Launches the Best Quarter

This Week Launches the Best Quarter of the Market Year

by Louis Navellier

October 2, 2018

Australian Autumn Image

According to research by Bespoke Investment Group, October has been the #1 stock market month in the past 20 years, and this year will likely get an added boost from strong quarterly earnings announcements.  November is also a strong month (#3 of 12) and I expect the market to surge this year after the uncertainty of the mid-term election is resolved. Thanksgiving is also a seasonally strong time of year, when an early “January effect” typically begins, and finally, due to the highest consumer confidence in 18 years, I am expecting a record holiday shopping season, so it appears that we should have an excellent fourth quarter.

This is what I like to call “lock and load” time, when all investors should be fully invested.

I should add that, according to TrimTabs, $827 billion in stock buybacks have been announced so far this year.  Furthermore, if stock buyback activity continues to rise in the fourth quarter, it is likely that we will reach $1 trillion in stock buybacks in 2018. The fact that the S&P 500 has not risen as much as its record earnings has caused P/E ratios to plummet, which encourages even more corporate stock buybacks. 

By reducing share totals, this aggressive stock buyback activity is significantly boosting earnings per share.  The attached chart illustrates that the record stock buyback pace has picked up in second quarter.

Dividends and Buy-Backs Trending Higher Chart

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

To learn more about how the stock market is physically shrinking via stock buybacks and fewer listings, I recommend that you read our latest white paper, Honey, I Shrunk the Stock Market … click this link.

In This Issue

In Income Mail, Bryan Perry opens with a warning about a serious European Sovereign debt meltdown threat coming from Italy this time. Next, Gary Alexander charts the history of stock market surges before and after mid-term elections, along with a tutorial on the media’s past job-market misinterpretations. Ivan Martchev turns his attention to the ongoing (and third in a series of) Argentine currency crises, and how locals and outsiders can play this crisis. Jason Bodner examines the new shuffling of the 11 S&P sectors, involving Telecoms, Infotech and Consumer Discretionary, while I cover the latest moves in crude oil.

Income Mail:
The Bond Vigilantes and Short Sellers Take Aim at Italy’s Debt
by Bryan Perry
A Tale of Two 10 Year Yields (Italy and the U.S.)

Growth Mail:
Mid-Term Election Euphoria Could Lift This Market Dramatically
by Gary Alexander
The “Tragedy” of Americans Working Second Jobs…Demythologized

Global Mail:
Significant Emerging Markets Contagion is Very Much Possible
by Ivan Martchev
What to Do in a Currency Crisis

Sector Spotlight:
Is the New “Hot” Trend Real, or Fake?
by Jason Bodner
Introducing a “New” (Supercharged Old) S&P Sector: Communications Services

A Look Ahead:
Crude Oil Reaches a Four-Year High – What’s Next?
by Louis Navellier
The Fed Raises Rates – and Signals (Maybe) One More

Income Mail:

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

The Bond Vigilantes and Short Sellers Take Aim at Italy’s Debt

by Bryan Perry

As the bull market for U.S. stocks continues to grind higher, there is much being made of the trade war with China, the tug-o-war with Canada over NAFTA, the threat of U.S. defection from the WTO and sanctions against Russia and Iran. Individually, they are each important, but not big enough to be rally killers. What might be a game changer in the months ahead is the fate of deteriorating creditworthiness of public debt and the souring of emerging market debt held by developed banks, such as Italy.

Call it the return of the “bond vigilantes,” a term for investors who sell the bonds of governments when they run big deficits and appear to have unsustainable debt burdens. Short sellers of Italian bank stocks are starting to reap the profits of placing big bets earlier this year. Bridgewater, one of the world’s largest hedge fund, has a number of short positions in Italian financial institutions, including UniCredit, Italy’s biggest bank, according to data from Consob, Italy’s financial regulator. Other funds betting against Italian companies include Steven Cohen’s Point72 Asset Management, Marshall Wace in London and the quantitative specialist, AQR Capital Management.

Adverse headlines and fears of downgrades are likely to be factors ahead of the European Commission’s review of Italy’s budget plans. Also, the credit rating firm Moody’s Investors Service is set to complete a review by the end of October, according Giovanni Montatti, analyst at UBS. Italy is currently rated Baa2 by Moody’s, two notches above junk.

European markets are starting to take into account how short Italy's public debt maturity is and how exposed the country is to the whims of the global bond market. Italy's public debt is officially estimated to be about 133% of GDP, making Italy the second most indebted country (after Greece) in the eurozone. However, the official Italian debt numbers do not include the Bank of Italy's debt position of more than EUR400 billion in the European Central Bank's “TARGET2” accounts.

