Downbeat Economic Statistics

Downbeat Economic Statistics Lead to a Lackluster Market

by Louis Navellier

June 7, 2016

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

The holiday-shortened week was virtually flat, with the S&P 500 closing at 2099.13, just 0.07 points above its previous Friday close at 2099.06.  The S&P traded within 1% all week long, with a low near 2085 and a high of 2105.  The fact of the matter is that the stock market is getting too narrow in many key sectors.  The flat market reflects the lackluster economic environment we’ve been witnessing lately.

Last week – especially on Friday – we endured a parade of bad economic news.  I’ll cover the economy in more detail below, but suffice it to say the Fed may have second thoughts about raising rates next week.

European Union Logo Image

In Europe, the European Union’s statistics agency, Eurostat, reported that consumer prices declined by -0.1% in May, the second straight monthly decline.  The European Central Bank (ECB) is trying to spark some inflation there, but all of its measures have essentially failed.  Even though higher crude oil prices may briefly cause inflation to temporarily revive, crude oil usually declines in the fall, so deflation is a real threat.  On Thursday, ECB President Mario Draghi hinted that the ECB could push key interest rates even farther into negative territory, which would likely weaken the euro and strengthen the U.S. dollar.

In This Issue

In all, it was a week to forget – but a closer examination reveals some opportunities in a flat market.  This week, our regular columnists look at several sides of the economic elephant.  Bryan Perry and I will examine the downbeat economic statistics in more detail, while Gary Alexander looks at the aging bull market and economic recovery, asking how long they can last.  Ivan Martchev covers the sea ($10 trillion) in negative-rate debt, led by Japan, while Jason Bodner takes a scientific approach to find market outliers.

Income Mail:
Job Growth Anemic in May
by Bryan Perry
What Business Owners Are Saying About Business Conditions

Growth Mail:
Economies (and Markets) Don’t Die of Old Age
by Gary Alexander
This is the Second Longest Bull Market in History

Global Mail:
$10 Trillion Now Earning Negative Yields
by Ivan Martchev
Yen on Track to Break 100

Sector Spotlight:
Why Outliers Account for Outsized Results
by Jason Bodner
Sectors Also Reward Investors Unequally

A Look Ahead:
Why “Black Friday” Failed to Shock Investors
by Louis Navellier

Income Mail:

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

Job Growth Anemic in May

by Bryan Perry

Equity markets will have to look for another potential catalyst to lift the major averages after a below-consensus reading of the May Employment Situation Report. After three attempts to trade above key technical and psychological resistance at 2100, the S&P 500 pulled back to minor near-term support at 2090 before buyers stepped in once again to close the week at 2099. The weak jobs data overshadowed some other positive statistics, such as April’s Personal Income (+0.4%) and Consumer Spending (+1.0%) reports.

Non-farm payrolls grew by 38,000 in May, just one-fourth of the consensus expectation of 155,000. The prior month’s reading was revised sharply lower to 123,000 (from 160,000) and March’s reading was revised lower to 186K (from 208K). It gets worse. Non-farm private payrolls added 25,000 while the consensus expected 160,000. The unemployment rate fell to 4.7% due to fewer seeking work. Average hourly earnings increased 0.2%, in-line with the consensus. The average workweek was reported at 34.4 hours vs. the 34.5 hours called for by the consensus estimate. (Source: Briefing.com Economic Calendar)

The bond market was quick to react. The benchmark 10-yr Treasury Note yield retreated from 1.85% on Wednesday to 1.71% on Friday, reflecting a near-unanimous vote of confidence that the Fed will not hike rates at the upcoming FOMC meeting. The jobs data could have been construed as a one-off if it were just the non-farm payroll reading, but the sharp downward revisions from April and March coupled with a below-consensus ISM Services report for May all but put to rest any arguing for a June rate hike.

