First Quarter Delivered Positive Surprises

First-Quarter Sales and Earnings Delivered Positive Surprises

by Louis Navellier

May 21, 2019

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First-quarter announcement season is now more than 90% complete and I am happy to report that the S&P 500’s sales are up 5.9% and earnings are up 2.2%, which is a stunning surprise, since the analyst community had predicted negative earnings growth and 4% sales growth. Accelerating sales growth is a sign of overall GDP growth and a likely sign that we’ll see positive surprises in upcoming quarters, too.

Treasury rates dipped below 2.4% last week. The lower rates go, the more aggressive the corporate stock buybacks will likely be. On Thursday, The Wall Street Journal featured an excellent article entitled “Booming Buybacks Aren’t Likely to Wane Despite Market Volatility.” (Check it out, if you can.) In late May, after first quarter earnings announcement season ends, I expect to see many more stock buybacks.

In This Issue

Most of our authors focus on the positive side of the U.S./China trade talk impasse. The U.S. holds the winning hand and China seems to be shooting itself in the foot. Bryan Perry focuses on the slowing growth rate in China and the opportunity in U.S. defensive blue-chip stocks paying high dividend yields. Gary Alexander disputes the assumption that inflation will return if high tariffs remain in place over time, while Ivan Martchev argues that China seems to use these latest tariffs as cover for a long-term strategy of yuan devaluation. Jason Bodner covers the sectors that have sold-off in the latest “controlled-burn” correction, while I argue that these trade tensions will not hurt the U.S. economy or the market, long-term.

Income Mail:
No Plans to End the “Little Squabble” Any Time Soon
by Bryan Perry
Emperor Xi Has No Clothes

Growth Mail:
Will a Trade War Cause Soaring Inflation?
by Gary Alexander
The CPI Overstates Inflation, Perhaps by 2% a Year

Global Mail:
The Chinese Silver Bullet Is Yuan Devaluation
by Ivan Martchev
Exchange Rate Manipulation is a Sun-Tzu-Style Maneuver

Sector Spotlight:
Is This Correction a “Controlled Burn” or a Wildfire?
by Jason Bodner
The Latest Selling is Focused on Specific Sub-Sectors

A Look Ahead:
Trade Tensions Spook Wall Street – But the U.S. Holds the Winning Hand
by Louis Navellier
The Economy Continues in “Goldilocks” Mode

Income Mail:

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

No Plans to End the “Little Squabble” Any Time Soon

by Bryan Perry

This past week of elevated market volatility seems to be clearly reflecting a stark new division in trade relations with China and a rising level of future uncertainty about the implications of the new higher tariffs implemented by both the U.S. and China. Investors now know that China is going to hike their existing $60 billion tariff tranche rate from a 5%-10% range to a floating 5%-25% range, starting June 1, in retaliation to the U.S. raising its tariff rate on $250 billion of Chinese imports from 10% to 25%.

As of the closing bell last Friday, there was obviously no deal made, with no sense that either side is about to give an inch on their newly-entrenched positions. China’s President Xi Jinping misjudged President Trump’s zeal to do a deal and also miscalculated how hard his trade team should press American trade representative Robert Lighthizer, who has Mr. Trump’s full trust in the matter.

The fissure in the deal was the U.S. demand that China set forward some changes in its domestic laws so as to achieve accountability standards that senior Communist party leaders saw as “caving in” to the U.S. Sadly, this latest set of circumstances puts the Asian “saving face” cultural syndrome into the global spotlight after China substantially altered the terms that had been verbally settled on at the last minute.

The concern going forward is that because of China’s top-down political structure, it is likely that any new rhetoric out of China will be combative and nationalistic, leaving little room to pick up trade talks where they left off. Without verifiable systems in place to protect and weigh justice against violations, in my estimation, tariffs will be in place for a long time, and, quite frankly, the most important takeaway from this standoff is that China was clearly willing to make promises that it never intended to keep.

Looking at how this trade war will affect China’s future rate of GDP, the Organization for Economic Co-operation and Development (OECD) is forecasting China’s growth rate to slow to 5.5% in 2020, then fall below 4% in 2025 and below 3% by 2030. How accurate are the OECD forecasters? Well, they published an internal report and found that the OECD tended to be too optimistic about eurozone growth. Given China’s current debt-to-GDP ratio of about 300%, it stands to reason that a protracted trade war with the U.S. would only bring those future lower growth rate numbers lower – and sooner than expected.

