Indexes Retest Their Lows

All Three Major Market Indexes Retest Their October Lows

by Louis Navellier

November 27, 2018

The good news is that the Dow Industrials, the S&P 500, and the NASDAQ Composite have ALL successfully retested their lows. The bottom line is that all these retests occurred on relatively light holiday-week trading volume, so I believe that most of the selling pressure has been exhausted. 

I must add that sometimes the stock market likes to retest recent lows multiple times, as the S&P 500 did back in March, April, and May after the early February sell-off.  As I mentioned on both my Monday and Tuesday podcasts last week, as soon as the Fed announces that it may postpone raising interest rates, the Dow Industrials may explode by at least 1,000 points quickly. (Here is a link to last Tuesday’s podcast.)

Looking forward, I expect dividend growth stocks to lead the market recovery.  I also expect that stocks which can sustain strong sales and earnings momentum will emerge as the market leaders, but the most encouraging thing I’ve seen is all major indexes retesting their lows on light volume this past week.

I hope you had a wonderful Thanksgiving weekend!

In This Issue

After a tough week, our authors take a fresh look at market risks. Bryan Perry takes a new look at the three “speed bumps” he previously reviewed, plus the corporate debt spreads. Gary Alexander sees a bright spot in consumer spending plus corporate earnings and record profits, while Ivan Martchev sees some hope coming out of next weekend’s Buenos Aires G20 summit, if Trump and Xi reach an outline of an accord. Jason Bodner can’t name a new leading sector yet, but he can confirm this market remains in a bullish oversold condition. In the end, I give my view on what kinds of stocks can lead the next recovery.

Income Mail:
The Bulls are Facing Three Big Speed Bumps – The Fed, Trade, and Italian Bonds
by Bryan Perry
What’s Up with Corporate Debt Spreads?

Growth Mail:
“Black Friday” Turns a “Red” Week Green
by Gary Alexander
“Peak Earnings Season” – Part IV – Soon to Debut on Screens Near You

Global Mail:
Reverse Market Seasonality in Action
by Ivan Martchev
The China Factor

Sector Spotlight:
Nowhere to Hide Among All 11 S&P Sectors
by Jason Bodner
The Market Remains in (or near) “Oversold” Territory

A Look Ahead:
Which Stocks Will Lead us in the Next Recovery?
by Louis Navellier
The Economy – Especially Housing – Has Slipped Recently

Income Mail:

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

The Bulls are Facing Three Big Speed Bumps – The Fed, Trade, and Italian Bonds

by Bryan Perry

For the past few weeks, I and an assortment of other market commentators have been carefully dissecting if and when the market will have effectively priced in the many negative scenarios that prompted what is now a two-month correction. The S&P has shed over 10% and the Nasdaq has fallen 14.6%. If it weren’t for the healthcare, utilities, consumer staples, and specialty REIT sectors, the declines would be considerably worse. For growth stock investors, the losses have been particularly painful.

Taking into account the market’s full-blown retest of the October lows, some of the headwinds that investors cited in late September have certainly abated. Rising inflation has tapered with the softening of home prices, the softening of many commodities, and the crushing sell-off in global crude prices. WTI crude closed at $50.42 per barrel – a 13-month low that kicked the stool out from under the oil sector despite the bullish trend in natural gas that has emerged in the past six weeks.

It seems logical that investors and the Fed can put the threat of meaningful inflation risk aside for now. But that is not quite how the bond market sees it. As of November 24, according to the CME FedWatch Tool, rate hike expectations have declined a bit, but are not nearly at a level that would suggest the Fed won’t go ahead and raise the fed funds rate a quarter point to 2.25%-2.50% on December 19.

The fed funds futures market still sees a strong chance (74.1%) that the FOMC will increase the fed funds target range in December, but the implied probability of another hike in March has decreased to 37.7% from last week's 51.9%. So, unless economic data deteriorates further in the next two weeks, it appears as if the Fed will indeed raise rates and offer a wait-and-see dovish statement in their policy statement. That’s what the bond market is telegraphing and if the Fed elects not to raise rates, stocks will react in a bullish manner that could help repair a lot of damage.

