Higher-Quality Stocks

Higher-Quality Stocks are (Finally!) Leading the Market Rise

by Louis Navellier

November 10, 2015

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

As I indicated here last week, the “low quality crap” had been leading the overall stock market recovery in October, but that anomaly appears to be fizzling out fast, since fundamentally superior stocks (i.e., those with strong sales and earnings) finally reasserted themselves during the first week of November.

One reason why the low quality (but high dividend yielding) stocks are suddenly stumbling was Friday’s strong payroll report, which caused the U.S. dollar to rally strongly. That, in turn, will continue to hinder the sales and earnings of multinational companies and commodity-related stocks.  Furthermore, Treasury yields soared to their highest levels in five years on anticipation that the Fed will raise key interest rates at its mid-December Federal Open Market Committee (FOMC) meeting, pushing high-yield stocks down.

In the meantime, in anticipation that the Fed may raise rates soon, market interest rates have risen.  While rates remain affordable, Corporate America continues to borrow aggressively in the bond market to buy back more shares.  Last Tuesday’s Wall Street Journal reported that November is historically the biggest month for stock buy-backs, while December is tied for third place.  In fact, nearly 25% of all stock buy-backs (from 2007 to 2014, excluding the panic in late 2008) happened in the last two months of the year. This is partly due to the fact that companies want to see their stock close the year strongly. They may also need to act fast, before their annual buy-back authorization expires.

According to FactSet data released last Friday, the S&P 500’s earnings are so far down 2.2% in the third quarter, while sales fell 3.7% last quarter vs. a year ago. If this trend continues, the third quarter would mark the third straight quarter of negative sales growth for the S&P 500. As long as the U.S. dollar remains strong, sales will be under pressure at multinational and commodity-related companies, as they face a strong currency headwind.  According to Marketwatch on November 2, the S&P’s materials and energy sectors have (so far) posted annual earnings declines of 15.3% and 58.6%, respectively, due in part to a stronger U.S. dollar.

In This Issue

In Income Mail, Ivan Martchev will show why a 5% unemployment rate doesn’t necessarily mean that we will see any meaningful rise in inflation – or more than one fed funds rate increase.  In Growth Mail, Gary Alexander examines recent global prosperity in light of this week’s Veterans Day observation. Jason Bodner examines the best S&P sectors from two perspectives – long-term and short-term. Then I’ll return with a full analysis of the jobs reports, which may clear the way for one small rate increase in December.

Income Mail:
More Jobs Don’t Create Higher Inflation
by Ivan Martchev
Know Thy Dividend

Growth Mail:
Peace Fuels Prosperity (Thank You, Veterans!)
by Gary Alexander
Three Billion New Consumers Added (1990 to 2025)
Other Fruits of Peace – Low Inflation, Free Trade, and Rising Markets

Market History:
Markets Usually Rise, Halloween to Thanksgiving
by Gary Alexander
Happy 240th Birthday, U.S. Marines

Sector Spotlight:
Growth Perspectives: Five Weeks, or Five Years?
by Jason Bodner
The Best (and Worst) S&P Sectors Last Week

Stat of the Week:
Payrolls Jump 271,000 in October
by Louis Navellier
A Stronger Dollar Hurts U.S. Manufacturing

Income Mail:

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

More Jobs Don’t Create Higher Inflation

by Ivan Martchev

With the unemployment rate touching 5%, the markets are again pricing a Fed funds rate hike in December 2015, with the downside pressure on Treasury bonds and upside pressure on the dollar extending from the previous week. The EURUSD cross rate is now three cents away from its 52-week low just above $1.04.

If indeed there is a Fed funds rate hike in December and the ECB pushes its refinancing and deposit rates further into negative territory, new lows on the EURUSD cross rate should be expected. Parity is only a matter of time if one side of the exchange rate (the Fed) is perceived to be tightening while the other side (the ECB) is loosening monetary policy. I don't think parity will be the ultimate low for this cycle.

