March and April Provide the Best

March and April Provide the Best “1-2 Punch” in Market History

by Louis Navellier

March 7, 2017

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

Seasonally, February is not a very strong month, but it certainly was this year. The Dow Jones Industrials (DJIA) rose 5.43% in the first two months of 2017. In the 15 other times since 1957 in which the DJIA rose 5% or more in the first two months of the year, it rose by an average 3.74% in March and April, says Bespoke Investment Group (“March Seasonality,” February 27, 2017). Bespoke also reminded us that March and April are seasonally the two strongest consecutive months in the annual market calendar. In the past 20 years, the DJIA posted an average gain of 1.63% in March and 2.64% in April. Part of this surge is due to new pension funding before April 15th, so I look forward to a rising market – at least through mid-April.

Congress Building Image

The morning after Trump’s Tuesday night address to a joint session of Congress, the stock market rallied strongly on his request for bipartisan support for his economic programs. The DJIA rose over 300 points. The S&P 500 topped 2400 on Wednesday – higher than most pundits thought the index would rise all year. Through last Friday, year-to-date, the S&P is up 6.44%, the DJIA is +6.29%, and NASDAQ is up 9.06%.

In This Issue

In Income Mail, Bryan Perry expands on the reasons why the stock market liked Trump’s talk last week, and what income investors should do as the Fed raises rates this year. In Growth Mail, Gary Alexander toasts the birthday of this bull market and why it could keep growing for a few more years. In Global Mail, Ivan Martchev takes a close look at the diverging fates of the Chinese yuan and Mexican peso. Next, Jason Bodner looks to the long-term for greater profits and peace of mind, despite the daily news barrage. Then I will close with a look at Janet Yellen’s long-term plans and the likelihood of a Fed rate increase next week.

Income Mail:
Taking a Page Out of the Reagan Playbook
by Bryan Perry
Raising Rates for the Right Reasons

Growth Mail:
Happy 8th Birthday, Bull Market!
by Gary Alexander
What’s Supporting the Market at These Lofty Levels?

Global Mail:
Key Currencies in the Cross Hairs
by Ivan Martchev
Eerie Calm in the Commodity Markets

Sector Spotlight:
Patience Pays Great Market Dividends
by Jason Bodner
Wednesday Brought a Cascade of Green

A Look Ahead:
Yellen Outlines the Fed’s Long-Range Plan
by Louis Navellier
What on the Fed’s “Data Dashboard” Now?

Income Mail:

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

Taking a Page Out of the Reagan Playbook

by Bryan Perry

Ronald Reagan was known as “The Great Communicator” because of his skill at talking expressively and using folksy anecdotes that ordinary people could understand. He also had the gift of eternal optimism. He always spoke hopefully of the future. He also exuded a love of America.

In writing about another great leader, journalist Walter Lippmann said that “the greatness of Charles de Gaulle was not that he was in France, but that France was in de Gaulle." The same could be said about Reagan: “The greatness of Reagan was not that he was in America, but that America was inside of him.”

In other words, Reagan became the great communicator because he had something great to communicate. In 1980, when Reagan ran for president, he talked more about issues than any presidential candidate had in years. He talked about building up the defense budget, cutting taxes, and balancing the budget. During Reagan’s eight years in office, he accomplished the first two, but not the third. He talked about substance, but he kept his message basic and simple and focused on mainstream American concerns. Sound familiar?

Reagan first became a great communicator toward the end of his Hollywood career, when he was moving away from movies and into television. During that time, he went through the country speaking with workers at plants on behalf of his TV sponsor. That was wonderful and powerful political training.

Sound familiar? If I were a betting man, I would postulate that President Trump’s speechwriters did a quick study of Reagan’s speeches and crafted what was arguably one of the most straightforward, hard-hitting, and substantive speeches to the joint Congress on February 28, 2017 that any of us can remember.

Ronald Reagan Image

Mr. Trump’s speech wasn’t just a home run for making him look presidential – not a White House apprentice – but it also provided a huge boost of confidence to global markets. He communicated that he and his cabinet are quite possibly up to the job of delivering tax reform, healthcare reform, comprehensive infrastructure programs, strengthening the military, overhauling the education system, addressing the federal deficit, reshaping global trade, and minimizing illegal immigration. It was a speech full of nuts and bolts that was delivered with conviction, despite a frosty reception on the Democratic side of the aisle.

