Focus on Sectors

In Choppy Markets, Focus on Sectors with the Best Performance

by Louis Navellier

March 27, 2018

Last Wednesday, our friends at Bespoke documented what fundamental factors have been working in the past month in the S&P 500. In that period, the S&P declined 0.56%. (This report was published the day before Thursday’s big decline.) The best deciles (10%) in that time were the stocks with the best Analyst Ratings and most percentage of International Revenues, with gains of 2.31% and 1.99%, respectively. These were two of the most dominant fundamental factors propelling stocks higher in 2017, so it is good to see these same factors continuing to keep some of our favorite sectors safe during this choppy market.

Facebook Icon Image

Last week’s market nervousness began Monday when Facebookwas smashed on the news that the data analytics firm Cambridge Analytica obtained private information from Facebook that was used to help elect Donald Trump. The Cambridge Analytica news exploded almost immediately after the House of Representatives closed its investigation into whether or not Russia influenced the 2016 U.S. Presidential election. Special Prosecutor Robert Mueller is still conducting his investigation, and the opposition to President Trump wants to continue to find ways to prove he was not legitimately elected, so Facebook is now in the political spotlight and may remain there for as long as the anti-Trump news agenda persists.

In This Issue

When it comes to sectors, Bryan Perry has isolated five key stocks in the Aerospace/Defense sector to consider. Gary Alexander asks you to put today’s scariest stories into historical perspective and use the upcoming three-day market holiday to…just relax. All our authors, including Ivan Martchev, take a more historical and balanced look at the “tariff tantrums” than the mainstream media does. Jason Bodner sees last week’s market as a pressure cooker letting off steam, while both Bryan and I give high marks to new Fed Chair Jerome Powell’s first FOMC meeting. All in all, we’re glad to see this first quarter ending soon!

Income Mail:
Fed Chairman Powell Gets High Marks in His First FOMC Meeting
by Bryan Perry
New Federal Budget is a Green Light for the Aerospace/Defense Sector

Growth Mail:
That Which We Fear Most is Least Likely to Happen
by Gary Alexander
Talk of “Trade War” May Also Look Silly (Someday Soon)

Global Mail:
Gordon Gekko as U.S. President
by Ivan Martchev
Did the Yen Predict the Global Stock Sell-off?

Sector Spotlight:
The Market Had to “Let Off Steam” Last Week
by Jason Bodner
Some Sectors Were Hit Harder Than Others Last Week

A Look Ahead:
What the FOMC Said (and Didn’t Say)
by Louis Navellier
Much Ado About Trade Wars

Income Mail:

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

Fed Chairman Powell Gets High Marks in His First FOMC Meeting

by Bryan Perry

Newly-elected Fed Chair Jerome Powell handled his first FOMC meeting like a real pro. He orchestrated unanimity among Federal Open Market Committee members as he projected a calm, informed, and experienced voice at his first press conference discussing the FOMC’s policy decision and projections. Time will tell if that perception fits the new Fed chair, but he made a good first impression.

The vote to raise the target range for the fed funds rate by 25 basis points to a range of 1.50% -1.75% was unanimous and it wasn’t a surprise. The Fed’s inflation forecasts were barely changed even though the median estimate for the unemployment rate in 2019 (3.6%) and 2020 (3.6%) is nearly a full percentage point below the Fed’s longer-run forecast of 4.5%. At first glance, this would imply rising wage inflation and tighter Fed policy. Powell said he is surprised wage growth hasn’t been stronger given the low jobless rate and expressed the Fed will know the labor market is getting tight when there is stronger wage growth.

The Fed’s median estimate for PCE inflation in 2019 (at 2.0%) was unchanged from December while the median estimate for PCE inflation in 2020 (2.1%) edged up only 0.1 percentage point. Their assumption is that while full employment is possible, efficiencies and the quality of the jobs being filled won’t spark wage inflation pressures. Powell was quick to point out that these median estimates are moving targets.