The Non-Manufacturing (Services) ISM Report checked in at 52.9% in May, down from 55.7% in April, well below a consensus estimate of 55.4%. The low reading was impacted by a decline in New Orders (from 59.9 to 54.2), Employment (from 53.0 to 49.7), and the Backlog of Orders (from 51.5 to 50.0). The only indexes showing increases from April were Prices (from 53.4 to 55.6) and Supplier Deliveries (from 51.0 to 52.5). (Source: www.instituteofsupplymanagement.org, released June 3, 2016)

What Business Owners Are Saying About Business Conditions

Here are some samples from the monthly ISM surveys. Most respondents sound downbeat or neutral:

  • "Projects from the oil companies are becoming less and less. Budget problems for capital projects." (Construction)
  • "There has been a general slowing-down from the momentum we saw last month." (Professional, Scientific & Technical Services)
  • "Outlook remains strong, with steady pricing, strong demand, and new expansion in the pipeline." (Accommodation & Food Services)
  • "Slower start to the second quarter." (Arts, Entertainment & Recreation)
  • "Holding steady. No real increase, but expansion plans on for late Q3 or Q4 in preparation for 2017." (Finance & Insurance)
  • "Continued growth in the sector." (Transportation & Warehousing)
  • "Pending labor concerns to replace an aging workforce of highly-skilled staff support positions." (Educational Services)
  • "High pressure on cost reduction due to declining top line sales." (Retail Trade)
  • "Significant drop in shipments for the month. Estimate a decline of nine percent for the markets we serve. Overall retail traffic has slowed. Pricing has stabilized in the market." (Wholesale Trade)
    (Source: Institute of Supply Management, June 3, 2016)

Despite last week’s downbeat statistics, May marked the 76th consecutive month of expansion in the non-manufacturing sector, yet the deceleration in positive vibes will nonetheless qualify as a disappointment since it points to a slowdown in activity for the largest side of the U.S. economy. After the jobs market and services data laid an egg, I see little if any chance that the Fed will raise interest rates next week.

With this fresh round of unconvincing data that somewhat dispels the notion of a uniform economic lift off for the second quarter, it stands to reason that the stock and bond markets will continue to wash back and forth in their current trading ranges unless there are some unforeseen catalysts that will spur a change in the wait-and-see, data-dependent world that currently dominates the investing landscape. That said, I’m impressed the market shook off the negative jobs report and closed the week essentially where it started. In prior months, a 300-point Dow decline would be a typical reaction to a string of negative indicators.

The S&P 500 remains trapped in the same trading range that has prevailed since the index last hit a record over 12 months ago. Slowing employment growth put the emphasis back on market challenges such as earnings, which are mired in the longest decline since the financial crisis. (Source: Bloomberg – “Rally Interrupted as Jobs Data Leaves S&P 500 Unchanged for Week” June 3, 2016) But still, we see buyers on each dip.

Standard and Poor's 500 Index Chart

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

The bottom line for investors seeking investment-grade income while the Fed seeks out some “good data points” is to be cautious about going out further than 5-7 years on the yield curve, choosing among the S&P 500, which pays an average 2.0% dividend, or the 10-yr Treasury Note paying 1.7%. Consider two of Navellier & Associates’ strategies: Power Dividend, with a weighted average dividend yield of 3.26% (as of March 31, 2016) and a positive first-quarter return of 5.46% (net); and Concentrated High Dividend, with a weighted average yield of 4.17% (as of March 31, 2016), and a positive first-quarter return of 7.29% (net). This is how we believe savvy investors can get the job done in a market stuck in neutral. (Source: Navellier Research & FactSet)

Growth Mail:

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

Economies (and Markets) Don’t Die of Old Age

by Gary Alexander

“I think it’s a myth that expansions die of old age.” – Janet Yellen, December 16, 2015

We would love to have a market calendar as reliable as the cosmic calendar – 365.24 days per year, or 29.53 days per lunar month. Barring that, it would be great to see the economy or stock market parallel the predictable four-year Presidential elections cycle, with a peak in every year divisible by four. Barring that, wouldn’t it be great if every bull market lasted 4-to-6 years so we could at least make a ballpark guess about the length a bull market or economic expansion would last? But no, there is no predictability:

