Investors Unload Stocks & Gold

Investors Unload Stocks & Gold based on Positive Economic Statistics!

by Louis Navellier

October 11, 2016

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

The first week of October was dismal for both the stock market and gold.  That’s because the odd reaction to any good economic news was that traders assumed that a booming economy would cause a small (0.25%) fed funds rate increase in December, which could theoretically hurt the stock market and gold.  In truth, both gold and stocks fared just fine during the last Fed rate-raising cycle; but traders were looking for an excuse to sell, so the S&P fell a slight but noticeable 0.67% in the first week of October.  I’ll run down some of those positive economic indicators later on, but rest assured that the economy is not suddenly 100% robust.

Crude Oil Pipe Image

Crude oil cracked $50 a barrel as both the American Petroleum Institute (API) and Energy Information Administration (EIA) reported a falling inventory for the fifth straight week.  Higher refinery activity is apparently drawing down crude oil inventories, but interestingly the supply of gasoline continues to rise dramatically, so the prices at the pump should continue to decline.  So instead of the seasonal decline and deflation that I had expected, prices remain stubbornly high, causing many questionable energy stocks with poor sales and earnings to surge on short-covering rallies.  I remain skeptical that crude oil prices can avoid their annual seasonal decline, but strong economic news could help crude prices firm somewhat.

Fortunately, third-quarter earnings announcements are starting to come in, so we may soon see stocks with positive earnings and sales growth figures start to outperform the overall market in the coming weeks.

In This Issue

Heading into earnings season, we are focused on the Information Technology sector, which we have been favoring since last August.  This week, in Income Mail, Bryan Perry focuses on specific tech stocks, while Gary Alexander examines some overly-dramatic headlines and the truth buried in their text.  Ivan Martchev shows why the U.S. dollar will likely resume its rise while the euro and pound may fall, and the Chinese yuan may be pushed off a cliff (devalued).  Jason Bodner says that only three S&P sectors have risen since July and two of them still look risky.  Then I’ll close with a look at “hurricane stocks” and the economy.

Income Mail:
Heading into Earnings Season with a Focus on Technology
by Bryan Perry
Momentum Begets Momentum – A Year-End Run for the Roses

Growth Mail:
Negative Headlines – a New Growth Industry
by Gary Alexander
Four Misleading Headlines about Global Growth and Globalization

Global Mail:
The British Pound’s Decline “Ain't Over till it’s Over”
by Ivan Martchev
...And Neither is the Rally of the U.S. Dollar

Sector Spotlight:
Finding Diamonds in the Rough
by Jason Bodner
Wide Sector Swings in the Third Quarter

A Look Ahead:
Hurricane Matthew Favors Construction Stocks
by Louis Navellier
Is the Economic Outlook Suddenly Rosy?

Income Mail:

*All content in "Income Mail" is the opinion of Navellier & Associates and Bryan Perry*

Heading into Earnings Season with a Focus on Technology

by Bryan Perry

This current market and economy are very uneven as to which sectors and stocks are to be trusted heading into the third-quarter reporting period. We’ve already heard good things from the earliest earnings releases, so there are some bright spots, but the bigger story surrounds the tech sector’s earnings and what they indicate for potential year-end performance.

The groundwork for a strong showing by the tech sector has been laid with several recent headlines that include very robust earnings from Adobe Systems (ADBE) and raised guidance from Intel (INTC). According to MacDaily News (September 2, 2016), Apple (AAPL) is set to benefit greatly from the release of its iPhone 7 vs. the problems of smoking phones from South Korea’s Samsung. (Please note: Bryan Perry does not currently own positions in ADBE, INTC or AAPL. Navellier & Associates, Inc. does currently own positions in ADBE,  INTC and AAPL for some client portfolios. Please see important disclosures at the end of this letter.)