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

Emperor Xi Has No Clothes

Now, President Xi has backed himself into a political and cultural corner that has the risk of only getting messier. James Green, who was the top trade official at the United States Embassy in Beijing until last August, said, “Xi has tightened the overall policy atmosphere, so few want to voice opposition,” which means, “that doesn’t leave much room for the negotiators” (source: New York Times, May 16, 2019).

The latest impasse spotlights China’s egregious behavior and puts their duplicity on full display around the world. Once again, we must all learn that doing business on a transparent level with a communist regime is fraught with risk and prone to failure. Now, the Trump administration is preparing to hit China with 25% tariffs on the balance of the $300 billion that China exports to the U.S., while aggressively pushing American and foreign manufacturers to move supply chain operations out of China altogether.

A flight of investment capital from a devalued yuan – which is being manipulated by China’s government to offset the cost of tariffs – and large multi-national businesses hitting the exits to set up shop in other Asian nations is probably the only way China will buckle to terms the U.S. can accept. Until then, the stock market, which only recently set new highs, will be under pressure to reset its growth expectations.

Rate-cut expectations began inching higher, even though Fed Chairman Jay Powell said he does not see the need to move the fed funds rate in either direction at this time. According to the CME FedWatch Tool, the implied likelihood of a rate cut in October increased to 55% from 42%. The fed funds futures market sees a 71% likelihood of a rate cut in December, up from 57.4% two weeks ago, and the odds of a rate cut in January 2020 increased to 74% from 62%, so talk of rate cuts replace previous talks of rate increases.

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

What is the bond market telling investors? It’s saying that the U.S. economy will grow, but at a slower pace. To me, this means that investors should allocate more capital to defensive blue-chip stocks paying high dividend yields, and to stocks that are growing their dividends aggressively. Under this scenario, capital flows into those areas that will likely be the most bullish, because they’re the best game in town.

And when I say, “in town,” I mean “in the whole world.”

Growth Mail:

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

Will a Trade War Cause Soaring Inflation?

by Gary Alexander

Old economic theories and partisan political critics say that President Trump’s escalated tariffs will cause soaring inflation going into next year’s elections, perhaps causing a recession and hurting his re-election chances. If so, raising tariffs on $300 billion in Chinese goods has to be the most dunderheaded political move in recent history – right behind Bush 41’s raising taxes after saying, “Read my lips – no new taxes.”

Bad news always sells best, so we’re seeing headlines like this one from Bloomberg last week: “Goldman Says Trade-War Escalation to Drive U.S. Inflation Higher.” Their article summarizes Goldman’s forecast:

“Trump’s latest tariff increase on Chinese goods will drive up the Federal Reserve’s preferred measure of underlying inflation, and a further escalation of the trade war will have an even greater impact on prices as well as economic growth, according to Goldman Sachs Group Inc. Goldman revised up its estimate of the tariff impact on core personal consumption expenditures inflation to 0.2 percentage point, according to a note Saturday. The firm estimates if the U.S. imposes tariffs on the roughly $300 billion remaining in Chinese goods, the effect would increase to 0.5 points.”

Further escalation of the trade war, they said, “could result in a hit to GDP as large as 0.4%, and if trade tensions sparked a major sell-off in the equity market, the growth impact could worsen considerably.’”

Such scary scenarios ignore the fact that we’ve operated under Trump’s tariffs for over a year now with minimal impact on most inflation measures. It’s now over a year since the Trump administration applied its first tariffs on steel and aluminum imports, and so far, the much-feared economic costs have yet to be seen. In most cases, there have been few or no increase in prices of goods containing tariffed products.

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

Predictions of inflation, slower growth and recession due to high tariffs are two years old, yet we’ve seen 3% growth and 2% inflation so far – except in China, where our tariffs are slowing Chinese growth and fueling inflation there – particularly in pork prices, partly due to swine flu in their Year of the Pig.

With a strong dollar, a devalued yuan and some cost absorption by middlemen, prices have been stable. The main upward pressure on inflation lately has come from energy (of which, the U.S. is self-sufficient), housing and health care, which are domestic industries. Inflation has not been mainly import-generated.