TARGET2 is the name for the real time gross settlement system owned and operated by the Eurosystem. TARGET stands for Trans-European Automated Real time Gross  settlement Express Transfer system. The “2” in TARGET2 means that this is the second generation of TARGET. It is a Single Shared Platform (SSP) operated by three central banks: France (Banque de France), Germany (the Bundesbank) and Italy (Banca d'Italia). In short, TARGET2 is a massive clearing system which balances out cross border financial movements within the euro zone. If one adds the Bank of Italy's TARGET2 liabilities to its debt totals, Italy’s public debt-to-GDP ratio rises to 160%, its highest level in over 100 years.

Italian bank shares came under intense pressure last Friday as a sharp drop in prices for the country’s sovereign debt put the sector in investors’ crosshairs. Shares in the country’s major banks fell, with Italy’s largest bank, UniCredit S.p.A. sliding more than 6.73% in a day of tumult for Italian assets after the country’s populist government agreed to a budget with bigger spending plans than expected. The move puts the stock near its 52 week low with money flows decidedly negative.

UniCredit Share Index Chart

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

The new Italian government’s budget busting proposal is about to make that country’s public debt market even more unsustainable. Those proposals include the introduction of guaranteed basic income and a flat income tax, which, when combined, increase Italy’s budget deficit by 100 billion euros.

Italy's Prime Minister Guiseppe Conte Image

Maybe the new Italian Prime Minister Guiseppe Conte is taking a page out of the Trump playbook  using debt as a weapon for future growth but tying a flat tax to what could be exploding entitlement costs was not what the market wanted to see unfold, hence the Italian markets tanked as a result.

A Tale of Two 10 Year Yields (Italy and the U.S.)

The yield on the 10 year benchmark Italian bond jumped 24 basis points to hit 3.15%. Yields have been volatile since the League and Five Star formed a coalition government in early June, with promises to increase public spending, cut taxes and reverse unpopular pension reforms.

This kind of political agenda is akin to someone being laid off from work, then saying “I’m going to the mall to shop for Christmas presents.” While the U.S. 10 year T-Note yield also trades at around 3.1%, it does so within a strengthening economy. For Italy, however, the spike in the 10 year yield in the past four months is a result of deteriorating economic fundamentals and balance  sheet risk.

Italy Ten Year Government Bond Index

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

Why does this sudden turn of events matters to U.S. investors?  At a time when most other global events have been brushed off by the U.S. stock market, Italy’s economy is significant to the wellbeing of the rest of the world. As the 3rd largest economy in the eurozone and the 8th largest by nominal GDP in the world, Italy’s economy carries a real potential for contagion, since the Italian bond market is 3rd largest ($2.5 trillion) in the world, behind only the U.S. and China. Even though the ECB will likely arrive like the cavalry if the bloodletting starts, there could be negative implications beyond European borders.

If the Italian government does not become fiscally responsible soon, investors should brace for another European sovereign debt crisis. Italian banks’ nonperforming loans amount to as much as 15% of their balance sheets, with an additional 10% of the balance sheets made up of Italian public debt bonds. It’s no wonder hedge funds are holding a double barreled short position in both Italian bonds and bank stocks.

It will be interesting to see how this highly fluid scenario plays out over the next few weeks and months, but it’s safe to say that Italy is not where I would recommend investors seeking yield in global bond markets. By comparison, U.S. investment grade corporate bonds can be found that are currently paying over 4% with an average maturity of 7-10 years. There is no reason in my view to venture out of the U.S. bond market for competing yield. There will be a time, but not yet. Sure, travel to Italy and take full advantage of how far the strong dollar takes you, but leave your fixed income assets at home, in the U.S.

Growth Mail:

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

Mid-Term Election Euphoria Could Lift This Market Dramatically

by Gary Alexander

We’re entering the sweetest spot of the four-year election cycle, historically.  Since 1950, the nine-month span encompassing the fourth-quarter of the mid-term election year (that’s October 1 to December 31 in years like this) and the first half of the following year (January to June, 2019, in this case) have averaged a phenomenal 20.4% gain for the Dow Jones Industrials and +21% for the S&P 500.  For the NASDAQ, which began trading in 1971, the average gain in that nine-month period has been a phenomenal +32%.