To put it simply, he “nailed it.” The next morning, the stock market and all its participants thought so too as the DJIA soared 300 points the following day. The major averages and the U.S. dollar index ripped higher while the safe haven trades (bonds and gold) sold off aggressively. Because the market was already technically overbought going into the speech, I don’t expect much of a follow-through without first seeing some consolidation to relieve some of the overbought condition. But have no doubt, the market likes what it heard and I think any bouts of profit taking will likely be met with renewed orders from eager buyers.

In another important talk last week, Fed Chair Janet Yellen gave a closely-watched speech last Friday to the Executives Club of Chicago. She laid out a platform to explain her economic outlook prior to the central bank’s March 14-15 FOMC meeting. In the core of her message, she said:

“We currently judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect. Looking ahead, we continue to expect the evolution of the economy to warrant further gradual increases in the target range…”

“Because my colleagues and I expected that labor market conditions would continue to improve and that inflation would move back to two percent over the medium term, we anticipated that the time was approaching when the economy would be strong enough that we should start to scale back our support. The U.S. economy has exhibited remarkable resilience in the face of adverse shocks in recent years, and economic developments since mid-2016 have reinforced the Committee's confidence that the economy is on track to achieve our statutory goals.”

“However, partly because my colleagues and I expect the neutral real federal funds rate to rise somewhat over the longer run, we projected additional gradual rate hikes in 2018 and 2019. To that end, we realize that waiting too long to scale back some of our support could potentially require us to raise rates rapidly sometime down the road, which in turn could risk disrupting financial markets and pushing the economy into recession. Having said that, I currently see no evidence that the Federal Reserve has fallen behind the curve, and I therefore continue to have confidence in our judgment that a gradual removal of accommodation is likely to be appropriate.”

Her remarks further primed the bond market for a probable quarter-point hike, which bond futures traders have now pegged as a strong chance of happening. This puts the Fed on course to raise rates at their stated goal of three times this year while opening the door to further hikes over the next two years, per her text.  One key statistic they will watch is wage inflation, which carries the most weight among all inflation data.

Raising Rates for the Right Reasons

With the groundwork getting more clearly laid out for a tighter monetary policy, it should come as no surprise that income-bearing assets, namely exchange traded funds (ETFs) that are tied to short-term interest rates, will come under strong and consistent accumulation in the months ahead. Investors willing to go outside of money market funds to seek higher current yields and capital appreciation should consider owning assets that are tied to the MVIS US Investment Grade Floating Rate Index.

The tables below show the fundamental data for the MVIS Bond Index. (Descriptive values are updated on a daily basis, while this table shows historical values on a monthly basis.)

MVIS United States Investment Grade Floating Rate Index Table

This index provides exposure to the floating-rate segment of the U.S. investment grade bond market. Floating rate notes are bonds that have coupon payments that change based on various market characteristics, including rising and falling interest rates. Holdings are chosen based on amount of debt issued. Actively managed short-maturity funds leave their trading decisions in the hands of the fund administrator. Their main premise is to beat money market funds (MMFs) on a total return basis. They hold securities such as investment-grade bonds, commercial paper, bank notes, repurchase agreements, and, in some cases, foreign-denominated bonds.

MVIS United States Investment Grade Floating Rate Index Chart

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

The chart above shows the sharp upward move in the MVIS US Investment Grade Floating Rate Index – and we may be just in the early innings of what could be a multi-year tightening cycle in the making.

Ideally, the quintessential income investment for high net-worth income investors would be an investment grade floating-rate tax-free municipal bond fund or ETF benchmarked off the 10-year Treasury. Don’t hold your breath for such an opportunity. I’ve scoured the universe seeking such an asset and it does not exist. Maybe one of the many issuers of such products will roll out something that fits the profile after reading this column. We can only hope. There are a handful of ultra-short-term floating rate muni funds, but they yield less than 1.0% because their durations are less than a year. So, without a magic carpet ride available for bond investors when interest rates rise, finding safe and real yield with tailwinds when the Fed starts to tighten is a daunting undertaking, but one that is well worth the time and effort.

Growth Mail:

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

Happy 8th Birthday, Bull Market!

by Gary Alexander

“What you’re now seeing is profit-and-earning ratios starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.”