One major difference in today’s world vs. a century ago or in the Cold War era is that global capital is mobile. When “Made in Japan” became too expensive, factories moved to Taiwan or South Korea. When those Asian Tigers charged too much, factories moved to China. If China can’t compete due to tariffs, the owners of those Chinese factories can move to Thailand, Vietnam or elsewhere. Capital is mobile. A recent survey by the American Chamber of Commerce in South China found that over 70% of U.S. firms operating in Asia are considering delaying more investment in China or relocating production elsewhere.

The CPI Overstates Inflation, Perhaps by 2% a Year

Writing in The Wall Street Journal’s “Inside View” last week, Andy Kessler says he is “convinced that all of the common measures overshoot by at least 2 percentage points, and maybe even 5 or more. That’s because of the flaw in the Bureau of Labor Statistics’ hedonic adjustment, which totally misses the way the cost of technology declines over time.” Even Alan Greenspan, that nonagenarian technophobe, said in a Wharton interview last month, “We have a problem with measuring inflation…because products are continually changing.” He baldly said, “You’re getting statistics which are not correct,” adding that, “the 2% inflation rate as currently measured is the equivalent of zero for actually what consumers are buying.”

This is especially true for electronics, whose prices tend to continually fall. We know that simple-function calculators once cost thousands of dollars, while multi-function calculators now cost less than $10. It’s the same with smart phones vs. the old mobile brick phones. Technology also increases our productivity and makes life easier. You don’t drive to a library to hunt through stacks of books. You just “ask Alexa.”

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

If you go back to 1989 and try to argue that life was better then – with the Berlin Wall intact, fuzzy TV pictures, 2400 bps modems, brick-sized cell phones, fax machines and zero Internet – you are welcome to your delusions, but if you use Greenspan’s math and subtract 2% inflation per year, 2019’s inflation-adjusted GDP would be about $26 trillion, not the $20 trillion currently reported. That would be $82,000 per capita and a 30% increase in “real” wages that you thought were flat. That means there was no slump in productivity or middle-class stagnation and our debt-to-GDP ratio is more like 77% rather than 100%.

It pays to view the received wisdom of our sacred numerology with a generous dose of salty skepticism.

Global Mail:

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

The Chinese Silver Bullet Is a Yuan Devaluation

by Ivan Martchev

Idioms are defined as fascinating phrases which add color to otherwise more complex discussions – a way to make them more understandable to a broad audience. In this case, the appropriate idiom for China’s latest move is the concept of a “silver bullet.” According to Merriam-Webster, a silver bullet would be the appropriate description for “something that acts as a magical weapon,” especially “one that instantly solves a long-standing problem.” If the Chinese devalue the yuan, they think they may win the trade war and fix their horrendous debt overhang that otherwise is guaranteed to cause a massive recession. Such a contraction could be as serious to China as the 2008 Great Recession or the 1930s Depression in the U.S.

Japan, as you may know, has had some very serious issues with long-term deflation, a shrinking and aging population, credit bubbles, a busted financial system and a Nikkei 225 Index that is still just half the peak level it registered in 1989 – 30 years ago. That is the kind of future China could face.

In that light, Sara Sekine, a Nikkei reporter, saw a story I penned about the likelihood of a “hard landing” in China, so she called our corporate office and got my cell phone and called me the next day. As a good reporter, Ms. Sekine asked me some hard and pointed questions. The hardest, and the one that I could not precisely answer, was this: “When is this Chinese hard economic landing going to arrive?”

I could not answer this question because I do not believe it is possible to answer it with precision, yet I do believe the recession, when it comes, will be absolutely brutal due to the monstrous debt overhang that has built up in the Chinese economy over the past 20 years. Whether it ends up like the Great Recession of 2008 or the 1930s Great Depression will depend precisely on the Chinese government policy response.

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

This chart shows similar stock market peaks in Japan and China.

The Great Depression, starting in 1929, could have been only a bad recession if it were not for the collapse of global trade caused by the 1930 Smoot-Hawley Tariff Act. The longer name of this disastrous Act was: “An Act To provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, to protect American labor, and for other purposes.” While there has been no “Donald Trump Tariff Act” that has passed Congress, the President is disrupting U.S./China trade relations and it could get a lot worse before it gets better. As hopeful as this situation looked two weeks ago, it now looks like tariff tensions could last for a long time.