The major takeaway for market participants was that the median estimate for 2018 was three rate hikes this year, not four as some had feared. A second forecast that was a bit of a surprise was the slightly higher median interest rate projection for 2019 (from 2.7% to 2.9%) and 2020 (from 3.1% to 3.4%).

Fed Interest Rate Prediction Dot Plot

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

Powell quickly tempered any undue concern about those changes when he calmly reminded everyone that all forecasts are subject to change based on changes in the economy. They could go up or down, so the path of interest rate hikes could be a little less gradual or a little more gradual based on how future economic conditions unfold. This might sound a bit evasive at first, but it is actually a responsive answer.

Addressing trade and tariffs, he said that a number of members brought up tariff discussions, but that there was no thought that changes in trade policy should have any effect on the current outlook, at least not at the present. At this stage, Mr. Powell added, tariffs were only identified as a low-profile risk that has now become a more prominent risk to the outlook. Given the intense negative reaction to a potential tariff war and how fluid this scenario could envelop sentiment in the weeks ahead, investors should anticipate a more gradual pace of increases in the fed funds rate, to make sure it doesn’t do too much too soon to choke off the expansion or damage consumer confidence that the economy is so dependent on.

Powell is much more plain-talking than his predecessor, Janet Yellen. The stock market traded lower after the Fed decision, but that may not be related to his FOMC statement. He gave a solid performance, but after the meeting was over investors refocused their anxiety on potential trade wars and the tech sector losing ground from the fallout at Facebook and the notion of future regulation getting more attention.

New Federal Budget is a Green Light for the Aerospace/Defense Sector

Last week’s pullback can be blamed on a collection of concerns, but what we do know for certain is that defense spending is going to rise. Last week, House and Senate leaders posted a bill to fund the government through September 30 of this year. The $1.3 trillion measure includes significant boosts to U.S. military spending, supported by President Trump and congressional Republicans, while Democrats secured boosts to domestic spending that most Republicans oppose.

United States Defense Spending Bar Chart

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

Congressional leaders celebrated the legislation publicly while they worked behind the scenes to convince skeptics to back the legislation. House Speaker Paul Ryan, R-Wisc., joined other Republicans in highlighting the military spending increases. “With the biggest increase in defense funding in 15 years,” Ryan said in a statement, “This critical legislation begins to reverse the damage of the last decade and allows us to create a 21st-century fighting force.” Add to the fact that John Bolton, a hawk on military, appointed National Security Advisor last week, and you have a very bullish scenario for defense stocks.

The budget agreement includes $589.5 billion for the Pentagon’s base budget and another $65.2 billion for overseas counterinsurgency operations—largely for the wars in Iraq, Syria, and Afghanistan. In all, that marks a $61.1 billion increase over the amount enacted for 2017, and $80 billion above spending caps in force since 2011.This is all investors should need to hear as to how to put some cash to work in the big beneficiaries of this spending: Lockheed Martin (LMT), Northrop Grumman (NOC), Raytheon (RTN), General Dynamics (GD), Boeing (BA), and Huntington Ingalls Industries (HII).

As a group, these have been performing like a prize fighter for the past year, hitting all-time highs at the end of February. With the past two weeks of heavy selling, these stocks came well off their highs and vaulted off that level last Friday into the teeth of a broad sell-off upon passage of the new budget and on the headline of the John Bolton’s appointment as President Trump’s new National Security Advisor.

In a sign of what I believe is to come, Raytheon’s board of directors voted last Wednesday to increase the company’s annual dividend payout rate by 8.8%, from $3.19 a share to $3.47 a share. I’m looking for each of these companies noted to boost their dividend payouts substantially over the next three years, because business isn’t going to be good, it’s going to be great.

In the business of researching sectors and stocks for the best investments, a good deal of emphasis goes into identifying revenue visibility for the next year or two. For the defense sector, that revenue visibility is about as far as the eye can see. It’s my view that investors have been given a green light to buy these top-rank defense stocks. Louis likes to use the phrase “lock and load” when it comes to earnings season. It’s a military phrase that refers to the operation of the M1 Garand Rifle, a standard WWII Army rifle.