  • We have seen bear market declines of 48% in 71 days (1929) or 36% in 55 days (1987), while bull markets can run for 8 or 9 years (in the 1920s and 1990s); source: Stock Trader’s Almanac.
  • Defining a recession as two consecutive quarters of declining real GDP, we’ve seen “double-dip” recessions in 1980 and 1981-82, and we’ve also seen a recovery lasting exactly 10 years, from March 1991 to March 2001 (source: Wikipedia, “List of Recessions in the United States”).

Where’s the pattern there?

Market Recoveries Bar Chart

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

In the press conference after the Federal Reserve’s 0.25% interest rate increase in mid-December, 2015, we saw the following exchange between ABC News reporter Rebecca Jarvis and Fed Chair Janet Yellen:

Rebecca Jarvis: “Historically, most economic expansions fade after this long. How confident are you that our economy won’t slip back into recession in the near term?”

Janet Yellen: “I think it’s a myth that expansions die of old age. I do not think they die of old age. So the fact that this has been quite a long expansion doesn’t lead me to believe that… its days are numbered.”

Two months later, Washington Post economics columnist Robert Samuelson said, “Janet Yellen is wrong. Expansions do die of old age” (February 21, 2016, Washington Post). He basically argued from history: Since all historical expansions have come to an end, age kills expansions. But that’s circular reasoning. Just because no U.S. expansion has lasted “forever” (or more than a decade) is no proof that the current expansion won’t last 25 years or more. After all, we’ve seen two 25-plus year expansions since 1982.

The Netherlands’ economy expanded for 26 consecutive years, 1982 to 2008. That expansion was due in part to the North Sea oil discovery. It only ended with the 2008 credit collapse. This year, Australia will likely reach its 26th straight year of expansion, which started in 1991. Although Australia had one down quarter in 2008, it finished the year with sustained growth. (Source: Financial Times, August 31, 2015: “Australia to rack up world’s longest growth streak…on track to beat Netherlands’ 26-year run.”)

Australia may not sustain this string of 26 positive years in 2017 due to their over-reliance on China trade and commodity markets (see Ivan Martchev’s “Global Mail” last week), but they are off to a good start in 2016. According to the current issue (June 4-10, 2016) of The Economist, Australia’s first-quarter GDP expanded 3.1% (annual rate). The Economist estimates a full-year 2.5% growth rate for Australia in 2016.

Others have complained that this recovery is “weaker than previous recoveries.” While true, that fact also argues that it can last longer without over-heating. We have very low inflation and subpar job growth. That argues for a “muddle-along” scenario in which the economy continues to grow but at a slow rate.  After all, if our worst problems are low inflation, low costs of energy, and slow growth, that’s a pretty decent set of problems to have. It sure beats high inflation, $100/bbl oil, and negative economic growth.

The overall U.S. GDP figure was just revised up to 0.8% for the first quarter of 2016, making for 2.0% year-over-year growth as of March 31 –no indication of recession there. 2% growth is pretty close to the annual average since 2010. Real consumer spending rose 2.7% y/y during Q1, so the consumer basically still drives this economy (source: Ed Yardeni’s morning briefing, “Low Octane Growth,” May 31, 2016).

This is the Second Longest Bull Market in History

The Doomsday predictions seem to be accelerating lately. One frequent e-mailer sent several blasts last week: (1) “Why 99% of U.S. Corporations Could Go Bankrupt in the Coming Deflationary Depression” (sent on May 31); (2) “Why Your Pension Could Be Reduced to Virtually Nothing” (June 2), then (3) “The U.S. is going into a time of troubles at least as bad as any experienced in any advanced country in the last century” (June 4, at 6:21 am) and – an hour later – “Financial Martial Law is Coming” (June 4, 7:23 am). The problem is – this particular guru has been predicting a Greater Depression for 40 years.