– Barack Obama, March 3, 2009

The most unlikely, unloved, and unlauded major bull market of modern times has to be the current one. This eight-year-old bull was born on Friday, March 6, 2009, when the S&P 500 touched a low of 666.79.  In history, 666 has a mystical air about it, being the “Number of the Beast” from the Book of Revelations.  Like the 777 low in the DJIA back in 1982, this triple-digit convergence became a jackpot for investors.

The stock market was not supposed to rise when President Obama and a Democratic Congress swept the election of 2008.  All of Obama’s 2009 spending programs were supposed to spiral us into uncontrolled deficits – it indeed seemed that way for a while – but the S&P gained 68% in one year, by March 9, 2010.

This market was also not supposed to rise during the dismal 2016 election year.  Last year was viewed as a no-win contest between two obviously flawed candidates, but the S&P ignored that risk, gaining 32.7% from its February 2016 lows to its March 1, 2017 peak.  As of last Wednesday, in fact, this eight-year-old bull market has delivered 260% gains (on an intra-day basis) and 254% on a closing basis.  According to Ed Yardeni (“Happy Anniversary” March 2, 2017), over this same nearly 8-year period, the S&P 400 MidCap and S&P 600 SmallCap indexes are up 335% and 374%.

Last Wednesday morning, March 1st, after President Trump’s widely-praised address to a joint session of Congress, the S&P 500 touched 2400 for the first time – of probably many more to come.  Yet at the start of 2017, top professional market analysts were calling for a year-end peak of 2356. According to the Wall Street Journal (“Skeptical Wall Street Strategists Undone by Market Rally: The S&P 500 has already surged above Wall Street strategists’ original year-end target,” by Steven Russolillo, March 2, 2017):

“Wall Street strategists rarely get their annual stock market predictions right. For the second year in a row, it only took two months for the market to prove them wrong. The collective brain trust that predicts where the market is headed entered the year with more skepticism than usual. Hefty valuations, slow growth and the uncertainty of Donald Trump as president justified the caution. At the time, they anticipated the S&P 500 would rise 5% and finish the year at 2356, the lowest expected gain since 2005.”

Some analysts keep telling us this market has to go down sometime – and it certainly will – but many of these analysts have convinced investors to stay on the sidelines watching an ever-rising market while not participating in those gains.  What good does it do to avoid the inevitable correction if you also miss the gains that led up to that unknown and unknowable inflection point at the end of a long bull market?

As Louis Navellier described in his opening this week, the March-April period is the best “1-2 punch” among the months of the calendar year over the last 20 years and 50 years, according to data from Bespoke Investment Group.  The same report (“March Seasonality,” February 27, 2017) added this supporting data:

“Over the last 50 years, the Dow has gained 1.28% in March on average with gains 70% of the time. That 70% reading is the highest of any month over the 50-year time frame. Over the last 20 years, the Dow has averaged +1.63% in March with positive returns 70% of the time.

“While March is typically a strong month, April has historically been the very best month of the year for stocks. And when you combine March and April, it’s been the best two-month calendar period for the Dow over both the last 50 and 20 years.”

In boxing terms, that makes March a “left jab,” which serves to set up April as a strong “right hook.”

What’s Supporting the Market at These Lofty Levels?

This bull market has been spectacular, but we shouldn’t forget that the previous nine years (March 2000 to March 2009) were historically catastrophic.  Put the two together and we’re up modestly since 2000.

Stocks for the Long Term Charts

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

The bottom chart shows that we’re right in the middle (5%) of historical 10-year rolling real returns.  The market was indeed overvalued in 1929, 1959, and 1999, but not now.  We hear that this bull market is too old, but markets never die of old age.  They die from declining economic and market fundamentals.  We also keep hearing that this market is “overbought,” but a great amount of cash still sits on the sidelines.  Last fall, Bloomberg reported (in “Cash Cushion: A $50T Safety Net Awaits Buying Opportunity,” October 21, 2016) that investors worldwide were holding $50 trillion in cash on the sidelines.  To me, that means that this market could stay “overbought” as long it can lure new investment capital into the fold.

