Some Welcome Good News Turns the Market Around

by Louis Navellier

March 13, 2018

Last week, the S&P 500 rose 3.54%, the Dow rose 3.25%, and NASDAQ set a new all-time high. There is no doubt that buying pressure by institutional investors in fundamentally superior stocks was behind last week’s strength, which bodes well for quarter-ending window dressing in the upcoming weeks.

Baker Image

The Friday jobs report gave the market a big boost, pushing the Dow up 440 points after the Labor Department announced that 313,000 payroll jobs were created in February, substantially above the consensus estimate of 205,000. Also bullish was that December and January’s payrolls were revised up by a cumulative 54,000 jobs, so an average of 242,000 jobs have been created in each of the past three months. The labor force participation rose to 63% in February, up from 62.7% as more workers continue to enter the labor force. As a result, the unemployment rate remained at 4.1% for the fifth straight month.

The news that North Korea would suspend nuclear testing and hold talks on denuclearization with the U.S. is also welcome news; but the hopes of a successful resolution is premature, since previous talks with North Korea have come to nothing. However, President Trump has put the U.S. in a strong negotiating position with its increasing military buildup and sanctions, so there is hope of an eventual successful resolution, even though almost all experts (including President Trump himself) are skeptical.

In This Issue

After a rough February, our authors follow several indicators which indicate an “all clear” signal for the spring. Bryan Perry examines the jobs data and the phenomenally positive Q1 EPS earnings revisions. Jason Bodner sees promising signs from institutional buying in tech, specifically software, while Gary Alexander sees light at the end of the tariff tunnel, and no danger in the “Ides of March” warnings. Ivan Martchev even sees some literal lights coming to North Korea, despite some “Stormy” weather in DC.

Income Mail:
Jobs Data Provides the “All Clear” Signal for Stocks
by Bryan Perry
All Systems Go for Q1 Earnings Season

Growth Mail:
Was the Market’s “Tariff Tantrum” Justified?
by Gary Alexander
Should We Beware the Ides of March?

Global Mail:
A “Stormy” Presidency Weighs a Trip to Pyongyang
by Ivan Martchev
Why Has China Supported North Korea so Steadfastly?

Sector Spotlight:
Markets Have Moods…and Sometimes Tantrums
by Jason Bodner
It’s “Game Back On” in the Tech Sector, Specifically Software

A Look Ahead:
Ignore the Talking Heads – Better Yet, Bet Against Them
by Louis Navellier
The Fed May Not Raise Rates as Fast as Expected

Income Mail:

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

Jobs Data Provides the “All Clear” Signal for Stocks

by Bryan Perry

Leading up to last Friday’s release of the February employment data, the investing landscape had three forces acting as potential headwinds to an otherwise secular bullish trend – rising interest rates, rising inflation, and global trade tariffs. Regardless of all the other headlines that might cross the tape, these three were the top concerns among market participants because they have wide-reaching effects on financial markets, unlike many other potential disruptive forces.

The combined impact of these three perceived headwinds caused the market to slice up and down on alternating days, stopping the recovery we saw from early February’s large sell-off. The possibility of a trade war had investors tuned in to possible global retaliation to the U.S. tariffs and its implication on our NAFTA partners. In the past, such periods of trade protectionism have not been great for investors.

With these caution flags unfurled, the market’s penchant to trade higher still remains well-rooted in the continuation of the synchronized global reflation trade that has been unprecedented in modern times. Because of this broad economic inertia, the current investing landscape has a long glidepath of bullish visibility that should reward properly positioned stock portfolios richly in the months ahead.

FA-18E Super Hornet Jet Aircraft Image

As last Friday unfolded, all three market headwinds lifted, at least for now, following the February jobs report that showed average hourly wages grew at a 2.6% annual pace, down from the 2.8% rate reported for January. The reaction by market participants was an unfolding of a steadily increasing bullish bias throughout the trading session. The fear of spiking wage inflation didn’t materialize. The yield on the 10-year T-Note did not breach 3.0%. Also, the President’s tariff proposal on steel and aluminum was modified to exempt two of America’s largest trading partners, Canada and Mexico.

Trade Balance Table

As this table shows, the EU and China make up almost $500 billion in combined annual trade imbalances with America, whereas Canada and Mexico are responsible for just $74 billion of our trade imbalances.

