and disconcerting, but this has become a normal occurrence. It’s a new-fangled type of periodic correction. Some stocks were moving 2-3 times their normal daily ranges. This can only be explained by a lack of liquidity on the bid-side, as sellers come in aggressively.

Days like these are profitable for high-frequency-trading firms. They like market setups like this. They love days when the whole market is weak. I remember talking to one HFT trader who said days where the major indices crack and lose 2%-to-3% or more are the days these traders make enough money for the whole year. Keep that in mind when you see what seems like an overreaction to negative news headlines.

When we can explain and ignore jittery short-term moves and look out over a few months, we can see broader trends. I was surprised to see Utilities was our three-month winner with an +11% spike. The top six sectors were Utilities, Health Care, Consumer Staples, Consumer Discretionary, Real Estate, and Telecom. Setting aside Discretionary and Health Care, we get a very defensive-looking three months.

Standard and Poor's 500 Quarterly Sector Indices Changes Table

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

When we look at the last nine months, however, we see the engines of growth up top, front and center. Consumer Discretionary, Info-tech, and Health Care were the top three performing sectors, by a wide margin. They each notched more than 10% gains, with Consumers and Tech up 17% to 19%. These are the growth-heavy sectors that I love to see leading the market.

Standard and Poor's 500 Nine Month Sector Indices Changes Tables

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

Get Prepared Now for a Strong Fourth Quarter

So, what gives? Why are the weak sectors leading and the strong sectors just hanging out? My opinion is that trade war fears, regulation jitters, and White House drama are distracting investors. I believe it’s quite possible that in the coming month or two we will see a big lift in stocks. We have quarter-end “window-dressing” and ETF rebalances coming, which typically benefit stocks. I think Trump will pull a rabbit out of the hat and soothe the trade-war indigestion with a magic remedy. This will come just in time for mid-term elections in November. And I suspect mid-October earnings will kick off yet another stellar season.

These things, coupled with a strong economic backdrop, bode quite well for a strong end-of-year finish, so it is important not to give in to anxiety when there are occasional wild swings in stock prices. I believe the new norm is periodic days of excessive volatility. The never-ending growth of algorithmic traders keeps contributing to volatility. Let’s be honest: How many normal people wake up on a Wednesday and decide to sell all their technology stocks? Very few, if any. So, if you and I aren’t doing it, who is? The machines are, and their presence is only growing. This past week’s turbulence was hardly a big move. It was merely an air-pocket. When big moves come, I expect them to be deeper, wider, and less comfortable than in prior years. We long ago entered the machine age in markets; we better get used to it.

The famed golfer Walter Hagen once said, “You're only here for a short visit. Don't hurry, don't worry. And be sure to smell the flowers along the way.” So, when market worries well up, the best thing to do is ask yourself, “What’s the big economic picture for U.S. stocks?” My answer: It’s pretty fantastic. “What is the tax situation for U.S. business?” Pretty fantastic. “How are U.S. company earnings?” Never better. “What sectors are leading the longer-term trends?” The growth-heavy ones: Tech, Discretionary, and Health. As the answers pile up, you should be asking yourself one final question: “Why am I worried?”

Alfred E. Neumann 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.*

Are We Headed for a “Great Liquidity Crisis”?

by Louis Navellier

All bull markets climb a “wall of worry,” but last week CNBC reported that JPMorgan’s top quantitative analyst, Marko Kolanovic, is predicting a “Great Liquidity Crisis,” triggered by flash crashes and social unrest. Kolanovic said that the trillion-dollar shift to passive investments, computerized trading strategies, and electronic trading desks would cause and then exacerbate a series of sudden, severe price drops.

Kolanovic has a PhD in theoretical physics and is essentially an algorithm expert. He said, “Right now, you have large groups of investors who are purely mechanical…. They sell on certain signals and not necessarily on fundamental developments, such as increases in the VIX, or a change in the bond-equity correlation, or simple price action. Meaning if the market goes down 2%, then they need to sell.” 

Frankly, I agree with part of what Kolanovic is saying. My white paper (co-authored with Jason Bodner) discusses the contagion risk from all the RoboAdvisors trying to sell at the same time. Check out this link to our report, “How the Robo Advisor Revolution May Be Leading Up to an Impending Disaster.”