October in mid-term election years is the top month of the year for all the major indexes – the Dow, S&P 500, NASDAQ Composite, Russell 1000 and Russell 2000, according to The Stock Trader’s Almanac. Since 1950, the Dow Industrials have averaged 3.1% gains in the October of mid-term election years, and the S&P 500 has averaged 3.3% in mid-term election years, with only four down Octobers in 17 cycles:

October is Just the Start Table

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

This table represents phenomenal consistency. The S&P 500 has risen in each of these nine-month spans (since 1950) from the pre-election October through the following June 30, with 14 of the 17 gains being double-digit, averaging nearly 21%.  The S&P 500 hasn’t declined in the 12 months following a mid-term election since 1946.  I am not saying we will gain 21% this time around. The last time (2014), we only gained 4.6%, partly due to the “law of large numbers,” since the S&P 500 was around 2,000 at that time.

The basic reason for this rise is “hope and change.” A large part of America wants an end to the Trump era, and another large chunk of America wants to “throw the bums out” of Congress – no matter which Party. The election cycle is so potent because the public basically looks forward to political change as a positive, and the market anticipates these positives in advance. Once the mid-term elections are over, the market then looks forward to the Presidential election, just two years away, a tempting “carrot” in front of the lead donkey, always visible but always tantalizingly out of reach in the near but unreachable future.

Mid-term elections are basically a “restraining order” on the current Party in power. Then, we all look toward a new leader helping to erase all past experiences of dashed hopes under all past political saviors.

In the meantime, the next major data point will be Friday’s jobs report. Let me help you understand what you might see next Friday by taking a look at how The New York Times riffed on last month’s jobs report.

The “Tragedy” of Americans Working Second Jobs…Demythologized

When last month’s jobs report came out, reporters had a choice whether to report on the healthy new job totals (+200,000), the unchanged unemployment rate (3.9%) or a statistic open to interpretation, depending on the political bias of the reporter – the rise in the number of people holding multiple jobs.

Naturally, The New York Times chose the latter. Timed to the start of the school year, The New York Times Magazine for September 6 wrote about teachers working two jobs: “The Second Shift: What Teachers are Doing to Pay Their Bills.” It started out with these stark (but selective) examples: “Some teachers devote 60 hours a week to the classroom, then go to work elsewhere. The hours can be long, the labor physical, the pay close to minimum wage. Teachers across the country are now baristas, Amazon warehouse employees, movie-theater managers and fast-food grill cooks.” The article focused on quotes like this from an English teacher (and part-time window washer) from Oklahoma: “There are times when my lower back hurts, my feet hurt, my hands hurt. I have calluses on my hands that I shouldn’t have.”

The Times knows that stories sell better than facts, but the rise in multiple job holders is not as common as the Times might wish to imply. Second jobs aren’t usually taken out of desperation.  Multiple job holders account for just 4.8% of the labor force and that includes the 2.6% who hold a part-time job in addition to a full-time job and another 1.1% who have two or more part-time jobs varying in hours.

As of 2017, according to the Bureau of Labor Statistics, the mean annual wage for a high school teacher in America was $62,860, with the highest average pay being in Alaska ($85,420) and New York (83,360). Some teachers are notoriously underpaid in terms of the affluence of their state (Arizona, Idaho, Kansas and Oklahoma for starters), but presumably they are free to migrate to better-paying neighboring states.

Annual Mean Wage of Secondary School Teachers Pictograph

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

The Bureau of Labor Statistics (BLS) does not report everyone’s reasons for holding multiple jobs every month, but the BLS launches detailed studies at various times. In a 2004 study, 25.6% of those with multiple jobs said that they needed to meet expenses or pay off debt, while 21.3% liked the value added to their life by a second job. Those values included enjoyment, meeting people, gaining skills or building experience to launch a business. The biggest group, 38.1%, just wanted the extra income to save for something special, like a cruise. The other 15% gave no specific reason for working a second job.

USA Today profiled a typical full-timer who also worked part-time for a specific reason for a limited time: A 49-year-old man in Michigan had $37,000 in debt, including credit cards, student and personal loans, so he decided to take a 6-10 pm night shift in addition to his day job until he could pay off his loans. Sure, it was a hardship, but it was the right thing to do after running up large debts. This is not a sign of economic weakness but of moral strength, a man of character honoring his family commitments.

Think of this example when you see the negative media spin on some portion of next Friday’s jobs report.