The Commerce Department reported last week that the U.S. trade deficit rose to $56.6 billion in January from $53.9 billion in December. The January deficit was 16% higher than the same month in 2017, when President Trump took office. Although reducing the high trade deficit is a big priority to the President, the trade gap actually climbed to a nine-year high of $566 billion during his first full year in office.

Trade Deficit Chart

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

With that said, the market embraced the exemptions for Canada and Mexico and rallied broadly into last Friday’s closing bell, slicing back up through the technically psychological 50-day moving average for the S&P 500 like a hot knife through butter, ending the week at 2,786 and poised to build on those gains heading into first-quarter earnings season, which begins in earnest during the week of April 9-13.

I look for the market to trend higher with a slight tone of caution heading into the Fed’s FOMC meeting slated for March 20-21. A lot can and probably will happen between now and then that will excite the market in both up and down directions. However, the way the tech sector is leading so strongly higher, there just seems to be too much buying after any and all pullbacks. It would take a full-blown trade war and some unexpectedly high inflation data to undo the market’s uptrend and I don’t see either happening at this point. A move through 3.0% by the 10-year Treasury will cause the market to bend, but not break.

All Systems Go for Q1 Earnings Season

Earnings for the first quarter are going to be very robust. From “Earnings Insight,” published by FactSet on March 9, I pulled some data that sheds a bright light on the upcoming earnings season. During the first two months of the first quarter, analysts increased earnings estimates for companies in the S&P 500. The Q1 bottom-up EPS estimate (an aggregation of the median EPS estimates for all companies in the index) rose by 5.7% (to $36.32 from $34.37). How significant is a 5.7% increase in the bottom-up EPS estimate during the first two months of a quarter? How does this increase compare to recent quarters? I’ll tell you.

Historically, this move is very significant. On average, the bottom-up EPS estimate usually decreases during the first two months of a quarter. During the past year (four quarters), the bottom-up EPS estimate has recorded an average decline of 1.8% during the first two months of a quarter. During the past five years (20 quarters), the bottom-up EPS estimate has recorded an average decline of 3.1% during the first two months of a quarter. During the past ten years, (40 quarters), the bottom-up EPS estimate has recorded an average decline of 4.0% during the first two months of a quarter. But now, the first quarter of 2018 marks the largest increase in the bottom-up EPS estimate over the first two months of a quarter since FactSet began tracking the quarterly bottom-up EPS estimate in Q2 2002. The previous record for the largest increase in the bottom-up EPS estimate was 4.4% in Q4 2009, after a big recession.

Standard and Poor's 500 Earnings Growth Bar Chart

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

At the sector level, nine of the 11 sectors recorded an increase in their bottom-up EPS estimates in the first two months of the quarter, led by Energy (+18.9%), Telecom Services (+14.8%), and Financials (+11.5%). Analysts have not only increased EPS estimates for the first quarter, but also for the full year.

The CY 2018 bottom-up EPS estimate (an aggregation of the median 2018 EPS estimates for all of the companies in the index, which can be used as a proxy for earnings) increased by 7.3% (to $157.97 from $147.24) from December 31 through February 28, the largest increase in the annual EPS estimate for the index in the first two months of the year since FactSet began tracking this EPS estimate in 1996.

What is driving the increase in the bottom-up EPS estimate for Q1 2018 and CY 2018? The decrease in the corporate tax rate for 2018 due to the new tax law is clearly a significant factor. In addition, higher oil prices and higher interest rates that are bullish for energy and the financials, respectively. So, while the market may wring its hands over interest rates, inflation, and tariffs, the market is about to get a serious earnings jolt that will overwhelm everything else. Strap in friends, we’re likely going much higher.

Growth Mail:

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

Was the Market’s “Tariff Tantrum” Justified?

by Gary Alexander

On March 1, President Trump announced 25% tariffs on steel and 10% tariffs on aluminum and the Dow fell 420 points. Obviously, that was another market overreaction. Last week, the market recovered strongly, but we lost a key free trader when Trump’s chief economic advisor Gary Cohn resigned in protest of these tariffs, which have now become less onerous as Mr. Trump grants various exemptions.