Where I disagree with Kolanovic is on his comments on social unrest. Specifically, Kolanovic said, “The next crisis is also likely to result in social tensions similar to those witnessed 50 years ago in 1968.”  That was the peak year in the Vietnam War as well as the assassinations of Dr. Martin Luther King Jr. and Senator Robert Kennedy, plus the protests at the Democratic National Convention, a truly horrible year.

Kolanovic talked about how the internet and social media are radicalizing Americans and said, “If they (central banks) don’t manage to (stabilize asset prices), then you’re spiraling into depression, social unrest and a lot more disruptive changes that can negatively affect returns for a very long time.”

Fortunately, the overall situation today is a lot different than in 1968. The upcoming mid-term elections will be a big test of whether American voters care more about economic prosperity or the social unrest Kolanovic is talking about. Since most of TV news is dominated by pundits and talking heads rather than real news, I suspect the media may be wrong in their predictions for the second election in a row. Much of the outrage that you see on TV is that of the media itself, including CNBC, trying to distract you from the economic prosperity and the biggest surge in GDP in decades. In conclusion, Kolanovic may be a very smart math guy, but I suspect that his social views have nothing to do with his algorithm expertise.

If anything, market cycles are being increasingly compressed. As the flash crash on August 24, 2015 proved, investors can lose 35% intraday in big liquid ETFs even though prices can be close to unchanged by the end of the day. The real risk to the stock market is that ETFs can trade at big discounts to net asset value (NAV) during flash crashes (as I have documented in multiple articles and white papers), but these NAV discounts on ETFs can also trigger buying pressure to quickly emerge, pushing the market back up.

Unlike 2008, We’re Nowhere Near a Recession Now

Manufacturing Image

Unlike 2008, the economic statistics tell us we’re nowhere near a recession. On Tuesday, the Institute of Supply Management (ISM) announced that its manufacturing index surged to a 14-year high of 61.3 in August, up from 58.1 in July. This was a big surprise, since economists expected a decline to 57.9. The new orders component surged 3.2 points to 65.1 and the employment component rose two points to 58.5.

On Thursday, ISM announced that its non-manufacturing (service) sector index rose sharply to 58.5 in August, up from 55.7 in July. A surge in the components for new orders, production, and employment were largely responsible for the rise. All but one of the 17 industries improved in August. Overall, the robust ISM manufacturing and service sector indices bode well for robust third-quarter GDP growth.

The biggest news was Friday’s announcement that 201,000 payroll jobs were created in August, better than economists’ consensus estimate of 192,000. Average hourly earnings rose 0.4% (10 cents) to $27.16 per hour. In the past 12 months, average hourly earnings are up 2.9%. The unemployment rate remained unchanged at 3.9%. The average work week was revised lower to 34.5 hours. Due to rising wages, the Fed is now certain to raise rates 0.25% at its Federal Open Market Committee meeting on September 26.

I should add that on Wednesday, ADP reported that 163,000 private payroll jobs were created in August, led largely by mid-sized businesses adding 111,000 new payroll jobs. The service sector added 139,000 jobs. Overall, the labor market remains healthy and there continues to a shortage of qualified workers.

Finally, there was shocking news last Thursday that Tesla’s CEO Elon Musk was videotaped on the “Joe Rogan Experience” podcast smoking pot and drinking whisky. Another big problem is that Tesla’s new chief financial officer, David Morton, resigned within a month of starting, raising questions about the company’s financial situation. But the biggest long-term problem for Tesla is its competition.

On Tuesday, Mercedes revealed its electric SUV, the EQC, which will be sold in the U.S. in 2020. On September 17th, Audi will reveal its electric SUV, the e-tron, in San Francisco. Jaguar has already announced its electric SUV, the I-Pace, and is accepting orders, plus Porsche’s “Tesla killer,” the Taycan, is also accepting orders. Since the competition is becoming formidable, I expect Tesla’s stock price will continue to collapse. I predict that within 18 months Tesla will be removed from the Nasdaq 100 (QQQ). I then expect that Geely, which owns Volvo, could buy what is left of Tesla after the stock price collapse.

(Please note: Louie Navellier does not currently hold a position in Tesla. Navellier & Associates does not currently own a position in Tesla for client portfolios)


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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One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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