Euro United States Dollar Exchange Rate Chart

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

Why doesn’t a 5% unemployment number imply that the job market is overheating?  Because too many people have left the labor force. At the turn of the century, the labor force participation rate was 67.3%. At last count, it stands at 62.4%. Some of those missing workers may be self-employed, but many also took early retirement, since they could not get good jobs. The labor force participation rate is not going down because people don’t want to work, but because they can’t find decent jobs.  If we were at pre-recession levels for the labor force participation rate, the current unemployment rate would be above 7%. Theoretically it can be much higher than 7% as the labor force is 157 million while those not in the labor force have grown by 14 million since the start of the last recession. A 5% unemployment rate implies that only 8 million are out of work right now which sounds rather low, but if one is not in the labor force one is not unemployed, right?

Civilian Labor Force Participation Rate Chart

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

The number of people who have left the labor force since the last recession is about 14 million – rising from about 80 million in 2008 to 94 million now, even though the unemployment rate is falling.

This does not feel right, does it?

Not In Labor Force Chart

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

Raising interest rates at a time of falling inflation (bordering on deflation) is dangerous. It makes the U.S. dollar go up more (which is deflationary in nature, all by itself), the opposite of what the central bank should be doing in a deflationary environment. Both Japan and the euro zone, which are each facing deflationary situations, are actively trying to weaken their currencies. (Whether they admit that currency weakness is their primary objective is another question altogether.)

I don't think that one rate hike creates a “rate hiking cycle,” but a rate increase in December sure looks like a forgone conclusion the way the Treasury yields have backed up in the past two weeks. Ten-year Treasury yields (presently at 2.33%) have been in a massive downtrend for over 30 years.

There has been one false breakout in the Treasury yields downtrend – in 2007, with a brief move over 5%, which immediately got reversed in the 2008 crisis – so a move to 2.50% on the 10-year is a move to a major area of resistance. Keep in mind that resistance and support areas are not exact points. In this case, there is major resistance in the 2.5-3.0% area on the 10-year note, or just above the thin red line (below):

Ten Year Treasury Note - Monthly OHLC Chart

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

Knowing what I know about the global deflationary situation, I expect that there won’t be a rate-hiking cycle by the Fed (even if they post one rate hike). I believe that the 10-year note will touch 1% before it touches 3%. I expect that the gyrations of long-term interest rates will be melodramatic, but that they are ultimately headed lower.

Know Thy Dividend

It is well known that in a falling interest rate environment dividend payers tend to outperform (and vice versa). This is why some interest rate-sensitive groups like utilities were down so much on Friday: Too many investors have assumed, wrongfully, that long-term interest rates are headed higher. This can be seen in the action of the Utility Select Sector SPDR (XLU) which was under serious pressure on Friday.

One rate hike in December does not create a rate hiking “cycle,” so long-term bond yields are still mired in a massive downtrend. I think interest rate-sensitive groups in the stock market may be weak before that assumed December Fed rate hike; but that weakness should reverse as market participants realize the Fed is, at most, “one and done” for this rate-hiking pseudo-cycle.

Selected Dividend Trends in the Standard and Poor's 500 Chart

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

While dividends paid by S&P 500 companies are at an all-time high on a trailing 12-month basis, the number of dividend payers and the number of companies increasing dividends has already topped out, which is what happened just before the last recession. I am not calling for a recession based on one dividend indicator, but I am noting that a weak global economy and a bear market in energy have put pressure on some dividend payers.

The number of companies paying dividends in the past year (ending Q2) decreased to 420, which was two less than the previous quarter. The count of companies increasing their dividend payments declined to 316 at the end of Q2, which was 15 less than the previous quarter as reported by FactSet’s Dividend Insight.

I think those numbers will get worse in the next twelve months.

Three Month Change in TTM Dividends Per Share Chart

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

Clearly the energy sector shows the biggest dividend “stress,” which would make you wonder why energy was a market leader in October, as the sector shows shrinking sales and earnings. It looks like a short squeeze rebound to me. Keep in mind that short squeezes tend to be short and sharp and have little staying power. Neither the earnings nor the dividend picture suggests the energy sector rally has legs.