I think we can apply that same phrase here as well, with the understanding that the impending incident we are preparing for is not a battle, but rather a huge wave of profits to fatten up our portfolio returns.

(Please note: Bryan Perry does not currently hold a position in Lockheed Martin (LMT), Northrop Grumman (NOC), Raytheon (RTN), General Dynamics (GD), Boeing (BA), and Huntington Ingalls Industries (HII). Navellier & Associates does currently own a position in Lockheed Martin (LMT), Northrop Grumman (NOC), Raytheon (RTN), Boeing (BA), and Huntington Ingalls Industries (HII) for client portfolios, but does not own a position in General Dynamics).

Happy Hunting!

Growth Mail:

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

That Which We Fear Most is Least Likely to Happen

by Gary Alexander

“If you see 10 troubles coming down the road, you can be sure that nine will run into the ditch before they reach you.”

– President Calvin Coolidge

The stock market is blessedly closed this Good Friday, so please take an extra day to contemplate the madness that is taking place around you. Take three days off from the talking heads and Internet trollers who are trying to drive you crazy with fear and, in all too many cases, succeeding. Recently, talk of trade war is dominating the media, but let’s take a look at some of yesterday’s fears – if you want a good laugh.

Take 2012 and 2013, for instance. Our MarketMail issue dated March 26, 2012 began like this:

  • Headlines proclaimed the ‘worst week’ of 2012” caused by two over-riding fears:
  • “Worry #1: Shrinking Supplies & Reserves Point to Higher Oil Prices
  • “Worry #2: China’s Latest Slowdown May Cause a Global Recession

How did those two March 2012 worries turn out? We currently have a glut of global oil supplies and oil prices are way down. Average crude oil prices in 2012 were at historically high levels for a second year in a row. West Texas Intermediate crude averaged $94 a barrel in 2012, and Brent crude averaged $111.67. Last Friday, WTI was $65.88 and Brent was $69.81. As for China causing a “global recession,” China’s growth rate bottomed out at +6.7% before recovering, and we now have “synchronized global growth.”

On March 28, 2013, the array of worries seemed so ridiculous I turned them into an “April Fools’” joke:

  • April Fools’ Joke #1: Cyprus Will Bring Down the Global Economy
  • April Fools’ Joke #2: “Sequestration” Will Bring America to its Knees
  • April Fools’ Joke #3: Stocks Will Go Down, Because…They’re Too High!

These are not really an attempt at humor. These were real fears five years ago. Hold your laughter, please.

#1: Let’s get real: Cyprus, the smallest economy in the Eurozone, accounts for 0.2% of the euro-zone’s GDP and 0.25% of its people, but Cypriot banks loaned a lot of money to Greece, a troubled economy at the time, so Cypriot banks were in trouble. Could this be the domino that brings the Eurozone down? A gold-based fund manager certainly thought so: “The Cyprus event may later, in the history books, be seen as the catalyst of the fall of a century-long Ponzi scheme. This could rank in line with the shot in Sarajevo as the start of World War I, or the collapse of Kreditanstalt in 1931 as the start of the Great Depression.” But in 2018, the eurozone is growing at a 2.4% annual rate, and Greece is growing at a 1.6% annual rate.

#2: Sequestration referred to forced spending cuts that began March 1, 2013. At the time, Paul Krugman predicted in his New York Times column (“Sequester of Fools”) that this “fiscal doomsday machine” would cost 700,000 jobs. Sequestration would bring down the U.S. economy. Planes would fall from the sky and TSA body-search lines would stretch into the parking lots in major airports. The government Grinches even threatened to end the Easter egg hunt and White House tours. But a year later, I wrote (in March 4, 2014 Growth Mail, “How I Learned to Stop Worrying and Love Sequestering”) that the federal deficit fell from $1,087 billion in 2012 to $680 billion in 2013. Job growth picked UP, from 990,000 new jobs in the first half of 2013 to 1,125,000 new jobs in the second half. GDP growth accelerated from 1.8% in the first half of 2013 to 3.3% in the second half, and the S&P 500 gained 22.8% in the 12 months after sequestration began. As it turns out, all this “end of the world” talk was mostly political posturing.