Length of Bull Markets Bar Chart

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

According to a CNN/Money article published April 29 (“New Milestone for Bull Market: 2nd Longest Ever,” by Matt Egan), the current bull market surpassed the 1949-56 bull market at the end of April of 2016, but we are still a long-way from what they identified as the longest market, running 12.3 years.

I will admit that this bull market seems tired. We haven’t seen any meaningful gains in the last 18 months. This could be a peak, a plateau, or just a resting place. A lot depends on corporate profitability. We have certainly seen a depression in the oil patch over the last year, but most other sectors are puffing along OK. The Economist wrote that “As long as the end of a boom in one sector does not engender self-fulfilling pessimism in the rest of the economy, the show should go on.” (Source: “Murder Most Foul: When periods of economic growth come to an end, old age is rarely to blame,” May 21, 2016.)

In short, the rumors of the death of this bull market and economic recovery are grossly exaggerated.

Global Mail:

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

$10 Trillion Now Earning Negative Yields

by Ivan Martchev

The massive rally in global government bonds continues. Last week, we reached the absurd level where global government bond markets have surpassed the $10 trillion threshold in negative-yielding debt.

That’s trillion with a “T.”

The precise number is $10.4 trillion spread across 14 countries, with Japan clearly the largest source of negative-yielding bonds. The breakdown shows $7.3 trillion in long-term debt and $3.1 trillion in short-term debt. The $6 trillion total of negative yielding bonds at the start of 2016 felt surreal, but now we seem set to double that by year-end (see WSJ, June 2, 2016 “Negative-Yielding Debt Tops $10 Trillion).

Since the first Fed rate hike in December – which I view as a monetary policy mistake – I have consistently maintained that it is ludicrous to talk about Fed rate hikes in this global deflationary environment. In the six months since the first rate hike, U.S. long-term interest rates have dropped over 50 basis points (0.5%) to close at 1.70% on Friday, while intraday the 10-year note dropped to 1.69%.

Ten Year Treasury Note - Daily OHLC Chart

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

There is some support for the 10-year Treasury note yield around 1.70%. I do not believe that will hold, because hiking short-term interest rates on the world’s reserve currency in this global deflationary environment would cause the U.S. dollar to rally and make the global deflationary problem worse – as there is already too much dollar borrowing, globally. On the other hand, when we get weak economic data – like last Friday’s poor May employment report – the U.S. dollar sells off as rate hike probabilities diminish.

If there are more Fed interest rate hikes this year, I think U.S. long-term interest rates would drop faster than they would have done without any hikes. Ultimately, I am looking for the 10-year Treasury to drop to 1% or lower. The sub-1% dive is likely going to happen near the coming Chinese yuan devaluation, given the ongoing deflating credit bubble in China and the inability of present PBOC monetary policy measures to stop it from unravelling. A sharply weaker Chinese yuan is highly deflationary in the present weak global economy and is likely to be a major catalyst for the 10-year Treasury yield to drop below 1%.

Thirty Day Fed Funds - Daily OHLC Chart

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

Keep in mind that at the end of 2015 there was talk of four fed funds rate hikes in 2016 and the December 2016 fed fund futures traded all the way down to 99.08 in late December 2015, implying a fed funds rate of 92 basis points (0.92%) at the end of December 2016 (100 less 99.08 = 0.92). Those same fed fund futures were briefly calling for a fed funds rate cut on February 11 as they traded up to 99.655, while at last count they closed at 99.465 on Friday in reaction to the poor employment report. Now they call for maybe one rate hike in 2016 which in my view would only compound the error they made in December.

At the time of the first rate hike, when the consensus was looking for four rate hikes, I penned an opinion piece looking for a massive rally in government bonds. We are getting that rally now and it is far from over, in my view (see December 29, 2015 Marketwatch, “Will 2016 Bring New Treasury-yield lows?”).