Earlier, on January 19, President Trump imposed tariffs of up to 30% on solar panels and 20% on washing machines, due to lobbying by Whirlpool. In last Friday’s (March 9, 2018) Wall Street Journal, Commerce Secretary Wilbur Ross cited national security to justify the steel tariffs, saying that “the U.S. has only one steel mill that can produce the advanced alloys used in armored-vehicle plating.” But alas, he didn’t mention any national security concerns for adding 20% tariffs on imported washing machines.

So far, the market has recovered from its March 1 tariff tantrum, but if President Trump continues in this protectionist manner, we could see more sell-offs. Since he doesn’t like to see market panics on his watch, he might catch the hint and change his protectionist tune. If I had the President’s ear, I would tell him he is paying too much attention to the industrial lobbyists in the Swamp. U.S. manufacturing is in fine shape!

U.S. Manufacturing is strong. On March 1, the same day Trump announced his steel tariffs, February’s Manufacturing PMI was released, showing a gain to 60.8, the best reading since May 2004. According to Ed Yardeni, “Manufacturing employment has increased during every month but one since Trump was elected on November 8, 2016, by a total of 218,000 from November 2016 through January 2018.”

United States Manufacturing Purchasing Managers Indexes Chart

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

U.S. trade is setting records – so don’t kill it. The exports component of the U.S. M-PMI rose to 62.8 in February, the highest reading since April 2011, while the imports component rose to 60.5, the highest since February 2007. The sum of the two – a good proxy for global trade – is now at its highest reading since the beginning of this statistical series, going back to October 1989, so why kill this golden goose?

ISM Manufacturing Chart

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

The U.S. Industrial Production Index reached an all-time high of 107.24 on January 2018 (as released by the Federal Reserve, February 15, 2018). The U.S. is still a manufacturing powerhouse, but the process has become more automated in order to become more competitive. Politicians keep wanting to “protect manufacturing jobs,” but the nature of those jobs has changed. Since the 1980s, U.S. factory output has increased 83% but that growth has been accomplished by 30% fewer workers. There are still 12.3 million U.S. factory jobs, but those jobs require more technological skills – yes, that includes the use of robots.

Turning to steel – the target of these new tariffs required by “national security” – Gregg Easterbrook explains the facts in his new book, “It’s Better than it Looks: Reasons for Optimism in an Age of Fear.”

“According to the American Iron and Steel Institute, 71 percent of the steel used in the United States is made here. Total US domestic steel output is down only somewhat compared to the postwar peak, while steelworker employment is down 75 percent, owing to production efficiency. An estimated 15 times as many Americans have jobs at steel-purchasing firms – construction companies, appliance manufacturers – as steel-producing firms. This suggests that more efficient steelmaking benefits dozens of other Americans for each one who might have been employed by an outdated, inefficient steel mill.”

After Trump announced tariffs on imported washing machines on Friday, January 19, 2018, Ed Yardeni reported that “Whirlpool’s stock price jumped from $166.65 on January 22 to $185.97 on January 26. It was down to $158.65 on Friday, March 2,” after steel tariffs were announced. Why? While Whirlpool “may get protection from foreign imports for washing machines, it will have to pay more for steel.”

There’s some justice in that, but this underlines the fact that there are usually no winners in a trade war.

Should We Beware the Ides of March?

Don’t look now, but NASDAQ just set a new record high last Friday March 9, on the 18th anniversary of its previous bubble high on March 9, 2000 – and on the 9th anniversary of the start of this bull market.

NASDAQ Nine Year Changes Table

NASDAQ has risen and fallen much faster than the S&P 500 or Dow Industrials during the course of this 9-year bull market and in the 9-year malaise which preceded it. On Friday, March 10, 2000, NASDAQ reached an intra-day peak of 5132, but on Monday, March 13, 2000, the bubble started to burst. Alas, it did not make a popping sound at the time, but on Tuesday, March 14, the market was rocked by an insider trading scandal that accused 19 people of using tips from a night worker at a major Wall Street firm to front-run news on mergers and buyouts. That sent both the Dow and NASDAQ down, but on the Ides of March (March 15), a strange thing happened: The Dow rallied 320 points but NASDAQ kept falling:

NASDAQ versus Dow Industrials Table

On Thursday March 16, 2000, the Dow soared 499 points, its biggest single-day point gain to that date. But NASDAQ kept falling, especially in early April. From March 10 to April 14, 2000, NASDAQ fell by over 34% in just five weeks. In the same five weeks, the S&P 500 lost only 2.8% while the Dow Jones Industrials GAINED 3.8%. The divergence between NASDAQ and the Dow was phenomenal, mainly because the old-line industrials actually had earnings while NASDAQ was larded with dot.com fantasies.