We just don’t know if Fed Chairman Jerome Powell and the rest of the voting members of the Fed are as concerned with the market’s recent drop as the majority of those invested in it. Recent statements from Powell and other Fed officials haven’t given any clear indications that they are considering a pass on a rate hike in December. Regardless, hopes are rising that the Fed will eye the recent rally in bond prices and the steep fall in stock prices and take the “wait and see” path next month instead of next year.

Target Rate Probabilities for December 2018 Fed Meeting Bar Chart

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

If recent economic data showing slower GDP growth on the horizon isn’t enough hard evidence for the Fed to stand down, then a quick view of what’s occurring in the corporate bond market would surely cause some thought-provoking debate. The spread on the Merrill Lynch Corporate “A” Rated Minus 10-year Treasury has widened by 20 basis points in the past three months while the spread on the Merrill Lynch High Yield Minus 10-year Treasury has ballooned by 60 basis points to its widest level in a year.

I wrote back in early October how well these spreads were holding up in light of external events outside the U.S. markets, which were wreaking havoc on foreign currencies and emerging market debt held by the likes of Italy’s largest banks. Well, that situation has changed, and not for the better. Both the U.S. investment grade and high-yield debt markets are sending a clear message that future higher interest rates will undermine the level of creditworthiness and strength of America’s corporate balance sheets.

What’s Up with Corporate Debt Spreads?

According to S&P Global, the debt load for America’s corporations is at a record $6.3 trillion. And while that number may sound alarming, corporations are sitting on over $2.1 trillion in cash to service that debt, not including future free cash flow. However, the majority of that $2.1 trillion is held by a few giant companies, while the riskiest borrowers are more leveraged than they were during the financial crisis, according to S&P's analysis, which looked at 2017 year-end balance sheets for non-financial corporations. This could lead to trouble for the economy as interest rates rise. Here, too, the Fed should be on “spread watch,” so as not to exacerbate or put further stress on what is already a flexed corporate bond market.

Yield Spread Charts

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

As to the issue of trade with China, I will refer readers of this column to my musings from last week when I addressed this topic in more depth. My gut call on this highly fluid issue is that President Trump and President Xi will come away from the G-20 meeting with a “new and promising framework” that will pave the way for a long-term relationship of mutually beneficial trade terms. Basically, China will continue to refuse to concede to U.S. demands on Intellectual Property (IP) theft, forced transfer of technology, foreign investment in Chinese companies, respecting international rights of way in the South China Sea, and cracking down on state-sponsored cyber warfare.

There simply isn’t enough time to do a high-level deal and the next round of 25% tariffs on another $250 billion of Chinese goods will very likely take effect on January 1. I believe this realization contributed greatly to last week’s sell-off. It seems that after the Republicans lost control of the House, Beijing has only stiffened their resolve to see if Trump will only be a one-term President.

And then there is the nagging problem of many hot spots within the emerging debt markets, with Italy holding a bad hand. Italian bonds have taken another turn lower as investors respond with deepening concern to the latest political developments. Although investors are demanding ever-higher yields on Italian bonds relative to German bunds – which is considered a reliable financial measure of Italy’s perceived political risk – they are well below the levels reached during the worst of the euro-zone sovereign debt crisis in 2011. However, the recent trend higher is disconcerting.

Rising Italian Political Risk Chart

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

The good news is that the stock market and its participants seemingly aren’t aware of these risks and neither is the Fed, I presume. Right now, the rule of “less is more” (i.e. rate hikes) makes considerably more sense. Well before the next FOMC meeting, the future of trade with China will be better defined and most S&P 500 companies will have reported third-quarter earnings and provided forward guidance.