But the sub-sector that is showing best-in-class momentum has been semiconductor and chip equipment makers. These companies reflect generational advances in the chip space with applications to virtually every area of the economy that manufactures goods targeting smart phones, mobile computing devices, digital payment systems, self-driving automobiles, aerospace and frontier technologies, such as virtual reality, augmented reality, and artificial intelligence.

It’s also a bonus to realize that this trading space is fairly immune to national politics, central bank monetary policy, trade war chatter, energy price gyrations, and consumer sentiment. Business capital investment into the semiconductor sector is already robust and is clearly accelerating. In fact, this kind of secular spending momentum is scarcely found in any other sub-category or industry.

Even better, there is a definite wave of mergers and acquisitions under way in the semiconductor sector. This will tend to narrow the list of publicly-traded companies, with old names disappearing almost monthly. Broadcom acquired Avago Technologies, SoftBank Group (SFTBY) purchased ARM Holdings, Analog Devices (ADI) is buying Linear Technology (LLTC), NXP Semiconductor (NXPI) bought Freescale Semiconductor and is now the target of Qualcomm, announced just this past week. I am a big fan of all these names and I personally trade the QQQs using long dated options. It's tech, it’s liquid and I like the leverage of LEAPs. (Please note: Bryan Perry does not currently own positions in SFTBY, ADI, LLTC, NXPI or QCOM. Navellier & Associates, Inc. does not currently own positions in LLTC for any client portfolios. Navellier & Associates, Inc. does currently own positions in SFTBY, ADI, NXPI, and QCOM for some client portfolios.)

The widely traded VanEck Vectors Semiconductor ETF (SMH) is a basket of the leading names in the chip sector and is a way that investors can cast a net over the space and go along for the ride. (Please note: Bryan Perry does not currently own a position in SMH. Navellier & Associates, Inc. does not currently own a position in SMH for any client portfolios.)

The one-year chart of SMH (below) says it all. This quintessential pattern of a double-bottom, cup and saucer breakout is mouthwatering to professional or armchair technicians. It’s as bullish as they come.Van Eck Semiconductors Exchange Traded Fund Chart

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

Momentum Begets Momentum – A Year-End Run for the Roses

With the strength of earnings and merger activity as major tailwinds, income investors can take a laser-focus approach to the chip sector and buy a basket of leading stocks where short-term out-of-the-money calls can be sold for immediate income. Fund managers under performance pressure, which would include the majority, will in my view move to an overweight allocation in chip and chip equipment stocks after the past week saw the sector pause and consolidate. This is clearly where the relative strength lies.

A successful covered-call strategy incorporates not just collecting call premiums but also being in stocks where capital gains are part of the total return. Both stock appreciation and maximum call premium can be obtained in each trade. With earnings season about to emerge into full bloom, an actively managed covered call strategy in the tech sector and specifically the semiconductor space is a very appealing set up for generating outsized income from all the sizzling action in a sector that is in its own stealth bull market.

Growth Mail:

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

Negative Headlines – a New Growth Industry

by Gary Alexander

You’ve all seen the search engines and popular web sites – I don’t need to name them for you, do I? – where the real star is the headline writer.  How can he (or she) draw your eyeballs into the next story?  How do you earn a click?  You provoke, you confuse, you titillate, you definitely overstate whatever it is you want to say.  Whether it’s right wing, left wing, or neutral, it doesn’t matter.  Killer headlines sell.

Have I got your attention?  If not, I’ll try to mention one of the Kardashians next week.  But in the meantime, let’s stick to economics and finance, particularly global growth and globalization.

Headline #1: “An Existential Threat to the World Order”

Last Tuesday, Bloomberg posted an article titled, “World Leaders at IMF Meeting Face Existential Threat to World Order.”  In case you think existential is just some academic word for bearded philosophers, it literally means “the existence of,” the survival of, an idea, person, or nation.  For instance, Israel faces an “existential” threat with some of its neighbors, meaning that these nations threaten Israel’s very existence.