Take a look at the Wikipedia page for the “Dot-com Bubble” to see a list of dozens of fantasy stocks that traded on dreams of earnings back in early 2000. The first listing is typical: “Boo.com spent $188 million in just six months in an attempt to create a global online fashion store that went bankrupt in May 2000.”

NASDAQ Dot Com Bubble Chart

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

Should you Beware the Ides of March again this year? No, because NASDAQ is not bloated with fantasy stocks today. NASDAQ’s big-cap stocks and mid-cap wannabe’s have earnings and business plans for more earnings. This is not your crazy uncle’s NASDAQ. Sure, there are some fad stocks we should all avoid, but the recent NASDAQ rise has not resembled the Grand Tetons, like the 2000 peak (above).

Global Mail:

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

A “Stormy” Presidency Weighs a Trip to Pyongyang

by Ivan Martchev

The past week saw the media storm intensify around the President when the adult film actress Stormy Daniels sued the President to invalidate an October 28, 2016 non-disclosure agreement he never signed (even under an alias), even though his personal lawyer Michael Cohen admitted paying her $130,000 in hush money out of his home equity line of credit! Those who believe that Mr. Cohen used a home equity line out of the goodness of his heart and never got reimbursed probably believe in unicorns, too.

This real-life soap opera is relevant for investors as it seems to be gathering momentum. While the Access Hollywood tape didn’t stop Mr. Trump's momentum right before the election, a one-two punch combining that tape with Ms. Daniels’ revelations before election day could have changed the outcome in tight state races. In other words, it is possible that Ms. Daniels could have changed the election outcome.

Depending on how the Stormy litigation goes and what comes out the Russia probe, which is producing indictments and cooperating witnesses, the President is going to take all this baggage with him when (or if) he meets North Korea’s leader Kim Jong-un in May, so what could be a historic moment is being overshadowed by several investigations that promise more headaches for the President in 2018.

It’s too early to celebrate peace, but suffice it to say that many former U.S. Presidents could have made this breakthrough but none of them tried. The credit goes directly to Mr. Trump and his go-it-alone style of leadership as he decided to go to North Korea without even consulting his own Secretary of State.

What I find fascinating is that while North Korea’s nuclear tests and missile tests were getting more frequent in 2017, the South Korean stock market was powering ahead, making an all-time high in January 2018 before correcting in synch with Wall Street. Did the benchmark KOSPI index see through Kim Jong-un’s intentions to get Mr. Trump to the negotiating table and thereby assure his political survival?

South Korea Stock Market Index Chart

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

While North Korea understandably does not get much good press in the West, Kim Jong-un has been making many China-style reforms that have improved his domestic economy. (See Bloomberg, September 14, 2017 article, “North Korea's Secret Weapon? Economic Growth.”) Educated in the West, Kim Jong-un would be delighted if he could pull off a China-style economic turnaround that ensures his survival and puts the North Korean economy on a sound footing.

North Korea at Night Image

This legendary picture of the Korean peninsula at night has for many years been the symbol of prosperity for the South (the brightest spot near the center is Seoul) as South Korea looks like an island separated by the darkness of the North Korean “ocean” from China. That darkness may add some light in future years.

Will President Trump’s meeting with Kim Jong-un be as revered as President Nixon’s meeting with Mao in 1972? Hard to say at this point, even though it certainly has the potential to be a major political win for both sides. The Trump-Kim summit may turn out to be the start of a major investment cycle in the North.

Why Has China Supported North Korea so Steadfastly?

Simply put, China has supported North Korea because the Chinese do not have too many allies in Asia, which has a huge U.S. military presence, so having a renegade ally in the region is better than having none. Still, if the Trump-Kim summit turns out to be as big a deal as that of Nixon and Mao, you can bet that the Chinese will probably be the biggest investor in North Korea, for they need to maintain their influence in the region. While the Chinese today account for 75% of all trade with North Korea, you can bet that they – and not South Korea – will want to remain the top trading partner for some time, even though the South’s influence will likely increase notably.