#3: Stocks were at record highs in 2013, so pundits told us, “What goes up must come down,” or, in a phrase that sounds profound, “Trees don’t grow to the sky.” But five years later, even after last week’s decline, the S&P 500 is up 67% and NASDAQ is up 116%. During this nine-year bull market, we’ve seen seven corrections of 9.8% or more, but we went two full years (February 2016 to January 2018) with no 5% downdrafts – which makes the volatility of the last two months seem unusual (even though it isn’t).

Standard and Poor's 500 Bull and Bear Markets and Corrections Chart

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

Talk of “Trade War” May Also Look Silly (Someday Soon)

I could go back 10 or 20 years to tell the same story about Y2K and various health scares from Avian Flu to Mad Cow Disease, but the basic reason these fears don’t pan out is that we take measures to prevent that which we fear. We don’t like pain, so we take pains to avoid the pains we expect to suffer. We work hard to solve the problems we know about. That’s why “that which we fear the most we are least likely to suffer.” Translated: When the press is all over a subject, there’s no way to ignore addressing that subject.

Y2K did not turn out to be a problem because nearly every corporation spent plenty of time and money insuring that their software was Y2K-compliant. The various diseases never caught on because we have an excellent public health infrastructure which isolates cases in the early development of any new strain.

In markets, our fears are self-correcting in that high prices of oil (or gold, or any other commodity) bring out more exploration, leading to more supply and an eventual decline in prices. A stock market that gets too low has washed out all of its big sellers so that it has nowhere to go but up. The same is true at market peaks: A euphoric market attracts all the buyers and has nobody left to push prices higher. That’s why a bull market “climbs a wall of worry.”  As long as we’re overly worried about everything, I feel just fine!

By now, everyone has heard about the 1930 Smoot-Hawley tariffs and how they led to a trade war, which led to World War II. That’s good. Those who forget history are doomed to repeat it. But those who recall history are able to avoid it. What we’re forgetting is that there were many other tariffs throughout history that did not lead to trade wars. It’s what we don’t know that will surprise us most – that some tariffs can be targeted and temporary, in this case an attempt to get China to play by the rules against product piracy.

When no trade war develops this year or next year, don’t expect an apology from the Prophets of Doom.

Global Mail:

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

Gordon Gekko as U.S. President

by Ivan Martchev

The Trump-administration-imposed China tariffs and the beginnings of the Chinese retaliation are dominating the headlines and are certainly to blame for the sell-off in the stock market last week. Still, some traders say that the market was ripe for a retest of the February lows, as it was rebounding on weak volume, so it would have found any excuse to sell off. If it weren’t China tariffs, it would have been the Fed hiking interest rates – or primetime TV interviews with Playboy Playmates or adult film actresses discussing their (alleged) relationships with the U.S. President. The latest developments certainly seem to be quite a bit more colorful than the Monica Lewinsky affair and are relevant for investors as they can manage to derail the President’s agenda, so they should be carefully monitored, not just for amusement.

The tariffs also pressured the Chinese stock market as the Chinese have more to lose from a trade war than the U.S. does. The U.S.-China trade deficit hit a record $375.2 billion in 2017, up from $347 billion in 2016. As of last month, the deficit was expanding at a record pace. In that regard, it is not surprising that the President is taking action which is right along the lines of his election campaign promises. In fact, Mr. Trump has been remarkably consistent with his policies, when comparing them to his election rhetoric, but because of his chaotic style of management this consistency has been lost on many political observers.