Standard and Poor's 500 SPDR (SPY) Chart

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

The five-year chart of the S&P 500 SPDR (SPY) shows that as of last Friday, the market is sitting at a key technical support level. The stock market traded well above its long-term trading range in early January this year, and then again in September. The ensuing correction has taken a toll across most sectors, but it hasn’t broken the primary long-term uptrend, at least for now. And if the Fed is correct in their 2019 GDP forecast, calling for 2.5% growth, then we should see a resumption of upside momentum before Christmas. That could bring the kind of relief that few gifts under the tree could surpass.

Growth Mail:

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

“Black Friday” Turns a “Red” Week Green

by Gary Alexander

It was another week to forget, but “Black Friday’ offered some hope. Even though the S&P was down 0.7% on Friday, reaching a new 7-month low, the SPDR S&P Retail ETF closed up 0.3%. Let’s thank the all-powerful U.S. shopper for these small favors, but that low-volume half-day on Wall Street took the S&P down by a cumulative -10.17% from its September 20 high, reaching official “correction” territory.

Black Friday’s sales reached $6.2 billion, up 23.6% from last year, while Adobe Analytics reported that on Thanksgiving Day America’s diners took time away from their turkey and TV football to place online sales totaling $3.7 billion, up 28% vs. last year; so it looks like the 2018 holiday shopping season is off to a strong start, giving us hope that the last few “red” weeks can be erased by some Christmas “green.”

Even though this time of year is seasonally strong, we have noticed that traders look nervous as several sharp swords of Damocles hang over this market – most notably tariffs with China, rising deficits, the changing dynamics of the House (along with threats of impeachment), Fed rate increases, and Italian bank debt. There’s always something to worry about, but if two or more of these worries begin to be solved, there’s also the chance of a quick market rally, adding a little joy juice to Wall Street’s punch bowl.

Veteran market observer Sam Stovall reminds us of an old Wall Street adage that says, “The bears have Thanksgiving, while the bulls have Christmas.” We’ve been spoiled by some recently-strong pre-Thanksgiving rallies – so much so that we expected some kind of seasonal guarantee going into Turkey Day, but it didn’t work out this year. Still, Stovall reminds us that 2018 has become a huge historical outlier, writing that “the S&P 500’s quarter-to-date return through November 20 (down 9.3%) was the third worst since 1946, behind 2008 and 1987. However, these slumps typically led to end-of-year rallies.” After the five worst declines (2018 would be third-worst), the average year-end rally was +6.7%!

Thank you, shoppers, for your kick-start to the holiday season.  Now it’s your turn, investors.

“Peak Earnings Season” – Part IV – Soon to Debut on Screens Near You

Writing last Monday (November 19), economist Ed Yardeni called the recent earnings reporting season – the third quarter of 2018 –“The Last Great Earnings Season.”  Where have I heard that before?  We have heard about “Peak earnings season” ever since last April for the first-quarter reporting season, so this would be “Peak Earnings Season, Part III.” But don’t be too surprised if there is a Part IV coming.

In the third quarter, S&P 500 revenues per share jumped 8.5% year-over-year. This is very rare this late in an economic expansion, when sales growth tends to slow down to the 5% range.  Earnings were up a phenomenal 27.5% y/y, the strongest single quarter since 2010 and up from 25.8% the previous quarter.

Profit margins last quarter also rose to a record high of 11.4%, up from a then-record 10.1% in the last quarter of 2017, right before the 2018 tax cut. (Lower taxes contribute directly to higher profit margins.)

Using I/B/E/S earnings data, the S&P profit margin rose to 12.8% during the third quarter. Using S&P earnings data, I/B/E/S calculated Q3 operating profit margins at 12.4%. Both are at record highs.

Standard and Poor's 500 Operating Profit Margin Chart

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

The fourth quarter of 2018 will be the final quarter in which we will see these favorable year-over-year comparisons, so I expect to see more double-digit corporate earnings gains reported from mid-January through the end of February, sending the market up again in early 2019. After that, assuming we can stay out of a recession engendered by persistent tariffs or a bickering Congress, we may have to settle for single-digit earnings growth in 2019, but let us give Thanksgiving for a year of 23% earnings growth.