Exchange Rate Manipulation is a “Sun-Tzu-Style” Maneuver

Unlike the 1930s, it is unlikely that a bi-lateral trade war can cause a recession in the U.S., although a heightened degree of uncertainty can disrupt the savings and investment cycles, which would ultimately disrupt economic activity. In China, however, there is too much debt in the system and too much reliance on exports. As President Trump has pointed out so often, China exports more than $500 billion to us, but we export just over $100 billion to them, so “they” have a lot more to lose in a prolonged trade war.

The other problem in China – which has nothing to do with the trade war – is the monstrous debt bubble in China. Due to their infamous lending quotas of state-run banks and their loosely regulated shadow banking system, the total debt is hard to calculate, but we know that it has ballooned in the past five years. I think that China’s total debt-to-GDP ratio has grown from 100% to about 400% in the last 20 years.

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

Could it be that the Chinese never intended to make a serious trade deal? Could it be that the only way to deflate part of their mountain of debt is to devalue the Chinese yuan, and the only way the world financial community would accept such a devaluation would be as a response to a 25% U.S. tariff? It sure could, as such a calculated failure of the trade negotiations would be a maneuver worthy of true Sun Tzu disciples.

The yuan was once devalued by 34%, in December 1993. Such a devaluation today would put it near 9.31 per dollar. It closed Friday at 6.95. Such a devaluation, if it comes, would be a profoundly deflationary event for the global financial system, after which I would expect the 10-year Treasury to drop below 1%.

To the disappointment of the Nikkei reporter who called me after I discussed these same issues, I do not believe that the exact sequence of such events can be predicted ahead of time, as the trigger here is the yuan devaluation. Only a select few around Xi Jinping know if such a decision has been made, and they are not talking, but I do believe the chances of a yuan devaluation are high and that such a devaluation may happen soon if the trade war with the U.S. intensifies, as it seems to be doing at this very moment.

Sector Spotlight:

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

Is This Correction a “Controlled Burn” or a Wildfire?

by Jason Bodner

Wildfires burn between four million and nine million acres a year in the U.S. That seems like a lot, right? But is it?  It turns out that there are 2.3 billion acres in America, of which 766 million acres are forest. That means far less than 1% of the U.S. burns by wildfire each year and less than 1% of forest land.

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Still, wildfires are destructive and life-threatening. Just look at the California’s 2018 wildfires that killed 86 people and levelled 18,000 structures. To prevent wildfires, there are “controlled burns,” which torch the dry brush so that it doesn’t build up waiting for a lightning strike to start the next CNN headline cycle.

On a smaller scale, goats are apparently quite helpful at preventing wildfires. It must be true – it’s on the Internet. If you want to rent some goats, why not head on over to rentagoat.com for all your goaty needs?

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Wildfires are a lot like market volatility. Low volatility is often followed by wild swings in market prices and high volatility. Like a forest with no controlled burning, brush builds up (low market volatility) as the market grinds higher. Then the market hits new highs. The longer we go without a catalyst, the more dry brush builds up on the market floor. When something unexpected hits, the market becomes a tinderbox.

The truth is that occasional turbulence is good and healthy for the market, like normal forest fires are good for the forest. Corrections deflate our false senses of security, so maybe a “controlled burn” is in order, from time-to-time. I’m not saying it was the President’s intent, but I find it an odd coincidence that Trump tweeted about China trade right after the market hit new highs. Maybe it was a “controlled tweet”!

The latest market volatility came unexpectedly fast and hard. On Friday, May 3rd, the S&P 500 closed just off its all-time highs made on Tuesday, April 30th. The next Sunday, Trump’s tweet kicked up a dust devil that rocked stocks the following week. But investors just bought on the dip again. Each day from May 6th to May 10th, the market started dropping but closed off its lows, meaning investors bought on the dips.

That’s a sign of underlying market strength during weakness. Sometimes you have to turn off the negative news when you see red-hot price action, but always remember the news media thrives on fear. They love stuff like trade wars, Middle East skirmishes and political unrest. It gets clicks and attracts advertisers.

With the trade war rhetoric brewing again, I find it interesting to note that for the last year, after the original 10% tariff on Chinese goods, prices did not rise – they actually fell, according to some economists. This is because China just devalued their currency while the U.S. dollar strengthened. That effectively offset the tariff. Now that tariffs have increased, it will be interesting to see what happens.