China Shanghai Composite Stock Market Index chart

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

How badly this trade situation is going to get is actually difficult to say because the threat of tariffs is not the same as implementing those tariffs. The President does have a habit of making a lot of threats in order to put himself in a better negotiating position. I am not quite sure that trying to run national trade policy the same way he tended to negotiate with Trump Organization lenders is that great of an idea, but I guess we will discover the economic repercussions of his trade frictions soon enough.

In some respects, we seem to have elected the real-life reincarnation of Gordon Gekko as President. I can imagine that he is not just trying to save a company or two, but saving that big company called the USA:

“I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentlemen, that greed – for lack of a better word – is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms – greed for life, for money, for love, knowledge – has marked the upward surge of mankind. And greed – you mark my words – will not only save Teldar Paper, but that other malfunctioning corporation called the USA.”

--Gordon Gekko in “Wall Street” (1987)

Gordon Gekko Image

I also heard somewhat premature discussions last week that compared Mr. Trump’s actions to the Smoot-Hawley Tariff Act of 1930. Pay attention to the full title of this disastrous legislation, which is credited with being a large contributor for turning a bad recession into the Great Depression: “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.” That sure sounds like the long version of the “Make America Great” slogan, as that single 1930 Bill contains virtually all of the President’s election promises!

The Smoot-Hawley Act comparison is premature, for the time being, as it eventually collapsed global trade, while in the end President Trump’s actions may end up being his patented much larger bark than an actual bite. But one sure needs to follow closely how this situation is developing. If we get into rounds of tariffs and retaliations, I do not believe that the February lows in the U.S. stock market will hold.

The Chinese have already suggested that they may slow their purchases of U.S. Treasury debt, which would add further pressure on U.S. interest rates at a time when the Federal Reserve is trying to unwind its balance sheet. It is not far-fetched to think that if we get a real trade war combined with a spike in interest rates we could end this mature economic expansion and the only person to blame would be Mr. Trump.

The Smoot-Hawley Tariff Act, which was signed by Republican President Herbert Hoover, became a major issue in the 1932 presidential election. Ultimately, poor economic performance resulting from collapsing global trade cost Hoover the election and put FDR in the White House, which ended up with the trade act being dismantled by the Democratic Congressional majority.

I know Mr. Trump is not much of a reader, but I would like to remind him of the words attributed to Mark Twain: “History doesn’t repeat itself but it often rhymes.” While there is no evidence that Mark Twain actually said this, it sure sounds like something that only he would say.

Did the Yen Predict the Global Stock Sell-off?

As I have noted previously, I have been viewing the appreciation of risk assets combined with Japanese yen appreciation with suspicion due to the tendency for the yen to be used as a funding currency in global carry trades after two decades of super-low interest rates. (See my March 8, 2018, Marketwatch article, “Stock investors, listen to what the Japanese yen is telling you.”)

Japanese Yen versus Dow Jones Industrial Average Chart

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

Based on the performance of the Japanese yen, which is appreciating at a time when the Bank of Japan is running QE policies that are three times as aggressive (compared to how the Feds’ ever were, adjusted for the size of the two economies), every economic textbook says that the yen needs to be in freefall. Yet, it is rallying. (On the chart above, a rising yen translates to fewer yen per dollar, hence a declining blue line.)

I do think we have rather significant carry trade unwinding by institutional investors, which is causing them to reverse what are in essence synthetic short positions in the Japanese yen. I am not sure they could have seen the trade war friction by the chaotic White House in early January, but it is my experience that smart money tends to sell into strength and the record inflows into the U.S. stock market in January gave them the perfect selling opportunity. Let’s hope that what started as an overdue correction in the U.S. stock market does not get turned on its head by a reincarnation of the Smoot-Hawley act by Mr. Trump.