We must not forget that America faced a huge and powerful series of natural disasters this year, which have lasted to this day.  This was California’s worst wildfire season ever, starting in the summer months, with November fires adding to the total.  Then Hurricane Florence was a powerful and long-lived hurricane hitting some towns with over 35 inches of rain – the wettest tropical cyclone ever recorded in the Carolinas. In October, Hurricane Michael was the third most intense Atlantic hurricane to make landfall in the contiguous United States in terms of low pressure, and the strongest in terms of maximum sustained wind speed since Andrew in 1992. It was the strongest storm ever to hit the Florida Panhandle.

As a result, industrial production was hurt in both September and October by these hurricanes. Many auto factories are located in the Southeast U.S. In October, motor vehicle production fell 2.8%. However, neither these hurricanes nor a slump in motor vehicle production stopped the U.S. economy from showing solid manufacturing production growth in October, as manufacturing output increased for a fifth straight month in October. The gain in October was +0.3% and September data were revised upward to +0.3%.

We also endured a fractious election, so as 2018 draws to a close we can at least be thankful that we “survived” a year of two major hurricanes, two major fire seasons, two embattled political parties, two major market downdrafts (January-February and October-November), and two major superpowers (China and Russia) allegedly trying to meddle in our elections and our economic prosperity and property rights.

May Christmas and the New Year bring us something a bit more obvious to celebrate in 2019!

Global Mail:

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

Reverse Market Seasonality in Action

by Ivan Martchev

After two decades in the trenches in the fascinating world of finance, I have seen the stock market weak in November and December only twice – in 2000 and 2007. In both cases, such reverse seasonality preceded big bear markets in the following years. Needless to say, I do not like what I see in November as none of the tried and true indicators that tend to foresee a recession indicate a coming recession right now.  That makes the present weakness in this seasonally-strongest time of the year rather perplexing.

Standard and Poor's 500 Average Monthly Index Returns Bar Chart

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

The Conference Board’s Leading Economic Index (LEI) has 10 components. They are:

  • Average weekly hours, manufacturing
  • Average weekly initial claims for unemployment insurance
  • Manufacturers’ new orders, consumer goods and materials
  • ISM® Index of New Orders
  • Manufacturers' new orders, nondefense capital goods excluding aircraft orders
  • Building permits, new private housing units
  • Stock prices, 500 common stocks
  • Leading Credit Index™
  • Interest rate spread, 10-year Treasury bonds less federal funds
  • Average consumer expectations for business conditions

Some of these 10 indicators are soft – not the least of which is #6 (housing), due to rising interest rates, as expected, and #7 (the stock market), likely due to trade frictions and the Fed, but as a whole the LEI does not foretell a recession in 2019. Is it conceivable that both November and December will end up being weak if there is no trade deal with China at the G-20 meeting in Argentina this coming weekend? I suppose it is possible, even though the statistical likelihood of this happening seems rather unlikely.

Typically, if the stock market sells off in a good economy it tends to rebound rather swiftly. There have been over half a dozen sell-offs of the present magnitude in the past 10 years and one that went almost 20% down – in the summer of 2011 – and they all ended up being buying opportunities.

Granted, we have two big complicating factors this time – the Federal Reserve and China. When it comes to the Fed, it seems that President Trump shot himself in the foot with his well-intentioned but poorly-timed tax cut. While I have nothing against lower taxes, if they are accompanied with prudent fiscal management, the President and Congress blew up the federal deficit in a booming economy.

It would have been a lot better for the tax cut to be offset with a spending cut, so this unfortunate deficit situation would not have materialized. One has to do a tax cut in a situation when the economy is much weaker so that it helps spur a recovery, rather than pushing the economy into overdrive.

United States Central Bank Balance Sheet versus Dow Jones Industrial Average Chart

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

It is entirely possible that this poorly-timed fiscal stimulus, likely driven by considerations of the midterm elections, caused the Federal Reserve to press harder on the monetary brakes for fear that the economy would overheat in a late-stage economic expansion. It is not inconceivable that faster monetary tightening, which at the present time is executed by hiking the fed funds rate and letting the runoff rate of the Fed’s balance sheet accelerate, is causing the current problems in the stock market.