The first hint you get that this headline is a bit overstated is when you click through to the article, which has a softer headline, “Backlash to World Economic Order Clouds Outlook at IMF Talks.”  Notice the weasel words there: A “backlash” and a “cloud” are in no way a threat to existence.  As it turns out, the IMF and World Bank are merely holding a meeting in Washington, where they do what they normally do – meet and greet, drink, and listen to very long speeches about the virtues of globalization.  There is very little chance that any of those speeches will be as dramatic as the Bloomberg headline. More on that later.

Headline #2: “IMF Sees Subdued Growth…Stagnation…Protectionism.”

A second headline came out last Tuesday in an IMF News Release: “IMF Sees Subdued Global Growth, Warns Economic Stagnation Could Fuel Protectionist Calls.”  But the very first line below that dismal headline says the IMF sees global growth at 3.1% in 2016 “with a slight increase to 3.4% next year.”

The fact that 3.1% growth earns the adjective “subdued” comes from the fact that global growth came in at 3.2% last year.  A single tenth of a percent growth rate is technically “subdued,” but the headline just as easily could have read, “IMF sees a jump in growth from 3.1% this year to 3.4% next year.”  At the same time, any global growth rate above 3% is twice the expected rate of U.S. economic growth in 2016: 1.5%.

World Real Gross Domestic Product Chart

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

The world’s GDP totals over $100 trillion.  A 3% growth rate adds $3 trillion to the world’s wealth.  This absolute gain is greater than a 5% growth rate when the global economy was half as large, back in the 1990s.  It is only natural for the global growth rate to slow down as the size of the global economy grows.

Asia is still growing rapidly.  Here are some of the current GDP projections for 2016 growth rates in Asia:

Asia Gross Domestic Product Projections Table

Headline #3: “The Slowest U.S. Recovery since WWII”

On Wednesday, CNN released an article entitled, “Yes, this is the slowest U.S. recovery since WWII.” Ironically, the first line and the first chart in that article, placed right below the headline, was a chart showing that “this recovery is the fourth longest in U.S. history.”  Why put the negative point in the headline – the slowest recovery – and then put the positive point (fourth-longest) in the click-through?

In addition, the article quotes economist Ed Yardeni saying that this is “ONE of the weakest” recoveries since WW2, but “he’s hesitant to dub it the absolute worst, once you look across a wide range of metrics.”

In his Thursday morning briefing (“Existential Threat?”), Yardeni said that this recovery “is starting to beat the expansion that started in 2001, which is hitting the 2008 recession now on a comparative basis.”  He added that “this could turn out to be the Forrest Gump of expansions, running a lot longer than anyone can believe. Consider the following upbeat economic indicators” which include: job openings “at a record high. Private-sector employment gains have exceeded 150,000 per month for 40 of the last 41 months.”  

In addition, there have been very short and weak recoveries in the past, namely the short 1980-81 recovery.

Headline #4: “Globalization on the Skids”

Friday’s Wall Street Journal featured an article above the fold on Page 1 titled, “Globalization on the Skids.”  My wife reads the Journal first, so she rushed into my office to ask, “Is this true?”  I gave her a 16-page supplement from the October 1 issue of “The Economist” entitled, “An Open and Shut Case,” in which The Economist made the centuries-old economic case in favor of free trade and open borders.

Admittedly, 16 dense pages of type is tougher sledding than a simplistic headline, but The Economist was right in this case, and the Journal was guilty of eyeball-trolling scary headlines.  In essence, the Journal headline reflected the same “existential threat” in Headline #1 above, by saying, “Global finance ministers are descending on Washington this week with a central concern in mind: Fear that the modern age of globalization is hitting a wall.  Last year’s $646 billion in foreign direct investment in rich economies represents a 40% drop from the peak before the financial crisis” and international lending is down 9%.

Yes, there are some dangers if protectionism gains favor (particularly if Donald Trump wins), but the case for open trade is as sound as it was 200 years ago when introduced by early economists Adam Smith and David Ricardo.