Still, it is true that dividends are paid out of cash flow and many energy companies would rather cut capex than cut their dividends. Some high-cost shale producers may not have a choice, but more conservative integrated energy dividend payers should fare much better.

Growth Mail:

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

Peace Fuels Prosperity (Thank You, Veterans!)

by Gary Alexander

As we approach Veterans Day on November 11, let me depart from the normal flow of these columns to thank our veterans for the peace and the level of prosperity we enjoy now.  Today not only marks the birth of the U.S. Marine Corps 240 years ago (see history, below), but it also marks the 26th anniversary of the fall of the Berlin Wall in 1989, signaling the end of a 45-year Cold War with Soviet communism. (The Cold War wasn’t always “cold” – ask any Korean or Vietnam veteran how hot the Cold War got.)

November 11 also marks a new trend of post-Cold War consumerism, especially in the rapidly emerging economies of Asia.  In China, Single’s Day (11-11), conceived there in the 1990s, generated $9.3 billion in sales by Alibaba last year, a record for a single day and more than triple the combined online purchases by U.S. consumers on Black Friday and Cyber Monday.  In China, 11-11 starts today (at 11:00 am New York time on 11-10), so retailers will be watching China for sales totals in their version of Black Friday.

Three Billion New Consumers Added (1990 to 2025)

According to a new book by three directors of McKinsey Global Institute (“No Ordinary Disruption,” by Richard Dobbs, James Manyika, and Jonathan Woetzel), three billion new consumers will be added to global markets between 1990 and 2025 (see Chapter 5, “The Next Three Billion”). In 1990, right after the Berlin Wall fell and communist satellites fell like dominoes, 43% of the population in the developing world still lived in absolute poverty (defined as $1.25 per day or less in per capita income).  At the time, only 23% of global citizens earned over $10 a day – the threshold for entering the “consuming class.”

The fall of the Berlin Wall fueled an explosion of world trade and the emergence of a global middle class.

Consuming Class Chart

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

While the world’s population is expected to grow by 50% from 1990 to 2025, the “consuming class” is expected to grow by 250%.  Looking out a bit further, the authors say that “by 2030, almost 600 million people with annual income greater than $20,000 a year will live in emerging markets – roughly 60% of the global total.  They will account for an even higher proportion of spending in categories such as electronics and automobiles.”  The BRIC nations (Brazil, Russia, India, and China) have added a MIT trio (Mexico, Indonesia, and Turkey).  Those seven nations, the authors say, “will fuel almost half of all global GDP growth over the coming decade.”  China and India will provide the lion’s share of that growth:

“China should overtake the U.S. in terms of spending on consumer electronics and smart phones by 2022.  The speed of change is extraordinary. In 2007, 10 million flat-screen TV sets were sold in China. Five years later, sales were 50 million units – more than were sold that year in the U.S. and Canada combined…. China has already overtaken the U.S. as the world’s largest market for car sales.”  Also: “In India, discretionary spending jumped from 35% of average household consumption in 1985 to 52% in 2005, and it looks set to hit 70% by 2025.”

– From “No Ordinary Disruption,” page 96

And now, China has officially ended their one child policy – giving birth to the consumers of the 2040s.

Other Fruits of Peace – Low Inflation, Free Trade, and Rising Markets

Inflation is down and global trade is up since the end of the Cold War. According to Ed Yardeni:

“A chart of the U.S. Consumer Price Index since 1800 shows very clearly that inflationary periods have been associated with wartime conditions during the War of 1812, the Civil War, World War I, and World War II through the Cold War. … The CPI inflation rate has declined from 4.7% during November 1989, when the Berlin Wall was toppled, to zero today.

“During wartime, government takes command of the economy since all resources must be mobilized to win the war. Global trade is disrupted since there can be no trade among combatants, and it can be hard to trade with allies. In other words, wars are trade barriers.

“During peacetime, globalization occurs. There is more free trade even among former adversaries, and markets become freer from government controls and also more competitive. The end of the Cold War in 1989 was the end of biggest trade barrier of all time.”