Global Mail:

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

Significant Emerging Markets Contagion is Very Much Possible

by Ivan Martchev

Another week and another all-time low for the Argentine peso, which registered its first weekly close above 40 per dollar, or 41.28 to be exact. At the end of 2017, the Argentine peso was changing hands at 18.59 against the dollar. Argentina has the weakest G20 currency, down 55% so far this year, followed closely by Turkey and its lira.  The South African rand, the Indonesian rupiah and the Brazilian real also have issues, but not nearly as challenging as what is going on in Turkey and Argentina.

Argentinean Peso Index Graph

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

The sad part is that the Argentines have been there before, and it does not take them long to bastardize a currency. The issue is the tendency of the central bank to run a very lax monetary policy with negative real interest rates. I remember many stories over the years about how most Argentines do not believe their government’s official inflation statistics. This causes them to hoard dollars, and for very good reasons, given the serial currency crises the peso is prone to. In the past 30 years the Argentines have managed to turn the peso into confetti three times, with the caveat that the third such cycle has not been completed.

Argentina Inflation Rate versus Argentina Lebac Rate Graph

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

In a negative real interest rate environment, the economy gets a boost and grows faster than would be possible otherwise, but ultimately the type of economic disaster that comes from the high inflation that typically accompanies a currency crisis ends up not being worth the sugar rush of negative real rates.

What to Do in a Currency Crisis

In a currency crisis, besides the most obvious move  to reach for hard assets like gold and silver bullion, and hard currencies like dollars and euros  the best moves for Argentina-based investors and dollar-based investors are somewhat different. For those outside Argentina looking for bargains in Argentine stocks, we have not come to the end of this crisis, so it is too early to look for values in Argentine stocks.

I know it is possible to pick up companies with staying power at 25 to 50 cents on the dollar, but the volatility in Argentine assets can be so high that it is simply not worth “catching the falling knife” now, so dollar-denominated investors should stay away, as we are still very much in the contagion phase of this emerging markets crisis. It is a different emerging markets currency making negative headlines every week, which is a good indication that this dislocation in the currency markets is not over.

Argentina Stock Market versus Argentinean Peso Graph

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

On the other hand, Argentina-based investors, apart from stockpiling euros and dollars, should very much buy stocks. The Argentine benchmark Merval stock benchmark is up from 5000 to 35000 as the peso has dramatically weakened, simply because Argentine “blue chips” – if there were such a term in a country prone to serial currency crises – can reset their operations at a weaker peso exchange rate and, despite disruptions to their businesses, most will likely still be here after the latest IMF bailout, so a position in a Merval index fund is vastly superior than holding Argentine pesos in an Argentine bank.

Venezuela Stock Market versus Venezuelan Bolivar Graph

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

You can see the same dynamic playing out in a more extreme situation like Venezuela, which has been deteriorating for much longer, even before the present Federal Reserve quantitative tightening cycle started. Since it does not appear that that the Fed is done, or that the Trump administration will stop its aggressive policies to rebalance the U.S. trade imbalance, I am of the opinion that we will make a fresh all-time high in the Broad Trade-Weighted U.S. Dollar Index in this cycle, which means a level above the 130.196 high registered in February of 2002. Aggressive moves both on the monetary policy and fiscal fronts in the U.S. mean that this emerging market crisis has further to go.

Broad Trade-Weighted Dollar Index Chart

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

Would you care to guess where the non-trade-weighted U.S. Dollar Index was in February 2002? It was near 120. Last Friday it closed at 95.13. There are numerous technical factors that make the dollar seem a lot weaker than it actually is, particularly when looking at the old-style US Dollar Index, which is not trade-weighted. Still, the rampant dollar borrowing in the past 10 years is backfiring at the moment and promises much higher values for the U.S. dollar, looking at both the trade-weighted and Dollar indexes.

Borrowing in U.S. dollars is out of control because many emerging markets (EM) borrowers assumed, erroneously, that U.S. interest rates would never rise.  Well, they are rising, and such rampant borrowing is backfiring spectacularly.  Emerging market debt is over $40 trillion, over half of which is China’s:

Non Financial Sector Total Debt Graph

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

As a reminder, let me repeat the point I have often made, that dollar borrowing is equal to dollar shorting. When an EM government or corporate entity borrows dollars, they sell them back for their local currency, to use as they please. Rising U.S. interest rates accelerates these dollar loan repayments and causes the exchange value of the dollar to surge, creating what is in effect a gigantic synthetic short squeeze.

And It’s not done surging.