Kim Jong Un Image

A 1990 German-style unification in unlikely, in my opinion, as that means the removal from power of Kim Jong-un. The whole point of this summit is to cement Kim’s position, so while North Korea may come out of its darkness, it is likely to be a long process. Mr. Kim seems to rather enjoy always being surrounded by people taking notes of his every word. He will go far to keep himself in that position.

Sector Spotlight:

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

Markets Have Moods…and Sometimes Tantrums

by Jason Bodner

We humans may have created computers, but the world still runs on emotions. Consider the fact that emotions are both contagious and able to be influenced. Studies show that if people adjust their facial expression to reflect an emotion, they actually begin to feel that emotion. Research suggests that negative emotions are actually more contagious than positive ones. (Both of these ideas are taken from Emotions Revealed by Paul Ekman, first published in 2004).

OK, I’ll come right out and say it. I have bad moods sometimes. Yes, yes, I know what you’re going to say: “But Jason, I thought you were perfect!” Well, I’ll let you in on a little secret:  I’m not. I have a crooked little pinky toe, but other than that… I’m kidding of course, but it’s true, I can be downright grouchy and a curmudgeon at times. Just ask my wife. I may wake up with a perfect blue sky on a sunny 73-degree Saturday with not a care in the world, and I could feel grumpy and cranky. It usually stems from some other stuff on my mind that comes crashing in after I’ve suppressed it during a busy week.

This happens to everyone and it is completely natural, even though some people show it more than others.

Bad Mood Boy Image

Markets do the same thing. Sometimes corrective sell-offs are for sound fundamental reasons, like when my wife gets mad at me for leaving the seat up or forgetting one of the kids’ activities after school (that never happens, by the way…) Other times, the market flies off the handle for a news item that seems a bit premature to worry about, like when I worry about what my 7-year-old son will do after college.

Remember March 1, when new Fed Chairman Jerome Powell spoke before Congress and was perceived as hawkish, and Trump raised tariffs on steel and aluminum? The market suddenly expected more rate hikes, more tariffs, and trade war, so the market sold off in a huff. Last week, the mood changed (as usual) and cheer returned. The market was in a bad mood March 1, since investors were still raw from the February volatility. All those leveraged volatility products bore the brunt of the blame for the correction in early February. Once that ship had sailed, bearish investors needed something new to fret about.

In early March, the smoldering embers of February needed a fresh splash of gasoline. They found it with worries of future inflation, and with steep steel and aluminum tariffs that could spark a trade war. This is a distraction for investors, but the media loves it when they grab our attention. Nothing grabs our attention like fear and anxiety. Last week, our fear was revived when it was announced that Gary Cohen would resign as Chief Economic Advisor. The market fell on that news but quickly shrugged it off. It’s been upward sailing since then, as I believe the market decided that its “bad mood time out” was over.

It’s “Game Back On” in the Tech Sector, Specifically Software

I look closely at unusual institutional buying and selling. We closely follow our MAP-IT Ratio, a 25-day moving average of buying to selling. When it hit 80% on January 24, we alerted everyone that the market was overbought. Some indexes promptly dropped more than 10% in the following days. When our buy-sell ratio gets to 25%, we believe the markets are oversold and we expect a meaningful bounce thereafter.

Our Ratio plummeted from 80 to 40 over the course of the past few weeks. It seemed to be on its way lower when we noticed that any unusual institutional buying and selling dried up, and the signals we had left over began balancing each other out. Well, this past week we observed meaningfully more buying than selling again, so our ratio is back on the move higher. This is when we want to pay attention to leading sectors, and the leaders within those sectors. Why? Because we believe it’s “game back on!” The clouds are parting and we feel the data is suggesting that the market is about to surge higher.

Let’s see how things have been shaking out in the sectors:

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

With a week like we’ve just had, it’s hard to isolate a leading sector. All 11 sectors were positive for the week with seven surging more than +3%. Even our three-month losers were positive last week, including Real Estate and Utilities. Industrials, Financials, Infotech, and Materials all gained 4% or more last week. This type of performance is stunning, but it came against a background of earnings and sales reports that continue to surprise. Current valuations may look stretched, but a look at forward P/Es shows that forward valuations are lower than current PEs. This means the market can chug higher. As companies’ sales and earnings growth catches up to their valuations, we should continue to see prices gather steam.