– Ed Yardeni, “The Grand Delusion,” November 2, 2015

The S&P 500 stood at 336.37 on Thursday, November 9, 1989, when we began to see televised images of the overnight attack on the Berlin Wall in Germany.  At the time, pundits feared it would end in violence, like China’s Tiananmen Square backlash in June, 1989, barely five months earlier.  But it turned out that both revolutions ended peacefully, in the sense that Beijing decided to expand their economy rather than crack more skulls, and the Soviet satellites of East Europe succumbed to freedom peacefully in late 1989.

As of last Friday, the S&P 500 stood at 2099.2, up 524% since the fall of the Berlin Wall.  In the previous 25 years, the S&P had gained just half that much, 266%, and much of that gain was eroded by high inflation rates, which dominated the American economy from the late 1960s through the early 1980s.

Peace is good for most economies – in contrast to the old canard that war spending can lift an economy. Maybe a few munitions makers prosper, but killing your potential customers is not a viable business plan. (The original quote is more accurate: The radical Randolph Bourne said, “War is the health of the state.”)

According to data compiled by Bethany Lacina and Nils Petter Gleditsch of the Peace Research Institute in Oslo, the decade from 2001 to 2010 featured the fewest deaths from war since the 1940s. In the decade that began with 9/11/01 and continued through long conflicts in Iraq and Afghanistan, total deaths from war-related violence averaged 55,000 a year, barely half the death toll of the 1990s. During the four previous decades of the Cold War (1950-89), the world suffered from an average of 180,000 war deaths per year.

I hope our veterans are pleased to know that their years of service have made today’s prosperity possible.

Market History:

*All content in Market History is the opinion of Navellier & Associates and Gary Alexander*

Markets Usually Rise, Halloween to Thanksgiving

by Gary Alexander

Beginning in 1995, November has usually been a time of Thanksgiving for investors, as the DJIA rose handsomely for five straight years (and 15 of the last 20 years) between Halloween and Thanksgiving.

Further back, in the week ending November 11, 1932, the DJIA rose 6.5 points (+10.6%), mostly on euphoria over the election of Franklin D. Roosevelt, who carried all but seven states.  He won 472-59 in electoral votes, with 57.5% of the popular vote, vs. 39.7% for incumbent Republican Herbert Hoover. On November 11, 1932, NBC opened its new Radio City Music Hall with Happy Days Are Here Again.

As I showed here last week, November has been the second best month (after April) in market returns over the last 20 years, but there were some tough times during this week in November in the 1980s:

On November 10, 1982, the young bull market was briefly interrupted with a 15.73 point (-1.5%) drop on news that the International Monetary Fund (IMF) felt the necessity to lend $3.8 billion to Mexico, which had threatened bankruptcy without an emergency infusion of capital. This was the beginning of the “Third World banking crisis” which dominated the Doomsday press in 1983. The DJIA fell at least 1% per day in seven of the next 10 days, falling from 1060 to 991, but then the DJIA shot back above 1000.

On November 11, 1985 all three major indexes of the day – the DJIA, the New York Stock Exchange composite, and the S&P 500 – all reached record highs, despite low volume on Veterans Day Monday.

On November 9, 1987, the DJIA fell 59 points (over 3%) to 1900, in yet another aftershock from the October crash.  The DJIA fell 8% in November, and another 7.5% in the first week of December, 1987.

Beginning November 9, 1988, the morning after George H.W. Bush’s election victory, the DJIA fell 4.2% in the next six days, from 2128 to 2038. One Wall Street wag said the Bush euphoria lasted “about an hour.”

On November 10, 1989, after the Berlin Wall fell, the DJIA rose 22 points – and 15,000 points since then.

On November 12, 1997, the DJIA fell 157.41 points (-2.1%), to 7401.32, in the aftermath of the Asian currency crisis, but November 1997 as a whole was up 380 points (over 5%).