Sector Spotlight:

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

Is the New “Hot” Trend Real, or Fake?

by Jason Bodner

In 1964, a Swedish art gallery held a show. Amongst many works by many artists, the gallery displayed four new paintings by an unknown artist named Pierre Brassau. All the art critics who viewed the paintings praised his work.  They called it “avant-garde” and got excited about this newcomer: 

“Pierre Brassau paints with powerful strokes, but also with clear determination. His brush strokes twist with furious fastidiousness. Pierre is an artist who performs with the delicacy of a ballet dancer.”

The first person to buy a Brassau proudly stood for a photograph (below, right). He paid $90 (the equivalent of $600 in today’s money) for this new masterpiece.

Brassau Painting Image

Only one critic was not so enthused. He wrote, “only an ape could have done this.” It turns out that he was dead right. The stunt was a clever experiment by a journalist who wanted to put art critics to the test. Pierre Brassau was “Peter,” a 4-year old chimpanzee from the zoo. (Pierre is French for Peter.)

The Painter, Pierre Brassau Image

And then, talk about doubling down. even after Åke “Dacke” Axelsson, the journalist revealed Pierre as a hoax, Rolf Anderberg (one of the critics who had praised the work) insisted that Pierre's work was “still the best painting in the exhibition.” That must not have made the human painters at the show feel great.

We humans can create phenomenal structures and advanced technology. We can do astounding things.  We can also fall into some age-old traps of human frailty. We are impulsive and emotional, but we have also developed the capability to carry great thoughts forward on a huge scale.  Still, one key Achilles heel is assumption. Everyone just assumed Pierre Brassau was a painter.  And to be fair, why wouldn’t they?  That’s what they were told! We tend to take things at face value.  We are a very trusting lot, us humans.

This happens all over the place  in investing, too.  We trust brokers telling us about a “good buy.” We never think to ask if they get more commissions for pushing some products over others. To be fair, there are many quality brokers who put their clients’ needs before their own, but there are also plenty who don’t. We also trust friends at cocktail parties on their hot tips. We don’t question the source of their tips, but seem satisfied with some vague and cursory explanation of why their stock is the next big thing.

I don’t mean to rub salt into some old (or new) wounds, but this is how bubbles inflate. Assumption breeds confidence. Confidence breeds hubris. Bragging and a need to be thought of as a “winner” breeds curiosity in others.  Curiosity often turns into greed. Greed then spreads and goes viral. Then “POP!”

This process was the same for Tulips, the Gold Rush, the 1987 stock market, Internet stocks, and the housing bubble. The most recent example is the Bitcoin craze.  The few who made millions became the inspiration for the many that gave away their savings and in some cases bet the farm to ride into riches.

Bitcoin Bubble Chart

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

I see an unsettling fervor now growing in weed stocks. Cannabis companies are very much at the forefront of a future big industry.  Legalization is pretty much assumed (danger, there’s the “a” word again!). Investors are now clamoring to buy stocks that they think may become the next big thing.

The problem is, a vast majority of the listed stocks in the cannabis space don’t make any money and have no sales.  They trade at nonsensical or even infinite multiples. Even I feel silly sometimes not participating in crazes like these, but I feel less silly when they inevitably come crashing down.

I have found one surefire way to profit from the stock market. That is buying companies with growing sales and earnings, low debt levels and growing market share in leading industries. When looking to find winners, I begin looking for which sectors are exhibiting a long-term trend. Recent weeks of activity show us that we are in a market that’s sloshing around.  Sector leadership has rotated frequently recently.

Introducing a “New” (Supercharged Old) S&P Sector: Communications Services

Instead of going into performances this week, I would like to introduce the new S&P sector, the Communications Services sector.  It includes the stocks formerly in the Telecom sector, like Verizon and ATT, but it also many of the Information Technology and Consumer Discretionary stocks. As a result, Information Technology may become a less attractive sector going forward. This is because Facebook and Alphabet are moving from Infotech to Communications Services, while Netflix, Disney, and Comcast are moving from Consumer Discretionary to Communications. As a result, our “boring” and limited old Telecom sector has been given a supercharge with these new stock holdings.

Regarding the Big 5 FAANG stocks, Facebook, Alphabet and Netflix will compose 49% of the new sector, while Apple remains in Info Tech and Amazon remains in Consumer Discretionary.

In time, we will get comfortable with these changes. This change both is and is not a big deal. The imbalance in the Telecom sector, which I have highlighted for years, has now been at least partially addressed with these new changes. As far as it not being a big deal, individual stock performance is still what we ultimately care about, so it really doesn’t matter in which sector these leaders reside.

We will see some shifting in our sector analysis going forward, but rest assured – all I really care about are which are the best leading stocks in each sector and how they can as a group push the markets higher. 