I am keeping my eye on Infotech. At this early stage, I am paying attention to Software companies, since we observed big institutional accumulation of tech stocks, specifically Software & Services companies. In fact, about 80% of the companies we track in the Software Services space exhibited big buy signals based on unusual institutional accumulation. We also saw some unusual buying in Health Care but on a more muted level. As we head out of a congested area for the market, we look for the leaders to lead us out.

Markets are breaking out of their congestion. I believe we will reach new highs in short order. In fact, NASDAQ is already there. As we look to navigate the market’s confusion, we can actually let the market tell us what it’s about to do. You won’t hear that on CNBC or read it in the WSJ. You find it by looking right at it. As Randy Pausch said, “We cannot change the cards we are dealt, just how we play the game.”

A Look Ahead:

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

Ignore the Talking Heads – Better Yet, Bet Against Them

by Louis Navellier

Wall Street almost always overreacts and grossly distorts any news announcement. For example, some of you may remember me arguing on CNBC after the November 2016 Presidential election when I defended Constellation Brands, the distributor of Corona beer in the U.S. The talking heads on CNBC were aggressively declaring that “no one will drink Mexican beer” now that Donald Trump was elected President, presumably since he was going to “build a wall” and start a trade war. This was clearly premature, since U.S. trade with Mexico (including beer) continued to flourish. Anytime market analysts act like political pundits, you should tune them out, since they are largely speculating wildly. (Please note: Louis Navellier does not currently hold a position in Constellation Brands. Navellier & Associates does currently own a position in Constellation Brands for client portfolios).

Canada United States Mexico Flags Collage Image

Bringing that story forward, traders were needlessly distracted last week by news surrounding proposed tariffs on steel and aluminum imports. Frankly, this is getting silly, since it is clear to me that President Trump likes to put himself in a strong negotiating position. His threats of tariffs are a negotiating tactic, since he has already made it clear that Canada and Mexico are exempt from these tariffs due to NAFTA negotiations. Australia and other allies may also be exempt from tariffs due to ongoing negotiations.

Speaking of speculation, the talking heads in the financial media love to scare you about the Fed by forecasting multiple interest rate hikes that never fully materialize. That is exactly what has been happening in the past several weeks. However, the 10-year Treasury bond has failed to “crack” the 3% level as the bid-to-cover ratios have risen due to robust demand at the Treasury auctions. As a result, as I have repeatedly said in previous weeks, I am fully anticipating a dovish Federal Open Market Committee (FOMC) statement next week (March 21), which could spark a significant market rally.

The Fed May Not Raise Rates as Fast as Expected

There seems to be some dispute over whether or not the Fed will raise key interest rates two to three more times this year (after its March rate increase). As I mentioned on a recent podcast, the Fed may not raise rates as much as Wall Street anticipates, since the FOMC does not want to invert the yield curve, which would be devastating to the banking industry. Furthermore, market rates have moderated a bit and since the Fed does not like to fight market rates, some of these anticipated rate hikes might not be forthcoming.

If the mythical inflation that the Fed is expecting to see does not materialize, market rates could continue to moderate, especially if the U.S. dollar strengthens and attracts more foreign buying pressure. The Fed never fights market rates or a flattening yield curve, so I think that there is a good chance that key interest rates will not be raised as much as the Fed has forecasted. The Fed is notorious for not raising rates as much as expected because the Fed’s favorite inflation indicator has not hit its 2% target rate since 2011.

Speaking of inflation, crude oil prices declined much of last week (until resurging on Friday) due to the Energy Information Agency (EIA) weekly reports of record crude oil production (10.369 million barrels per day) as well as rising inventories of crude oil (up 2.4 million barrels in the latest week). This is the time of year when crude oil normally rises in anticipation of increasing demand, so the fact that crude oil prices have declined since February 26th is indicative that energy-related inflation may be moderating.

Assuming the Fed follows through with a reassuringly dovish FOMC statement, the last 10 trading days in March should be especially strong due to quarter-ending window dressing as well as the 90-day smart Beta ETF realignment that traditionally boosts many stocks. Since first-quarter earnings will benefit from the recent corporate tax reform, I am expecting another stunning earning announcement season in April and May. Already, many stocks are benefitting from positive analyst earnings revisions for the current quarter.


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