After the tapering of QE, the first Fed rate hike in almost 10 years, and talk of more rate hikes, we see two-year Treasury note yields higher while 10-year Treasury note yields are lower, resulting in a flattening yield curve as measured by the spread between the two and 10-year rates. The “2-10 spread,” as traders like to call this gap, hit 92 basis points this week to register a fresh multi-year low on Friday.

A flattening yield curve – a situation where short- and long-term interest rates converge – often signifies a weaker economy and a weak inflation outlook. An inverted yield curve – a situation where 2-year T-note yields are above 10-year treasury note yields – has preceded all five recessions in the past 40 years.

Ten Year Treasury Note Yields Chart

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

We are far from an inverted yield curve at the moment and we have had quite the boom times with flatter levels of the yield curve, like in the late 1990s, but this present yield curve flattening is one way for the bond market to disagree with the present course of Federal Reserve monetary policy.

Is the Fed listening to the message of the bond market?

Yen on Track to Break 100

The absurd outcome of the move by the Bank of Japan towards negative short-term interest rates pushed 10-year Japanese Government Bond yields (JGBs) into negative territory while pushing the yen a lot higher. This absurd outcome is continuing to get more absurd – on the surface, that is.

Unites States Dollar Versus Japanese Yen - Daily OHLC Chart

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

The yen originally sold off to 121+ on news of the negative short-term interest rate move by the BOJ, but it has since strengthened dramatically to trade under 106 in late April (see chart). The USDJPY cross rate is inverted, so fewer yen per dollar means a stronger yen. I think USDJPY will drop below 100 despite the absurd situation of Japanese short- and long-term interest rates being in negative territory. That sub-100 USDJPY move may come as 10-year JGB yields make fresh negative records.

Ten Year Japan Government Bond Chart

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

I think the yen is rallying as an indicator of the massive global deflationary problem that is causing the unwinding of yen carry trades. It was quite popular for many years for financial institutions to borrow yen at ultra-low interest rates, sell them for any higher yielding foreign currency to buy higher-yielding assets in that foreign currency, pocketing the interest rate differential. That is called “the carry trade.”

The present global deflationary shock and falling global interest rates are putting the yen carry trade in reverse, where the yen that were sold to buy higher-yielding foreign assets now have to be bought back.  In effect, the previous popularity of yen carry trades created a gigantic synthetic short position in the Japanese yen, which is now creating a gigantic short squeeze as those yen carry trades are reversed.

The USDJPY cross rate has been having a rather peculiar trading pattern this year, marked by weak countertrend sell-offs (i.e., moves higher in the inverted chart) followed by sharp rallies that make fresh 52-week highs (moving lower on the inverted chart). We were less than one yen from a fresh 52-week high in the USDJPY cross rate on Friday. Given the described dynamic of unwilling carry trades that is likely to continue for quite some time, I can see how the yen will keep rallying.

A rallying yen is not necessarily bearish for the Broad Dollar Index, which had quite the sell-off on Friday on the heels of the weak jobs report. I think that when the Chinese yuan devaluation eventually arrives, the resulting global deflation will push the yen possibly well below 100 and the Broad Dollar Index to a fresh high for the dollar rally that commenced in 2014. We don't have to have more Fed rate hikes for the dollar to rally much higher. We need declining global interest rates and shrinking global forex reserves, which we have at the moment. I see no sign that this dynamic will change anytime soon and this unfortunate dynamic will probably accelerate when the seasonal rally in crude oil plays its course and heads right back to $20/bbl this fall, due to high inventories and production and weak global demand.

In other words, I believe this seemingly-counterintuitive rally in the yen is far from over.

Sector Spotlight:

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

Why Outliers Account for Outsized Results

by Jason Bodner

Bell Labs was once inseparably associated with the word “patent.” Now owned by Nokia, Bell Labs was responsible for countless innovations that changed life as we know it, including the facsimile machine, the laser, the cellular network, communications satellites, touch-tone dialing, and digital signal processing. That’s just the tip of the iceberg. Bell Labs exploded with so many innovations around the same time that conspiracy theorists allege that Bell Labs created many of these innovations, principally the transistor, by taking technology from the Roswell, New Mexico UFO crash site and then backward-engineering it!