(Please note: Jason Bodner does not currently hold a position in Verizon, AT&T, FB, Netflix, Disney, Comcast Apple, and Amazon but does own Alphabet. Navellier & Associates does not currently own a position in Verizon, AT&T, FB, Netflix, Disney, Comcast Apple, and Amazon for client portfolios).

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.

When selecting investments, don’t be fooled by a monkey. Take your time and do your homework. If not, you may end up with a Brassau. “To be prepared is half the victory.” - Miguel de Cervantes

Miguel de Cervantes Quote 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.*

Crude Oil Reaches a Four-Year High – What’s Next?

by Louis Navellier

Crude oil prices soared last week over concerns that Russia, Saudi Arabia and other crude oil producers may not be able to make up for the lost production from troubled Iran and Venezuela.  At an OPEC meeting in Algiers, Russia reiterated that they should adhere to current production quotas, which helped to propel Brent crude oil prices over $80 per barrel.  Meanwhile, at the United Nations (UN) on Tuesday, President Trump said that OPEC is “ripping off the rest of the world by pushing crude oil prices higher.”

U.S. sanctions on Iran are scheduled to be imposed on November 4th and are expected to cause a temporary global supply crunch.  During his UN speech, President Trump also said that “everything about Iran is failing right now,” adding that Iran is in the “worst economic trouble of any country in the world.”  President Trump concluded that due to these troubles, Iran would eventually need to negotiate a new deal.

Further adding to the tension in the crude oil market, President Trump said in his UN speech that the chaos in Venezuela is “unacceptable,” which raised concern that the U.S. might aggressively intervene in that troubled nation.  President Trump also meet with Colombia’s President on Tuesday, which was widely viewed as indicating that the U.S. is formulating its policy on Venezuela by coordinating any action with Colombia, which is Venezuela’s closest (and much more affluent) neighbor.

Oil Pipeline and Barrels Image

The probability of military intervention in Venezuela is rising, especially since some Venezuelan military leaders (who were also on the U.S. sanction list) reportedly met a few months ago with the Trump Administration. But before such a move, the U.S. likely wants to coordinate any action with Colombia.

The Fed Raises Rates – and Signals (Maybe) One More

As anticipated, on Wednesday, the Fed removed the word “accommodative” from its Federal Open Market Committee (FOMC) statement.  The Fed signaled that a fourth key interest rate hike in 2018 is likely in December, but that depends on inflation and market interest rates.  In the past several days, Treasury bond yields have meandered higher after the bid-to-cover ratios on Treasury auctions dropped to 2.4 from 2.8 a month ago.  Typically, the smaller the bid-to-cover ratio, the more likely yields will rise.

The FOMC also forecasted that the Personal Consumption Expenditure (PCE) inflation index would remain at 2.1% over the next several months, which is close to their 2% target rate, so the Fed is not forecasting that inflation will accelerate.  I have to add that Fed Chairman Jerome Powell was very calm, transparent and exuded confidence in his Wednesday press conference, which helped to reassure financial markets that the U.S. economy would continue to grow without excessive inflation.

Overall, now that the Fed has painted a picture of steady economic growth in sync with its 2% inflation target, Wall Street can refocus on earnings announcements.  We remain in a Goldilocks environment of stable interest rates and reasonable stock valuations, so the overall stock market is poised to finish 2018 on a strong note, especially since the seasonably strongest time of year is fast approaching.

There was a lot of important economic news released last week, which may color the Fed’s future policy decisions.  On Tuesday, the Conference Board announced that consumer confidence soared to 138.4 in September, up from 134.7 in August.  Since economists were expecting a decline to 132, this came as a massive surprise that may cause some economists to revise their third-quarter GDP estimates higher.

The catalyst behind the highest consumer confidence in 18-years was optimism about short-term business conditions over the next six months, plus improving conditions in the labor markets as jobless claims hit the lowest level in 49 years.  Since consumer spending accounts for about 70% of GDP growth, third-quarter GDP should remain over a 4% annual rate, and the holiday shopping season should be robust.

On Thursday, the Commerce Department reported that orders for durable goods soared 4.5% in August, the biggest monthly increase since February and substantially higher than economists’ consensus estimate of a 2.2% increase.  July’s total was revised to a 1.2% decline, up from a 1.7% drop previously estimated.  Commercial aircraft orders soared 69% in August, causing overall transportation orders to rise 13%.  Naturally, this is good news for Boeing (BA) and aviation suppliers like HEICO Corp. (HEI).


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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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