Happy 240th Birthday, U.S. Marines

Even though November 11 is our official Veterans Day (or Armistice Day from 1918 to 1954), today’s date carries deep meaning among Marines.  On November 10, 1775, the Continental Congress passed a resolution in their Philadelphia meetings chartering “two Battalions of Marines” for service as landing forces for the U.S. naval fleet.  In 1783, at the end of the Revolutionary War, the Navy and Marines went out of existence for 15 years, but in 1798, Congress passed an act calling for a permanent Marine Corps.

It was on November 10, 1954, that the U.S. Marine Memorial (the Iwo Jima memorial) was dedicated.

Here’s a brief chronology of how November 9-11 have been of vital importance in global affairs in the last century, with November 9 being a day of infamy in Germany and November 10-11 a time of triumph.

On November 9, 1918, two days before the Armistice, German Kaiser Wilhelm II abdicated, sensing the German defeat in WW I.  Then, on the 11th hour of the 11th day of the 11th month, World War I finally ended.  For years, it was thought to be “The War to End All Wars,” although it didn’t work out that way.

On November 11, 1921, U.S. President Warren Harding dedicated a Tomb for an Unknown Soldier in the Arlington Cemetery, and the Partito Nazionalista Fascista (fascist party) was formed by Benito Mussolini.

On November 9, 1923, in the early morning hours, Bavarian leaders ordered a rapid suppression of the Nazi Party.  A desperate Hitler responded by leading a last ditch march to the center of Munich. Near the War Ministry building, 3,000 Nazi marchers faced just 100 armed policemen. In a shootout, 16 Nazis and three policemen died. Nazi leader Hermann Goering was badly injured and Hitler suffered a dislocated elbow, but he managed to escape.  Three days later, Hitler was arrested and sent to Landesberg prison.  (On November 11, an eternal flame was lit at the Tomb of the Unknown Soldier, Arc de Triomphe, Paris.)

15 years later, to the day, on November 9, 1938: Kristallnacht (the night of broken glass) became the first coordinated large-scale nationwide day of German violence against their Jewish citizens.  On this night and the next day, windows were smashed in all Jewish neighborhoods in Germany.  Thousands of books were burned.  Nazi troops and their sympathizers destroyed and looted 7,500 Jewish businesses, burned 267 synagogues, killed 91 Jews, and rounded up over 25,000 men, later sent to concentration camps. Three days later, Nazi authorities declared that the Jews must pay for the violence they “caused.” (On the same day in America, Armistice Day first became a national holiday, by Congressional resolution.)

November 10, 1970: China opened the Great Wall to Western tourists, a precursor of another Great Wall:

On November 9-10, 1989, the 28-mile-long (and 28-year long) Berlin Wall, the most chilling emblem of the Cold War, became a pile of rubble.  All night long, East and West Germans celebrated their new freedom, walking freely across that once deadly dividing line.  East and West Germany soon united.  By Christmas, each Eastern European Soviet satellite sequentially collapsed, like … well, like dominoes.

We should also recall that the idea of democracy was born here 395 years ago: On November 11, 1620, the Mayflower set anchor in what is now Provincetown, at the tip of Cape Cod, Massachusetts. Safe in harbor, the Mayflower Compact was drafted and signed by 41 male Pilgrims.  The Mayflower Compact was later hailed as a blueprint for the democratic institutions that evolved in English-speaking America.

Sector Spotlight:

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

Growth Perspectives: Five Weeks, or Five Years?

by Jason Bodner

As the great motivational speaker Les Brown tells the story, a Chinese bamboo tree has to be watered and fertilized every day for five years before it breaks through the ground. But when it does, it grows 90 feet within five weeks! As he puts it, “did the tree grow in five weeks or five years? The answer is obvious: Five years!" Even more mind-boggling is the fact that some bamboo plants flower after 65 or more years!

Chinese Bamboos Image

The financial media and investing community are quick to slam a stock on a bad headline and quick to laud it on a positive one; but in the face of the recent concerns over slowing growth we have seen earnings decelerate, in general. This has caused significant jitters in the market. We have already highlighted how stocks with high multiples missing their street expectations have paid the price.