Here’s an example of the super-cautious mentality on Wall Street these days.  In a note on February 21st, David Kostin, chief U.S. equity strategist at Goldman Sachs Group, predicted that “the S&P 500 Index will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tailwind to corporate earnings than originally expected.”  In ominous tones, he added, “Financial market reconciliation lies ahead.”  Kostin is also skeptical of soaring confidence levels after Trump’s win. (Source: Bloomberg.com “Goldman Sachs Warns U.S. Stocks Are Now Reaching Peak Optimism.” February 21, 2017)

Earnings aren’t yet soaring, but it’s encouraging to see fourth-quarter 2016 earnings coming in at their best rate in two years.  According to Ed Yardeni (“Timing Isn’t Everything,” February 27, 2017), “S&P earnings are up 16.3% over the past three quarters to a new high.”  Most of the earnings recession of 2015 was due to lower oil prices, but now oil prices are in a Goldilocks range – not too low to wipe out profits, nor too high to depress consumer demand.  As earnings from the energy patch start to erase some of their massive earlier losses, they could have a multiplier effect on earnings in some of the other sectors.  If we see the proposed corporate tax cuts take effect this year, Yardeni predicts S&P earnings could rise 20% in 2017.

No less an authority than Warren Buffett told CNBC last Monday that stocks are “on the cheap side.”  He probably didn’t vote for Trump (he is a longtime Democrat who supported Hillary Clinton), but he was smart and non-political enough to put $20 billion into the stock market since Election Day.  In fact, he told CNBC that mixing politics and investing strategies is a “big mistake.”  He added, “Probably half [of] my adult life, I’ve had a president other than the one I voted for, but that’s never taken me out of stocks.”

Owning well-selected stocks is always risky, but avoiding the stock market entirely is even riskier.

Global Mail:

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

Key Currencies in the Cross Hairs

by Ivan Martchev

In the past couple of weeks, the two currencies that are in the cross hairs of President Trump’s trade agenda – the Mexican peso and the Chinese yuan – have had rather divergent reactions. The Mexican peso strengthened, while the Chinese yuan weakened. Why the divergence?

Chinese Yuan versus Mexican Peso Chart

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

This chart reflects an inverted exchange rate quote, so that more pesos or yuans per U.S. dollar mean weaker currencies and vice versa, so when the chart line is going up, the currency is weakening (and vice versa).

From a long-term view, I expect the Chinese yuan to weaken significantly while the Mexican peso can strengthen quite a bit if a pragmatic new NAFTA deal is negotiated. U.S. Commerce secretary Wilbur Ross directly referred to the peso last week along those very lines on live TV: “I believe that if we and the Mexicans make a very sensible trade agreement, the Mexican peso will recover quite a lot.”

Voila, the peso immediately spiked higher. Was this the necessary clue that the U.S. realizes that the Chinese and Mexican situations are fundamentally different? That could very well be the case.

United States Imports from and Exports to Mexico Chart

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

In 2016, Mexico bought $230.96 billion of U.S. exports and the U.S. bought $294.15 billion of Mexican goods and services. While that makes for a $63.19 billion trade deficit, the situation is fairly stable, since bilateral trade keeps surging in both directions, primarily due to NAFTA. Furthermore, 40 cents of every dollar of the U.S.-Mexican trade deficit comes back to the U.S. in the form of manufactured goods, the majority of whose components were imported from the U.S. (Source: www.trade.gov: U.S. Department of Commerce, Census Bureau. “Top U.S. Trade Partners” ranked by total 2016 export values. For more information, see my MarketWatch January 31, 2017 article, “Donald Trump picks the wrong target with his Mexican standoff.”)

On the other hand, the trade deficit with China is grossly unbalanced. There is no reciprocal rise in Chinese imports from the U.S. (blue line, below), as there is with Mexico (above).

United States Imports from and Exports to China Chart

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

In 2016, the Chinese bought only $115.78 billion of U.S. goods and services while the U.S. bought $462.82 billion worth of Chinese goods and services. That’s a whopping $347.04 billion trade deficit. (Source: www.trade.gov: U.S. Department of Commerce, Census Bureau. “Top U.S. Trade Partners” ranked by total 2016 export values.)

I believe that the Chinese could be buying a lot more U.S. goods and services, but instead they are sending their money to trading partners in Asia so that they can increase their political influence in the region. While this longstanding trade strategy would be something that the legendary Chinese general Sun Tzu would be proud of, it is not something that will be tolerated by the new Trump administration.

The Chinese yuan came under pressure way before President Trump came into office, for various reasons. I believe the Chinese have a busted credit bubble that will force the Chinese central bank to engineer an overnight devaluation similar to what they did in December 1993, when they devalued by 34%. The timing of such a devaluation is unknowable, but I believe it is a high probability event. (For more, see my February 20, 2017 MarketWatch article, “China’s economy is dangerously close to unraveling.”)