The Latest Selling is Focused on Specific Sub-Sectors

This week saw a spike in sell signals, but digging deeper, I saw a simple picture. Selling was in Infotech, Health, Materials and Discretionary sectors. Looking at subsectors, selling was fairly even. Consumer selling was in autos and retail. Materials selling was in chemicals and metals & mining. Infotech selling was all hardware, especially telecom equipment and semis. Health selling was all biotech.

To me, this simply means that after a huge run-up, an excuse to take profits should be expected.

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

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

Monday’s selloff was unsettling, but once stock prices fall, the market usually rebounds. The S&P 500 dividend yield is around 2%, while 10-year Treasuries yield 2.4%, but what’s more important is the way each are taxed. Dividends are taxed at 23.8%, as long-term capital gains, while bond income is taxed as ordinary income at a maximum federal rate of 40.8%. That means wealthy investors are better off owning stocks than bonds. This table shows how you end up with 7% more money owning stocks at 2% yields.

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Another reason not to worry is that bad market Mondays are usually good for forward returns. Bespoke Investment Group said that since this bull market started in March 2009 there were 15 Mondays where the SPY (S&P 500 ETF) fell 2+%. In 12 of those 15 times, the SPY was higher the next day, up by an average 1.01%. A week later, the SPY was up 14 of 15 times – with an average gain of +3.2%.

Our own historical data said something strikingly similar. Remember, the MAP Ratio tracks big buying versus big selling by institutions. The higher the ratio, the more buying. The lower the ratio, the more selling. Since 2012, we saw 12 “overbought” periods (a MAP ratio of 80+%) which subsequently fell below 60%. To go from 80% (heavily overbought) to 60% requires some decent selling, like now.

Below is a table of those 12 events. The “Retreat from High” shows how far the SPY fell from its closing peak. Now, look at the 1-to-6 week returns after the ratio fell to 60%: The returns are very strong.

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

The good news from this analysis is that the MAP ratio just fell below 60% on Friday, May 17.

Fundamentally, U.S. companies are still very strong. According to FactSet, for Q1 2019

  • Over 90% of S&P 500 companies have reported earnings
  • Earnings have been an average 5.4% above expectations.
  • 76% of companies beat earnings, well above the five-year average of 72%.
  • 59% beat revenues, which is equal to the five-year average.
  • The blended sales growth rate for Q1 2019 is +5.4%

To me, this means “buy the dips.” Search for great stocks to own and then buy them when they go on sale. Great stocks bounce higher and faster than regular stocks – while the duds thud.

The media needs to make money! Use that information to literally “buy into the fear.” Like Ram Charan said: “Drama starts where logic ends.” Logic says the U.S. is the best place to be. We have the strongest economy and the best companies for growing sales and earnings.

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Owning stocks is more attractive than owning bonds. Don’t let the bears bring you down.

A Look Ahead

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

Trade Tensions Spook Wall Street – But the U.S. Holds the Winning Hand

by Louis Navellier

Trade tensions enveloped Wall Street last week. China’s decision to raise tariffs on $60 billion on U.S. exports, mostly agricultural products, was a relatively weak response after the U.S. raised its tariffs on $200 billion in Chinese imports. Furthermore, The Trump Administration is considering imposing tariffs on another $300+ billion of Chinese imports, so clearly the U.S. has tremendous leverage over China.

The reason that Chinese trade talks have become so contentious is that China did an abrupt “about face” by reneging on promises to respect U.S. intellectual property, patents and trademarks. At the Money Show last week, I attended a dinner with Heritage Foundation senior fellow Stephen Moore, an economic advisor to President Trump. He explained the Chinese dilemma with the example that giant Apple has only 10 official stores in China, since phony Apple stores just put up an Apple logo and start selling Apple counterfeit products, since there is no respect for trademarks in China. Moore said that these vast legal and cultural differences complicate trade negotiations and will not likely be resolved anytime soon.

Navellier & Associates owns Apple in managed accounts but not in our sub-advised mutual fund. We do not own Huawei or ZTE in managed accounts or our mutual fund. Louis Navellier and his family own Apple in personal accounts but not Huawei or ZTE.

As I mentioned previously, the Justice Department suit against Huawei over 5G patents and their alleged use of 5G to spy on the U.S. is also unlikely to be resolved soon. Last week the Trump Justice Department was trying to disqualify James Cole, a former #2 official in the Obama Justice Department, from defending Huawei. Multiple other countries, including Britain and Poland, have asserted that Huawei has a “back door” that allows the company to spy on its customers. Clearly, the international outrage against Huawei will not be resolved anytime soon, so we should prepare for a long and drawn-out fight with China over intellectual property, privacy, patents, trademarks and related legal issues.