But even while the market is digesting global economic reality there are still some stocks with explosive growth. Their price action creates sideways or volatile charts for a while, but when a good stock suddenly explodes, it can vault up like a Chinese bamboo tree. At that point, the volatile sideways chop looks more like a smooth sideways line tightly coiled – it was about to spring up all along!  It’s like comparing the seeming chaos of being on the ground in the canyons of a big city vs. a serene skyline seen from above.

In this earnings season, we are seeing some old stocks whose assumed growth would settle into a plateau, surprising everyone and charging higher. We are also seeing some recent growth stories – stocks expected to continue their fantastic rates of growth – disappoint investors and get punished. We are also seeing new leadership starting to emerge as new growth stories are surfacing and making themselves known.

This can be exciting, but before I get into that, let’s see how the 10 S&P sectors performed last week.

Sector Index Table

The Best (and Worst) S&P Sectors Last Week

Let me begin with the second best performer of the week: Energy. After Monday and Tuesday, it looked like energy would win the week handily. The S&P 500 Energy Index gained 2.44% on Monday and 2.53% on Tuesday. Energy drifted down from there for the remainder of the week to finish +2.41 %. The fact that energy stocks continue to post weaker earnings further strengthens the argument that the rally of energy stocks is not based on fundamentals. What is interesting to note, however, is that institutions seem to be buying Oil & Gas stocks on volume. But as we look at the longer-term, the S&P 500 Oil & Gas Exploration and Production Select Index is still down 37.89% from its 52-week high, set on 11/10/14!

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

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

Last week we talked about Financials benefiting from the seemingly higher likelihood of a December rate hike. As you can see, that sector took the pole position as best performer last week. Banks, Brokers, and REITs saw significant institutional accumulation bolstering the sector this past week. This is one of the areas in which we see new leadership emerging on strong sales and earnings. In a significant contrast to energy, the S&P 500 Financials Index is down just 3.55% from its 52-week high, set on July 25, 2015.

Standard and Poor's 500 Financials Sector - Daily OHLC Chart

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

Rounding out our top three performers for the week is the S&P 500 Information Technology Index with a +1.82% showing.  The S&P 500 Information Technology Index just hit a 52-week high last Thursday. It should come as no surprise that institutions are accumulating technology, media, and telecommunications (TMT) names at a rapid pace as this rally unfolds. Internet, Software, Media, and Semiconductors are performing quite well and seeing a lot of positive price momentum on above average volume.

Standard and Poor's 500 Information Technology Sector - Daily OHLC Chart

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

The sectors at the bottom of the pack last week are the usual suspects. The S&P 500 Utilities Index was essentially flat as of Thursday’s close. The Index was then pounded down 3.64% on Friday alone, on the back of the strong jobs report. As this sector is dependent on dividends, the strong labor market news put pressure on dividends and rate-sensitive stocks. As a December rate rise seems more likely, this sector is experiencing some more headwinds. The Utilities sector is the third-weakest sector for 12-month performance at -8.45%. As you can see in the following chart, Utilities continue to struggle:

Standard and Poor's 500 Utilities Sector - Daily OHLC Chart

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

Rounding out the bottom three, the S&P 500 Telecomm Services Index finished the week -1.62% while the S&P Consumer Staples Index posted a weekly performance of -1.51%. It is interesting to note, however, that I didn’t see significant institutional selling in these groups.

What does this all mean in the wake of the seemingly relentless volatility of the market? Well, the rally beginning in early October was sparked by what seemed to be short covering in energy and industrials in particular. This seemed to characterize the volatility we were seeing up to that point. But as the month progressed, we started to see leadership emerging in large-cap tech and financials. These group’s leaders have been breaking out on superior sales and earnings reports with strong guidance. This helps reinforce the idea that the rally is shifting from one characterized by short covering of low-quality stocks into a rally of higher-quality stocks. This is good, strong data for constructing a bullish case. As these leaders break out and grab attention, the question remains: Did they take five weeks to grow? Or five years?