UFOs Image

Whether you believe in tales like that or not, you have likely noticed how frequently a small percentage of people account for an outsized ratio of results. For example, according to nobelprize.org, since the program began in 1901 there have been 900 Nobel laureates through 2015. With less than 5% of the global population, the U.S. accounted for 353 (39%) of those Prizes! The U.S. also leads the world in patent applications. In 2015, 20 of the top 50 most patents filed by companies were by American firms.

According to the Global Wealth report by Credit Suisse, the wealthiest 1% control almost 50% of the wealth. One rich American, Warren Buffett, helps illuminate this concept when he speaks about his winning the ovarian lottery. Take seven billion people and begin a filtration process to observe where the highest likelihood of success lies. One would want to be born at the right time, into the right family, living in the right country, with the right economic prospects, etc... Buffett could just as easily have been born as an equally intelligent girl, stricken with poverty in Bangladesh. If so, he/she would not have the same chances of success that he had as a white affluent male in the U.S. born in 1930. While it may not be surprising for you to read this, this exemplifies the concept of outliers accounting for outsized results.

Stories about stocks are great. They make great headlines, help drive emotions, and get people excited or scared. This certainly impacts price direction, but is it a long-term success recipe for approaching equity investments? Specifically, how do only a handful of stock market professionals consistently pick winning stocks year after year? These managers themselves are outliers (Navellier managers included). Wouldn’t it be logical to look specifically for these outliers in the stock market? Wouldn’t that process help us pick the best stocks? Could it be that outlier stocks account for an outsized portion of returns of the market?

A brief but fascinating paper titled, “The Capitalism Distribution,” (by ValueWalk, October 10, 2014) suggests that this hypothesis is true. Over the 24-year time frame examined, it shows that an outsized portion of returns comes from a very narrow selection of stocks, as shown in their key conclusion:

“The conclusion is that if an investor was somehow able to avoid the 25% most profitable stocks and instead invested in the other 75% his/her total gain from 1983 to 2007 would be 0%. In other words, a minority of stocks are responsible for the majority of the market’s gains.”

Here's the key chart from that report, examining historical distributions of portfolio winners and losers.

Total Lifetime Returns for Individual United States Stocks Bar Chart

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

I believe in the power of quantifiable data. Replicating a similar filtration process to the ovarian lottery might help an investor pick the best stocks. By analyzing the data available on stocks, we can search for the best and worst. Taking listed and over-the-counter stocks, there are over 10,000 stocks in the U.S. If we look for the strongest qualities, we would increase our chances of finding the strongest stocks. We could filter for liquidity, strong sales growth, strong earnings growth, strong technicals (like institutional accumulation), high relative strength, upward trending indicators (like moving averages), and new highs. We could examine whether the stock’s sector is leading the market and if the stock is leading in its sector.

Sectors Also Reward Investors Unequally

This is why I think looking at sector movements is so important. After a market has peaked, corrected, or concluded a period of relative stasis, we begin to see sectors outline leadership and weakness. It has been common throughout history that sectors that break out of a defined range continue upward or downward for a long time thereafter. All we need to do is reflect on Energy’s shocking drop starting in 2014. In the two-year chart below, we see a peak of 737.09 on June 23, 2014, an eventual trough at 399.79 on January 21, 2016. The sector’s 19-month drop was 45.75%. This also helps to put the recent recovery of Energy into perspective, making it seem small as Friday’s level of 494.31 is still -33% from the June ’14 peak.