I can’t revisit that entire case in this short article, but please consult The Economist for more details.  In the meantime, let me put in a good word for books and long essays, like those in The Economist.  In this Twitterized world, 140-characters provide good discipline for expressing yourself compactly, and sexy headlines are a good way to seduce eyeballs, but nothing beats the long game of serious, deep analysis.

Global Mail:

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

The British Pound’s Decline “Ain't Over till it’s Over”

by Ivan Martchev

The late and legendary Yogi Berra again serves as an inspiration for this column, this time concerning the fate of the UK currency. The fact that the British pound is accelerating to the downside is not a surprise to readers of this column as the official Brexit negotiations are now approaching. (See Marketwatch, July 6, 2016, “The Brexit currency domino effect isn't over yet”). For the time being, it looks to be March of 2017 when Britain will trigger Article 50, after which point the negotiating parties have two years to sort out this mess. After that, Great Britain will no longer be part of the European Union.

The Pro-Brexit campaigners were hopelessly myopic, in my view. They promised Britons access to Europe’s free markets without having to deal with free movement of labor within the EU. If there ever was a case of having your political cake and eating it too, this was it. EU power brokers have made it clear that such a possibility is out of the question as other non-EU countries that have access to the EU markets, like Norway and Switzerland, comply with the EU labor laws.

The pound is declining as investment flows headed towards Britain will grind to a halt as it negotiates its EU exit while that famous property market in London will have some serious issues. A “hard” Brexit – i.e., one without a free trade deal with the EU – will undoubtedly push Britain into a nasty recession.

British Pound Versus United States Dollar - Weekly OHLC Chart

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

As readers of this column know, I don't dismiss charts out of hand but I always like to know what is behind the lines on those charts. Fundamentals drive charts, not the other way around. In this case the fundamentals are clearly deteriorating, but not fast enough to cause that 6% “flash crash” in Asian trading last Friday, when the pound briefly declined all the way to $1.171. This sharp drop was undoubtedly due to computerized high-frequency trading where machines, not humans, “pull the trigger” in split seconds. (Asian trading of British pounds is obviously thinner when the City of London is asleep.)

As the above chart shows, most of the trading of British pounds after the Great Financial Crisis of 2008 was in the range of $1.45 to $1.70, even though during 2008 we did see a decline all the way down to $1.35. It is interesting to note that when the GBPUSD cross rate took out $1.35 after the Brexit vote in late June 2016, it was never able to recapture that previous “support” level. The old pre-2008 “support” at $1.35 has now become upward “resistance,” as traders like to say.

UK GOVERNMENT BOND 10Y

United Kingdom Ten Year Government Bond Chart

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

Some have pointed to the UK government bond yields – with the 10-year yield closing at 0.78% on Friday – as evidence of inflation becoming an issue due to the weak pound, but that would be splitting hairs. The all-time low is 0.52%. The odds are overwhelming that a “hard Brexit” would have a deflationary effect on the UK economy and therefore the UK gilt market might turn negative before we see a more sustainable yield spike. Further declines in UK yields and more QE by the Bank of England are likely to put more pressure on the British pound.

I do not believe that the $1.17 “flash crash” low will hold if there is pressure on the euro – which is the other big loser from the Brexit debacle. The 1985 low of $1.05 in the pound against the dollar may come into play. It becomes a good target under a “hard” (no trade deal) Brexit scenario.

On the other hand, the euro probably will not stop at parity to the dollar (1:1) as the European banking system is turning into a big mess, while deflationary trends are well entrenched on the Old Continent. If “sterilized” QE of the type we had in the U.S. does not work well in Europe, who knows if they may try real helicopter money. Any further unorthodox monetary activities by the ECB, coupled with banking system problems and a hard Brexit that hurts trade flows, are likely to push the euro significantly lower.