In other words, too much of a good thing in the form of a poorly-timed tax cut (without spending cuts) may end up boomeranging in a stumbling stock market, courtesy of the Federal Reserve.

Still, if the Fed does not overdo it and there is no recession in 2019, it would be unheard of for the stock market to decline in a situation where EPS growth in the S&P 500 would be up more than 20% in 2018 and 10% or more in 2019, based on present consensus estimates. That means the S&P 500 would not budge in response to better-than-30% EPS growth over two years – which is not likely.

The China Factor

Because of the way the President has timed his agenda, we now have the double whammy of China trade frictions and an overzealous Fed muddying the waters. If one of those factors goes away or shows signs of improvement, the stock market is likely to celebrate in the seasonally strongest time of the year.

Dow Jones Industrial Average versus 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.

There are some early signs that Trump wants to close a trade deal with China in Argentina this coming Friday and Saturday. Both the Chinese and the U.S. trade teams are going to Buenos Aires, so an agreement on a framework – it is unlikely to be a final deal – would likely be viewed as a positive by the stock markets in the United States and China.

The stock market in China has much more serious problems, exacerbated by trade frictions courtesy of the credit bubble that has been inflated in China over the past 25 years, so any bounce would likely be an opportunity to sell. As to the stock market in the U.S., we are too far away from a recession at the moment to be worrying about a big bear market at this point.

Sector Spotlight:

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

Nowhere to Hide Among All 11 S&P Sectors

by Jason Bodner

“Mayday! Mayday! Mayday! We’re going down!” That’s what this market feels like.

Sinking Ship Image

Before we shout “May Day,” however, let’s look into what the words mean. “Mayday” doesn’t refer to the first day of May. It actually comes from the French “m’aider,” which means “help me.”

Maybe that fact won’t help your patience with this market, so let’s go right to the weekly sector report:

Thanksgiving week is supposed to be a time of good cheer, but the market clearly didn’t get the message. The sectors last week looked like they all had a bad case of dysentery. All 11 sectors fell, with Information Technology taking the biggest drop at -6.08%. The six-month performance for Infotech stands at -8.3%. Ugly as it is, it is only about half of the damage done to energy.

Standard and Poor's 500 Sector Indices Changes Tables

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

Energy dropped just over 5% for the week, which points to a bigger trend here. The 3-month change for the S&P 500 Energy Index is -14.3%, or -16.4% for six months. As abysmal as that is, energy stocks have not yet caught up with the fall of the leading physical commodity itself, crude oil.

West Texas Crude Oil has dropped an astonishing 34% in roughly 37 trading days. This brings back memories of 2014: From June of 2014 to January of 2015, WTI Crude plummeted 50% and eventually reached its ultimate bottom in February of 2016, down 73% from the June 13, 2014 close of $106.91.

West Texas Intermediate Crude Oil Chart

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

What alarms me about the sudden skid in crude oil is that it reminds me of the autumn of 2014. The popular reasons behind crude’s drop and the associated energy stocks didn’t come to light until long after the move was under way. I see this time and time again. Price action comes first, reasons later. Investors generally think that reasons precede price action, but my experience is the opposite. Fundamentally, if you were a multi-billion-dollar money manager and had an inkling that future prices would collapse, you wouldn’t tell the whole world and then go short. You would go short, and then tell the whole world.

Well, back in late summer of 2014, the world watched crude oil, natural gas, gasoline, and heating oil just collapse. Shortly after, Oil & Gas exploration stocks fell through the floor en masse. No one wanted them, but no one knew why, that is, until prices had fallen so much that the prevalent story started working its way through the system. Leveraged exploration companies were in trouble because the price of the physical commodity had fallen below an acceptable profit margin. Companies that took on too much debt to explore for oil couldn’t meet their debt maintenance and the sector was ready to blow up. That spread to banks who underwrote the debt. They needed oil above $70 (or so) just to stay alive.