Standard and Poor's 500 Energy Sector - Daily Area Chart

Let's see what the sectors tell us this week:

Standard and Poor's 500 Sector Indices Changes Tables

Utilities saw a notable uptick as Friday’s reaction to the dismal non-farm payrolls report saw traders seeking safety. Materials and Telecom also saw inflows on Friday, marking a visible rotation. But one day does not a market make. It’s interesting to note that Healthcare has been continuing on its recent run of strength (as we discussed last week) capping off yet another positive week. The S&P 500 Healthcare Index has rallied 7.62% since February 17th as seen in the 1-year chart below. Financials were punished on Friday as well, -1.38% as investors now question how reliable the recent hawkish tone from the Fed actually is. Energy also performed weakly this past week with a negative -1.02% return.

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

Navigating our way through markets is a difficult and risky prospect. But we can perhaps reduce our risk and increase our odds of success by taking a quantitative approach and placing odds in our favor.

Even still, investing takes courage. Muhammad Ali left us last week. He was a pillar of originality, courage, determination, and inspiration to many. He said, “He who is not courageous enough to take risks will accomplish nothing in life.” He also said, “If you even dream of beating me, you’d better wake up and apologize!” and “I'm so mean I make medicine sick!” But perhaps he put it best when he said, “Live everyday as if it were your last, because someday you're going to be right.” (Source: Brainy quotes.)

Muhammad Ali Image

Muhammad Ali in Chicago, 1966

A Look Ahead:

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

Why “Black Friday” Failed to Shock Investors

by Louis Navellier

Last week, I headlined the possibility that the Fed “seems determined to raise rates in June or July,” but I quickly added this caveat: “However, all this still depends on the economic data – most notably the May payroll report, scheduled to come out next Friday.  Even though a key rate increase is possible in June or July, I think such an act could backfire if it makes the dollar even stronger than it is.”

Sure enough, Friday delivered a trio of downbeat indicators and suddenly the Fed seems overly cautious going into next week’s FOMC meeting.  On Friday, we learned that (1) only 38,000 new jobs were created, just one-fourth of the 155,000 expected, (2) the ISM service index dropped sharply from 55.7 in April to 52.9 in May, the weakest reading since February, and (3) the trade deficit widened 5.3% from March to April, with both imports and exports down over 5% from the same time a year earlier.  (See The Wall Street Journal: “U.S. Trade Gap Widened 5.8% in April,” June 3.)  All of a sudden, the giddy Fed statements about a probable interest rate increase next week (June 14-15) turned into statements advising “caution.” (See Bloomberg, June 3, “Fed’s Brainard Urges Caution Amid Mixed Data, Global Risks.”)

The good news is that the market shrugged off this triple-threat of downbeat economic reports, probably because this means we avoided another Fed interest rate increase for another six weeks – until at least the next FOMC meeting in late July.  However, I want to take a moment to show why I believe Friday’s jobs report isn’t as Apocalyptic as some headline writers imply.  For starters, the Verizon strike impacted the private payroll report by approximately 37,200 jobs according to most economists.  Those jobs should be added back to the payroll totals after the strike ends.  Also, the unemployment rate declined to 4.7% in May, down from 5%, since the workforce shrank by 458,000.  Also, average hourly wages rose by 0.2% to $25.59 per hour and have risen 2.5% in the past year.  All in all, the jobs report wasn’t a total disaster.

In addition, the ADP jobs report (released last Thursday) showed that 173,000 private sector jobs were created in May, slightly better than economists’ consensus estimate of 165,000.  Additionally, April’s private payroll growth was revised to 166,000, up from an initial estimate of 156,000.

The Fed watches its own Beige Book survey of the 12 Fed Districts very closely.  In the Beige Book survey, released last Wednesday, several Fed districts reported “moderate” or “modest” economic growth, while the Philadelphia Fed said that economic activity was “disappointingly stable” (an odd pair of words) in that district.  Furthermore, the Chicago and Kansas City districts reported that the pace of economic activity had slowed, while the Dallas Fed reported minimal economic growth.  Finally, the influential New York Fed said that economic activity was flat.  So overall, five of the twelve Fed districts issued warning signs that economic activity is sputtering.  The Beige Book is prominent on the Fed’s economic dashboard.  Like the dismal jobs report, the Beige Book also argues against a rate increase.


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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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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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