Euro Versus United States Dollar - Monthly OHLC Chart

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

Ultimately, a good target for the euro is the low it hit right after its 1999 introduction, or right around 83 U.S. cents. The euro has been consolidating in a tight range of $1.05 to $1.15 since early 2015, with a few stabs outside of this range that did not last. When that consolidation pattern ends and the range “breaks” to the downside, I expect that the euro will lose parity to the dollar rather swiftly. I think that will happen in 2017 as the dollar is overdue for another surge. That makes the case for holding UK- or euro-denominated ADRs rather poor. Not only do you have to deal with negative macro fundamentals, but the ADRs are also likely to be swimming against the current of a depreciating local currency.

...And Neither is the Rally of the U.S. Dollar

Not only will 2017 highlight how bitter the UK-EU talks will be – pointing toward a hard Brexit at the moment – but I also expect several other events will contribute to an overall surge of the U.S. dollar. For better or worse, investors still look at the U.S. Dollar Index (charted below), even though the Broad Trade-Weighted Dollar Index is more relevant, due to its inclusion of the Chinese yuan.

United States Dollar Index - Monthly OHLC Chart

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

The U.S. Dollar Index (DXY) closed at 96.51 on Friday – right around the level where it was in the mid-1970s. I am pointing this out since – despite all the doom and gloom, including talk of a dollar collapse – the U.S. dollar has not collapsed. I think this old-school U.S. dollar index (heavy on the euro but not including the Chinese yuan) may end up at its long-term highs near 120 before this dollar rally is over.

DXY has been consolidating the sharp gains it saw in late 2014 and early 2015, at which point 100 has become a “round-number resistance level.” This consolidation began in March 2015 and I think we may trade above 100, in effect ending the consolidation, before the year is over.

The Fed is again talking about a rate hike in December, which in my view would compound the mistake they made in December 2015. If they do hike again in December, I think they may have to reverse course as soon as 2017. Be that as it may, this rate-hike assumption could trigger DXY breaking out over 100.

China Foreign Exchange Reserves Versus Yuan Chart

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

The other reason I think that DXY is headed to 120 in due course (say, 1-2 years) is because I think the Chinese will ultimately opt for a hard devaluation of the Chinese yuan. I believe China is headed for a hard landing, given the bursting of its spectacular credit bubble. This should re-accelerate capital flight outside of China, which had calmed down in 2016 (see chart). While the Chinese yuan is not a member of the classic DXY index, the resulting deflationary tsunami from a hard Chinese devaluation to combat the coming Chinese recession (similar to their devaluation in 1994) is likely to push the dollar a lot higher.

The U.S. dollar rally is far from over.

Sector Spotlight:

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

Finding Diamonds in the Rough

by Jason Bodner

When thinking of a diamond ring that sparkles and provides great joy to the wearer, the first image that comes to mind is rarely a massive dump truck (below); but a truck that is roughly 20 times the size of a Yukon SUV is relatively small compared with all of the machinery and structures required to run a mine.

It’s no wonder the mining industry spends hundreds of billions of dollars per year. But the interesting thing is, despite the recent technology boost and mechanization in many other fields (like fracking), the fundamental process for mining has been unchanged for a long time. It’s really simple: Sift through tons of rocks until you find a raw diamond. It takes roughly 250 tons of rock to yield a single carat diamond.

A carat is 0.007 of an ounce. To wrap our heads around 0.007 of an ounce vs. 250 tons, that’s like finding one pound in 1.1 billion pounds. Here’s another comparison: A baseball weighs a pound. Try to imagine looking for one slightly different baseball amidst 1.1 billion baseballs, or in the graphic below, looking for the single dollar bill that is slightly different than the others amidst the pallets of one billion $1 bills.