Sector Spotlight:

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

The Market Had to “Let Off Steam” Last Week

by Jason Bodner

I was talking to my dad about the market last week. Aside from being one of the wisest men I know, he also gave me my fondness for analogies. He asked me what I would write about this week. Not knowing yet, I mentioned that the markets were down roughly 6%. Ouch! Here’s where his wisdom kicked in…

“Jason, that’s normal and healthy. The market can’t go straight up. Like a pressure cooker, it needs to vent steam. If the pressure isn’t released, the cooker would explode. If the market doesn’t vent, it too will explode.”

Pressure Cooker Image

The concept of pressure cooking started in the late 1600s. In 1679, French physicist Denis Papin came up with the “steam digester,” in an attempt to reduce the cooking time of food. His airtight cooker used steam pressure to raise the water’s boiling point, thus cooking food more quickly. The way a pressure cooker works is basically you seal liquid and food in a pot and clamp it closed. The result is faster cooking times, simulating long cooking, like braising. In a sealed pressure cooker, as the pressure rises the boiling point of water rises. The result is superheated water. The ordinary boiling point of water is 100°C or (212°F). At a pressure of approximately 15 psi (pounds per square inch) above the existing atmospheric pressure, water in a pressure cooker will reach a temperature of 121°C (250°F).

The market vented bigtime this past week. Facebook (I hold no position) started the week by opening the steam valve. The data scandal created a sour mood. The FOMC meeting was sprinkled with dovish tones. Unfortunately, the perception of more hawkish comments by Fed Chair Jerome Powell opened the steam valve further. The market slid and then was pushed further by more rhetoric about tariffs and trade wars. (Please note: Jason Bodner does not currently hold a position in Facebook. Navellier & Associates does not currently own a position in Facebook for any client portfolios).

My opinion is that this sell-off was another instance of the financial media seizing on broader stories and spinning them as negatively as possible for the markets. They love to throw gas on the fire, even if it’s a single match. Remember, panic and fear are ideal fodder for media outlets. People pay far less attention to CNBC when everything is great. When things get tense, people turn on the TV to be “in the know.”

One example of fanning the flames was a headline proclaiming: “China Hits Back at Trump with Planned Tariffs on $3 Billion of U.S. Imports.” That particular headline was from Bloomberg. When those headlines pop up on my phone, they do exactly what they set out to do: They initially rattle me and make me open it. After I read and digest the contents, I realize it’s a “silly little nothing” in the larger picture.

Why is $3 billion “nothing”? The U.S. exported about $122 billion of goods to China in 2016 according to statista.com. Too late though; they got me and before I could read the article, I had to endure the pop-up advertisement on developing Artificial Intelligence. Media stays alive by generating advertising revenue.

Some Sectors Were Hit Harder Than Others Last Week

The sell-off was swift, ugly, and didn’t spare anything. Health Care was down -6.79%. Telecom and Materials followed suit with -5.64%, and -5.33% performances. Real Estate, Utilities, and Energy were the least bad performers with -3.82%, -2.53%, and -0.93% showings. The sectors hardest hit did not immediately connect with the news. The truth is that the economic news was strong. In fact, durable goods orders for February rose in almost every category. The exceptions were computers and telecom.

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

I believe that this week’s market sell-off will prove to be a great buying opportunity. As quarter-end “window dressing” happens, what better environment to buy stocks than when they are on sale? Maybe you wonder why they are “on sale” versus starting a downtrend. The answer is that sales and earnings reports continue to be record setting. Consider these points from FactSet Earnings Insight for March 16:

  • Earnings Growth: For Q1 2018, the estimated earnings growth rate for the S&P 500 is 17.2%. If 17.2% is the actual growth rate for the quarter, it will mark the highest earnings growth since Q1 2011 (19.5%).
  • Earnings Revisions: On December 31, the estimated earnings growth rate for Q1 2018 was 11.3%. Ten sectors have higher growth rates today (compared to December 31) due to upward revisions to estimates, led by the Energy sector.  On a per-share basis, estimated earnings for the first quarter have risen by 5.3% since December 31. In a typical quarter, analysts usually reduce earnings estimates. Over the past five years (20 quarters), earnings expectations have fallen by 3.9% on average during a quarter. Over the past ten years, (40 quarters), earnings expectations have fallen by 5.5% on average during a quarter. If 5.3% is the final percentage at the end of the first quarter (March 31), it will mark the largest percentage increase in the bottom-up EPS estimate during a quarter since FactSet began tracking the quarterly bottom-up EPS estimate in Q2 2002.