That calamity eventually worked itself out, but not without plenty of casualties in the industry. It will be interesting to see what havoc crude’s recent move down may cause. This is certainly something to watch.

The Market Remains in (or near) “Oversold” Territory

But before you get the wrong idea and think that I am turning bearish, I’d like to tell you something important about this past week’s price action. The good news is that this week saw a retest of recent index lows on lighter volume. This is usually a good indication that selling is drying up and dissipating.

The bad news is that selling outnumbered buying signals nearly 10-1 in my research. We saw the most selling in Information Technology: Over 18% of all unusual institutional selling was in Infotech. Consumer Discretionary saw 12% of all selling, while energy accounted for 10%.

While there are some parallels to the price action of crude oil in 2014, back then energy stocks accounted for 25% or more of unusual selling for an extended period of time.

Unusual Selling Distribution Table

The last thing to look at is the MAP-IT ratio.  It’s a 25-day moving average measuring unusual buying over selling. It dipped below 25% on October 26th – a signal which indicates that selling is unsustainable. At that time, we expected a bounce – which we saw almost immediately.  Then we expected a retest of the index lows on lighter volume.  This is where we are right now.  The key here is the value of that ratio. It currently sits at 28%. Notice the line on the bottom is not falling, like the index. The main thing this confirms to me is that the recent retest is on lower volume. The amount of sell signals we saw in October dwarfed what we are seeing now. In the first place, this ratio rarely falls below 25% and, rarer still, it emerges from oversold only to fall back into oversold territory. Either way – this market remains oversold, and any positive news on trade or interest rates should spark a nice rally, in my opinion.

Russell 2000 Chart

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

The fact is that U.S. companies are coming off their strongest quarter in memory. The backdrop is still very strong for continued strong sales and earnings, continued low taxes, and general U.S. prosperity. We are in a seasonally strong time of year. The looming clouds are trade and interest rates. It is my belief that President Trump, despite his often-erratic behavior, does not want to send the country into a tailspin. This would jeopardize all he is taking credit for, and any hopes for continued Republican strength in 2020.

Any positive news on trade or rates should send us up like Charlie and Grandpa in Charlie and the Chocolate Factory. Remember when Willy Wonka said, “The suspense is terrible... I hope it'll last”?

Willy Wonka Image

A Look Ahead

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

Which Stocks Will Lead us in the Next Recovery?

by Louis Navellier

Looking forward, I expect dividend growth stocks to lead the stock market recovery.  Additionally, I expect that the stocks that can sustain strong sales and earnings momentum will also emerge as market leaders in the upcoming weeks.  As I mentioned on my Tuesday podcast, virtually all industry sectors have broken down, so only stock picking will prevail in the upcoming weeks and months.

In addition, I would stay away from mainstream ETFs. Most ETF investors have no idea of the hidden transaction costs from ETF premiums or discounts to Intraday Indicative Value.  (I discussed these contingent risks in a white paper entitled “How the Robo Advisor Revolution May Be Leading Up to an Impending Disaster,” which you can read here.) You can probably tell from all the ETF whitepapers that my management firm provides that we are trying to educate everyone about potential ETF trade execution pitfalls.  However, it would certainly help if the SEC improved ETF disclosure requirements merely by forcing the NYSE to publish ETF premium/discounts relative to Intraday Indicative Value. 

The bottom line is that ETFs are increasingly complicating the trading on Wall Street, especially during corrections and fast market conditions like we’ve seen in October and November.  The fact that most investors have virtually no idea of the premium or discount that they have to pay relative to Intraday Indicative Value remains a major problem.  This ETF execution problem could be fixed simply by forcing the NYSE to publish the Intraday Indicative Value – like Morningstar does for most ETFs.

At least that is my Thanksgiving (and Christmas) wish.