On Wednesday, President Trump escalated the battle with Huawei when he signed an executive order that enabled the U.S. to ban telecommunications network gear and services from “foreign adversaries.”  It is widely believed that this order was targeted at Huawei and its Chinese rival, ZTE Corporation. I should add that the Commerce Department has barred supplying U.S. technology to Huawei without a license. Essentially, the Trump Administration is hitting Huawei with a 1-2 punch to restrict its 5G business here.

All eyes will be on the upcoming G-20 meeting, where China’s President Xi and President Trump are expected to have a private meeting. Xi’s campaign to dominate key industries like pharmaceuticals, automotive, semiconductors, aerospace, IT and robotics by 2025 is now clearly in jeopardy. However, since both Xi and Trump want a new trade deal, something may emerge in the upcoming months. I did a podcast last Monday talking about the latest trade developments as they influence financial markets.

The other global development impacting financial markets is that Saudi Arabia reported that two of its oil tankers were sabotaged in a Sunday attack near the Straits of Hormuz. Then, on Tuesday, explosive-packed drones attacked two pumping stations owned by Saudi Arabia’s Aramco. Despite these events, crude oil prices have been remarkably stable, perhaps due to a U.S. show of force in the region.

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Escalating matters further, on Wednesday, the State Department ordered that all non-essential personnel be evacuated from the U.S. Embassy in Iraq. Furthermore, a State Department travel advisory urged Americans not to travel to Iraq, citing “heightened tensions.”  Complicating matters further, Iran has given European countries a 60-day deadline to negotiate a new nuclear deal or it would start enriching more uranium and violate levels outlined in the current agreement. These escalating Middle East tensions remain a persistent present threat, especially in light of America’s increasing show of force in the region.

The Economy Continues in “Goldilocks” Mode

The economic indicators remain mixed – neither too hot nor too cold – the “Goldilocks” balance we need to ensure continued moderate growth without Federal Reserve intervention to raise (or cut) interest rates.

First, the Commerce Department announced on Wednesday that retail sales declined 0.2% in April, which was a disappointment because economists forecasted a 0.1% rise. This marks the second decline for retail sales in the past three months, although retail sales are still up for the last three months due to a revised +1.7% surge in March. Sales at gas stations surged 1.8% in April, mainly due to higher gas prices, while auto sales declined 1.13%. Sales at bars and restaurants rose 0.23%, which was the fourth consecutive monthly gain, which bodes well that consumers are out and about buying meals. Overall, I’d say that consumer spending was likely curtailed by the somewhat higher gas prices in April.

Also on Wednesday, the Fed announced that industrial production declined 0.5% in April after declining at a 1.9% annual rate in the first quarter. Utility output plunged 3.5% in April due to warmer-than-normal weather. This piece of good news oddly and adversely impacted the overall industrial production number. The bright spot was that mining activity surged 1.6% in April, mostly due to the domestic energy boom.

On Thursday, the Commerce Department announced that housing starts rose 5.7% in April to a 1.24 million annual pace, somewhat higher than economists’ consensus estimate of 1.21 million. Single-family home starts were especially strong, rising 6.2% in April to an 854,000 annual rate. March home starts were also revised up to a 1.17 million annual pace, up from 1.14 million previously estimated. Overall, lower mortgage rates are undoubtedly helping to boost demand for new homes.

On Friday, the University of Michigan’s preliminary consumer sentiment index for May surged to 102.4, a 15-year-high, up from 97.2 in April. This was a big surprise, since economists were expecting consumer sentiment to be relatively unchanged at 97.1. Also, the Conference Board announced that its Leading Economic Index (LEI) rose 0.2 to 112.1 in April, which is a positive sign for GDP growth.

The most bullish event last week was that the 10-year Treasury bond yield fell to an intraday low of 2.36% on Wednesday after the disappointing April industrial production and retail sales reports. Some economists are now cutting their second quarter GDP estimates due to last week’s weaker-than-expected economic news. In fact, the Atlanta Fed is now only estimating 1.2% annual GDP growth in the second quarter. Overall, we remain in an ideal environment of steady growth, low interest rates and low inflation.


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Past performance is no indication of future results.

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

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

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

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

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