Mining Metaphor Image

Mining is hard and tedious and voluminous. Yet, it can yield some great results. Enter the world of data mining. Naturally we now have computers to assist us with the monotonous task of sifting through incomprehensible amounts of data. But the key aim is the same – looking for diamonds in a veritable mountain of rocks. Looking for the star equities, or duds for that matter, is no different. There are more than 100,000 publicly-traded stocks globally. So if these securities are, in effect, our mining pit, how do we get from this long list of names to the polished stone that will bring us great returns and thus joy?

When we remove OTC stocks from the list, there were 45,923 globally listed stocks as of December 2015, according to the World Federation of Exchanges members. If we begin to apply filters (sifters) of minimum trading volume and minimum market capitalization, we begin to whittle the list down. If we wish only to pay attention to shares trading above $1 globally, we will continue to refine our dataset.

Most of my readers are primarily concerned with stocks traded in the United States, so for this discussion, let’s exclude the rest of the world and focus on domestic equities and ADRs. We are down materially from over 100,000 but we are still trying to mine for a handful of gems in roughly 4,000 stocks.

Everyone enjoys a great story about a stock because it helps sell us on the idea of putting our hard-earned money to work behind a specific investment. At Navellier, we like to focus on quantitative measures which enable us to separate our emotions and focus on identifying the traits of great and weak stocks. At this point, I can get really scientific and granular about our criteria for weeding out the stuff we don’t want; but at this point I’d like to focus on major sectors, stocks within the sectors, and the overall market.

Wide Sector Swings in the Third Quarter

Real estate was not the place to be this past week as it plummeted 5.26%. Unsurprisingly, Telecom and Utilities were also punished as yield-intensive equities underwent widespread distribution. This continues the significant downtrend for Utilities and Telecom for the last three months. Consumer Staples has also been down over 6% for three months. While these sectors have all seen pressure for three months, there are three distinct winners. We highlighted Information Technology as a break-out sector months ago, and that sector index is up 10.3% over the last three months. We have discussed at length why this is a healthy sign for the market – mainly, because tech is synonymous with growth and innovation.

Now for the less promising sectors among the recent three-month leaders: Financials are up north of 5% and Energy is up more than 2%. Financials are clearly facing some headwinds and pressures, while Energy was sparked by short covering. The energy sector still faces pressures of a glut, and the recent OPEC discussions are still just that – discussions. Looking back over three months, that’s it! Those are the only three sectors showing strength, and from our point of view, only one of them is really exciting.

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

How does this relate to our mining for great stocks? Well, if we were to look at each stock like it was a long (100-question) quiz, we would begin with questions like these:

  • How healthy are your sales?
  • Are sales growing?
  • How healthy are your earnings?
  • Are earnings growing?
  • How has your stock been trading?
  • Who has been buying?
  • Who has been selling?
  • What does the chart look like?

More importantly, we would then move on to ask:

What sector are you in?
How is your sector doing?
How are you doing in relation to your sector?

This is very important to know, because while mining for the best stocks, some may just get points for being in a good sector! Praise by association. An investor can place some odds in his or her favor simply by identifying which sector has the best prospects for continued strength and focusing there, while avoiding sectors that have a less-rosy outlook. Naturally, only getting 25 questions right on a hundred-question quiz won’t do much for us, so we have to get as many questions right trying to find our gem stocks.

Teacher Grade of Quiz Image

Finding a diamond is like finding that one unique baseball in a pile of a billion. Sometimes finding great stocks feels that time-consuming, but a quantitative process of sifting and mining through data can definitely be of big benefit when trying to make sense of more than 100,000 stocks out there. Even Plato knew that everything involves sifting. He said, “A hero is born among a hundred, a wise man is found among a thousand, but an accomplished one might not be found even among a hundred thousand men.”

A Look Ahead:

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

Hurricane Matthew Favors Construction Stocks

by Louis Navellier

Last Tuesday was an especially busy day in my Florida home, since I had to prepare for Hurricane Matthew by removing everything and anything in the back yard.  Alas, my generator, which has worked flawlessly for 10 years, would not fire up after the frame supporting the engine collapsed from corrosion … so Murphy’s Law struck again.  Fortunately, my house and boat, “Alpha One,” survived the storm and we were pleasantly surprised that our home had electricity immediately after Hurricane Matthew passed through.