Stat of the Week:

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

Payrolls Jump 271,000 in October

by Louis Navellier

Naturally, the big news last week was Friday’s October payroll report, in which the Labor Department reported that 271,000 new payroll jobs were created in October. This came as a massive surprise, since economists only expected to see about 180,000 new payroll jobs.  Previous totals were revised up a net 12,000 jobs: The August report was revised higher by 17,000 jobs (153,000 versus 136,000 previously estimated), while the September payroll report was revised down 5,000 jobs (137,000 versus 142,000).

Probably the most bullish slice of data in this report was the fact that hourly wages rose 0.36% (9 cents) to $25.20 per hour, the best rate in seven years. The labor force participation, however, remained at a 38-year low of 62.4% and the average workweek remained at 34.5 hours. The unemployment rate fell to a seven-year low of 5%, down from 5.1% in September.  Another important detail was that the 185,000 full-time jobs created in October brought the total to a record 122.02 million. At long last, there are now more full-time jobs than there were at the previous high of 121.61 million, set in December, 2007.

Overall, the October payroll news was the strongest monthly report card this year and the surge in hourly wages makes it more likely that the Fed will raise key interest rates at its mid-December FOMC meeting.

I should add that on Wednesday, ADP reported that only 182,000 private-sector payroll jobs were added in October and that September private payrolls were revised down to 190,000 (vs. the 200,000 initially reported). According to ADP (the folks that do most of America’s payroll processing), private payroll growth has slowed a bit, which makes the Labor Department report somewhat confusing.  We’ll know more after the November payroll is released in early December, but if job growth remains strong then the Fed will be much more likely to raise key interest rates at its next FOMC meeting, held December 15-16.

A Stronger Dollar Hurts U.S. Manufacturing

With the Fed now the only major central bank considering a rate increase, the dollar surged on Friday. Due to a strong U.S. dollar, the gap between manufacturing and services is now the widest in 14 years.

On Wednesday, the Institute of Supply Management (ISM) announced that its service sector index rose to 59.1 in October, while its manufacturing sector index declined to only 50.1, the lowest level in 2½ years.  Since any reading under 50 signals a contraction, the U.S. manufacturing sector is dangerously close to contracting.  Clearly, a strong U.S. dollar is hindering the manufacturing sector, while the service sector is booming. In addition, consumers have more money in their pockets, due to low gasoline prices.

Interestingly, the weak manufacturing sector is occurring despite booming vehicle sales.  According to Bloomberg reports last Tuesday, U.S. automobile and light truck sales through the first 10 months of this year, seasonally adjusted, rose to a stunning annual rate of 18.2 million.  General Motors led the big 3 with a 15.9% rise in October, followed by Fiat Chrysler with a 14.7% gain, and Ford with a 13.4% rise.  U.S. vehicle sales are now anticipated to rise 12% or +1.43 million automobiles and light trucks for the year. Low gasoline prices are helping to boost the sales of crossovers and SUVs, which are very profitable.

A tremendous surge in consumer credit is also likely boosting vehicle sales. Specifically, the Fed reported that consumer credit surged 10% in September to an annual rate of $28.9 billion as non-revolving credit (e.g., vehicle loans) surged 10.5%, while revolving credit (e.g., credit cards) rose 8.7%.  Naturally, this surge in consumer credit (and low gasoline prices) bodes well for the upcoming holiday shopping season.

Overseas, according to Bloomberg (reporting November 4), German manufacturing orders declined 1.7% in September, the third straight monthly decline. Domestic orders dipped 0.6% and foreign orders declined 2.4%.  Overall, German industrial output declined 1.1% in September, the second straight monthly decline.  A slowdown in China and emerging markets was cited as one reason why manufacturing orders and industrial production fell in Germany.


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

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

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

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

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

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

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

Past performance is no indication of future results.

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

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

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

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

Marketmail Archives Trade Summary

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

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

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

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

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

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

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

Past performance is no indication of future results.

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

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

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

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

Marketmail Archives