The Economy – Especially Housing – Has Slipped Recently

Construction Image

The National Association of Home Builders (NAHB) reported that confidence slipped to 60 in November, down from 68 in October, and is now at the lowest level in more than two years.  Although a reading of 60 is still deemed positive, homebuilders are clearly struggling with labor shortages, higher interest rates, and tariffs impacting lumber and imported supplies.  The only time this index has declined more than eight points in one month was immediately after the 9/11 terrorist attack.  Chillingly, the buyer traffic index slipped to 45 in November from 53 in October, as the NAHB said, “Customers are taking a pause.”

Last Tuesday, the Commerce Department announced that housing starts rose 1.5% in October to an annual pace of 1.228 million. This increase in housing starts was entirely due to an increase in multi-family starts, which surged 10.3% to an annual pace of 363,000 in October.  Single-family home starts declined 1.8% to an 865,000 annual pace in October.  I should also add that the Commerce Department reported that building permits declined 0.6% in October to an annual pace of 1.263 million.  Overall, the housing market remains hindered by higher interest rates, affordability issues, and an acute labor shortage.

The National Association of Realtors on Wednesday announced that existing home sales rose 1.4% in October to an annual pace of 5.22 million, slightly better than economists’ consensus estimate of 5.19 million. In the past 12 months, existing home sales are off 5.1%, which represents the largest annual decline since 2014. Median home prices have risen 3.8% to $255,400 in the past 12 months. At the current sales pace, there is a 4.3-month supply of existing homes for sale, so inventories remain tight.

On Wednesday, the Commerce Department announced that durable goods orders declined 4.4% in October, the largest monthly decline since July 2017 and substantially below economists’ consensus estimate of a 2.6% decline.  A 21.4% decline in commercial aircraft orders was largely responsible for the abrupt decline.  In the first 10 months of 2018, business investment is up 6.4% and durable goods orders are up 8.7%, compared to the same period a year ago.  Recently, however, a cautious business community is signaling that GDP growth is expected to slow in the fourth quarter.

Speaking of GDP growth, the Atlanta Fed on Wednesday reduced its fourth-quarter GDP estimate to an annual pace of 2.5%.  Consumer spending remains the primary catalyst for GDP growth so the shopping activity on Black Friday and Cyber Monday will be closely scrutinized.  Due to falling gasoline prices, I suspect that consumers will remain upbeat and there will be record spending this holiday season.

The Conference Board on Wednesday announced that its Leading Economic Index (LEI) rose 0.1% in October, which is in line with the economists’ consensus estimate.  Economist Ataman Ozyildirim at the Conference Board said, “The (LEI) index still points to robust economic growth in early 2019, but the rapid pace of growth may already have peaked.  While near-term economic growth should remain strong, longer-term growth is likely to moderate to about 2.5% by mid-to-late 2019.”

Brent light sweet crude oil fell below $60 per barrel on Friday on speculation that President Trump has convinced Saudi Arabia to keep up its production of crude oil.  Russia, Saudi Arabia, and the U.S. are all producing record amounts of crude oil.  Despite widely reported cuts being implemented at the upcoming OPEC meeting, Saudi Arabia remains in control of OPEC’s crude oil production and may comply with President Trump’s wishes, especially after the U.S. imposed sanctions on 17 high profile Saudis after the Khashoggi killing.  Regardless of what Russia and Saudi Arabia do, the fact that a natural gas pipeline in the Permian Basin is being upgraded to transport crude oil means U.S. crude oil production is expected to rise steadily in 2019 and further disrupt crude oil prices worldwide.

Now that crude oil prices have plunged, and inflation is cooling off fast, it is possible that the Fed may reconsider its anticipated December key interest hike.  However, as I have repeatedly said, only plunging Treasury yields may be enough to cause the Fed to postpone its planned December key interest rate hike.  However, if the Fed, via its Federal Open Market Committee (FOMC) statement in December, says that it will pause raising key interest rates, I expect that the stock market will explode to the upside!

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

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

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

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

Past performance is no indication of future results.

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

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

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

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

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