We’re looking at a great buying opportunity here, people. The pressure cooker had to vent some steam. The news and the rhetoric gave some nervous traders a nice excuse to sell.

Keep the words of Elmer Davis in mind: “The first and great commandment is: Don’t let them scare you.”

A Look Ahead:

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

What the FOMC Said (and Didn’t Say)

by Louis Navellier

Wednesday’s Federal Open Market Committee (FOMC) statement definitely had a dovish tone, which I had anticipated, as the Fed only indicated three key interest rate hikes this year, but they may not deliver all three hikes. Back in 2016, the Fed forecasted four key interest rate hikes but only hiked once. Just because the Fed anticipates higher inflation and an economic boom does not mean that inflation will arrive, or that they will raise rates three times in 2018. As it turns out, just after the FOMC statement, the 10-year Treasury bond rate (and most other market rates) responded with a big yawn and did not change.

The FOMC statement contained some interesting dovish phrases, like “growth rates of household spending and business fixed investment have moderated from their strong fourth quarter readings.”  Translated from Fedspeak, the FOMC is acknowledging that economic activity has decelerated in the first quarter. Much of this deceleration, especially lackluster retail sales, may be weather-related, since folks do not like to go out to restaurants and stores during snowstorms. Even last week – the first week of Spring – the East coast was hit with this year’s fourth “Northeaster” snowstorm, so the first quarter has record airline and travel cancelations that will likely adversely impact retail sales and economic growth.

The good news is that the new Powell-led Fed does not seem to be as obsessed with the Phillips Curve (the tradeoff between inflation and unemployment rates) as the previous Yellen-led Fed was. This belief led the Fed to keep anticipating wage inflation as the unemployment rate fell from 10% to barely over 4%. Instead, new Fed Chairman Powell seems more obsessed with maintaining financial stability – that’s probably why President Trump appointed him – and that’s great news for the bond and stock markets!

As long as market rates do not rise, the Fed will not likely raise rates much more in the upcoming months, and the 10-year Treasury bond yield has actually declined in the aftermath of last week’s FOMC meeting.

Much Ado About Trade Wars

Shipping Containers on Dock Image

The barrage of bearish news emanating from CNBC about tariffs, the Facebook sale of personal data to Cambridge Analytica, and other news with a negative tone has been spooking many investors. I want to reiterate that the political news and negative sentiment toward President Trump continues to be twisted out of proportion. The new tariffs against China for intellectual property theft are long overdue and not a big deal in my opinion. However, the financial news media likes to blow the tariffs out of proportion, since they want to stir the pot and make up stories about ensuing trade wars that will not materialize.

Speaking of trade, on Friday, the Commerce Department announced that durable goods orders surged 3.1% in February, the biggest gain in eight months and well above economists’ consensus estimate of a 1.8% rise. Leading the way was a 26% surge in commercial aircraft orders and a 1.6% rise in auto orders, as business investment rose for the first time since November. This was truly a stunning report.


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 Blue Chip Growth, Louis Navellier’s Emerging Growth, Louis Navellier’s Ultimate Growth, and Louis Navellier’s Family Trust, 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. 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. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. As noted above, there are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC, newsletter portfolios. In most cases, Navellier’s Investment Products have materially lower performance results than the InvestorPlace Media, LLC newsletter portfolios and advertising materials claim to have. The InvestorPlace Media, LLC newsletters and advertising materials typically contain performance claims that can significantly overstate the performance results compared to actual results for similar Navellier Products.

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.

Marketmail Archives Trade Summary