I certainly hope that our clients and readers up and down the Eastern Seaboard survived Hurricane Matthew with minimal property damage, since this was a big storm that caused flooding and other damage.

For the rest of October, I expect that home improvement stores will benefit from all the reconstruction and landscaping that will be done in the wake of Hurricane Matthew; so ironically, the damage from Hurricane Matthew could bolster construction spending in the upcoming months.  This would be especially welcome after the Commerce Department reported last week that construction spending declined 0.7% in August.

This is not the kind of retail spending I had in mind when I predicted a rise in consumer spending in the fourth quarter.  As you well know, destructive hurricanes don’t boost GDP, since the increased spending in making repairs takes money away from what would have been spent elsewhere.  French economist Frederic Bastiat (1801-1850) called this, “The Fallacy of the Broken Window.  As Investopedia defines it: “the broken window might help the glazier, but at the same time, it robs other industries and reduces the amount being spent on other goods. Moreover, replacing something that has already been purchased is a maintenance cost, rather than a purchase of new goods, and maintenance doesn't stimulate production.”

In addition to construction and home improvement stocks, we also favor tech, including medical stocks, but it’s still an open question on whether the overall economy and GDP will pick up in the fourth quarter.

Is the Economic Outlook Suddenly Rosy?

One week of fairly positive economic statistics does not mean that this slow-growth economy is now pumping on all cylinders.  Traders can be manic-depressive about these numbers, but I stopped writing my “stat of the week” column here, since I did not want to imply that any single statistic is all that important!

Here’s a rundown on what we saw last week.  This is encouraging, but this is only one week’s results:

Manufactured Goods Image

The Institute of Supply Management (ISM) reported Tuesday that its manufacturing index rebounded to 51.5 in September, up from 49.4 in August.  The ISM new orders component surged to 55.1 in September from 49.1 in August, and the production component reached 52.8, up from 49.6.  Overall, many manufacturers surveyed were optimistic, which signals that business spending may finally be picking up.

The next day, ISM said its service sector index soared to 57.1 in September (vs. an expected rise to 53.1), up from 51.4 in August.  Especially encouraging was the fact that the business activity component surged to 60.3 in September (up from 51.8 in August) and the ISM new orders component soared to 60 (up from 51.4).  The ISM employment component also surged to 57.2 in September (up from 50.7 in August).  Overall, this is about as perfect as the ISM services sector index could be.  It is truly a stunning report.

On the downside, ADP’s report on Wednesday that 154,000 private sector jobs were created in September, down from a revised 175,000 in August.  This was the smallest private sector job report since April.  On Friday, the Labor Department reported a similar 156,000 payroll jobs created in September, well below economists’ consensus estimate of 170,000.  The unemployment rate rose to 5% in September, up from 4.9% in August due to the fact that 444,000 people entered the labor force.  Average hourly wages rose 0.2% by 6 cents in September to $25.79 per hour.  In the past year, average hourly wages have risen by 2.6%, so if this trend continues, the Fed may be more likely to raise key interest rates in December.  Overall, the September payroll report was not too hot or too cold, so the Fed will remain “on the fence.”

Last week’s positive economic news caused Treasury bond yields to rise, which in turn hurt some dividend stocks.  Dividend stocks have been nervous since August on fears of higher interest rates and a possible Fed interest rate hike that has yet to materialize.  This is a good time to remind investors that I only own dividend growth stocks that I expect to continue to steadily raise their respective dividends due to their positive sales and earnings growth.  So despite rising volatility associated with dividend growth stocks, I sincerely think that we should be patient and let wave after wave of positive third-quarter earnings announcements bolster our respective stocks, including our dividend growth stocks.


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.

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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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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.

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