The election of Donald Trump couldn’t have come at a worse time for the Chinese as their domestic economic situation was already having serious issues. Even though the Trump election and the situation in the Chinese financial system are unrelated events, they can feed on each other rather dramatically.

Chinese Yuan versus China Foreign Exchange Reserves Chart

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

The Chinese foreign exchange reserves have now dropped by $1 trillion since their peak in mid-2014. Before they drop another trillion, we are likely to have some sort of People’s Bank of China (PBOC) action on the exchange-rate front as an overnight devaluation bypasses the improperly functioning Chinese financial system. I think such a devaluation is coming and the best way to estimate when it might come is by monitoring their accelerating forex outflows, which are reported monthly by the PBOC.

Data compiled by Kynikos Associates shows that if you net foreign borrowings by mainland entities, the actual forex reserve is much closer to $1.7 trillion than the officially reported number, close to $3 trillion. This much lower net reserve calculation also suggests that a more dramatic hard overnight devaluation is likely to happen before Chinese official forex reserves drop by another trillion.

One has to wonder if going long the Mexican peso against the U.S. dollar and going short the Chinese yuan is not a trade to be made in 2017. I know the Chinese yuan is not easy to trade and a lot of trading is done through non-deliverable forwards in Hong Kong, available only to institutional investors. Further complicating matters are PBOC bear raids in the HIBOR market, where they try to push overnight lending rates in order to squeeze Chinese yuan shorts. There was such a spike to 110% in early 2017 and another one that was 66% in early 2016 with a few smaller spikes in between.

Shorting the Chinese yuan is deliberately made more complicated to discourage speculation, but I don't believe that speculators are driving the forex outflows. Instead, it’s the busted Chinese credit bubble. It is only a matter of time before the situation in the Chinese financial system is again front-page news.

Eerie Calm in the Commodity Markets

Things have not been calm in major commodity markets since the big decline began in 2014, but prices have been basically moving sideways for months. If one looks at a popular gauge like the Goldman Sachs Commodity index, one can see what in trading terminology can be referred to as a “volatility squeeze.”

Goldman Sachs Commodity Index Chart

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

One rule of thumb that traders use is that volatility squeezes tend to break in the direction of the major trend, which is down, in my opinion. There is always the issue of whether a trader is speaking from a short- or long-term perspective, but since focusing on too short-term a move feels to me like a dog chasing one’s tail, I prefer to look at trends with an intermediate- to long-term perspective.

Gold Price Chart

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

This volatility squeeze in major commodity indexes brings me to gold, which had a significant rebound since reaching an intermediate-term low in December 2016. I am on record as thinking that we may see the gold price decline below $1,000 in 2017 and the latest intermediate-term rebound has not changed that view. (See my December 29, 2016 MarketWatch article, “2017 is the year gold drops below $1,000.”) It would have been a perfect dead-cat bounce if the gold price rebound had fizzled near $1,200/oz., but the fact that it overshot does not really mean that the Midas metal is out of the woods.

Market Vectors Gold Miners Exchange Traded Fund (GDX) Chart

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

I am mentioning this as we had a rather significant sell-off last week in gold mining stocks as measured by the Market Vectors Gold Miners ETF (GDX), shown here, as well the Market Vectors Junior Gold Miners ETF (GDXJ, not shown).  Moves in gold mining stocks have been known to lead the gold price both to the upside and to the downside. This is because of the operational leverage of unhedged gold mining companies where smaller moves in the gold price get magnified in their profit and loss statements. (Please note: Ivan Martchev does not currently hold positions in GDX or GDXJ. Navellier & Associates, Inc. does not currently hold positions in GDX or GDXJ for any client portfolios. Please see important disclosures at the end of this letter.)

This makes the December 2016 lows in both gold ETFs and the gold price for that matter, important milestones. If breached soon, let's say before mid-year, that would be a strong indication that the gold price is on its way to meet its destiny at $1,000 or below.

Sector Spotlight:

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

Patience Pays Great Market Dividends

by Jason Bodner

What are you doing for the next 25 or 50 years? Seriously!? Modern society is obsessed with speed, immediacy, and instant gratification, so thinking in terms of 25 or 50 years feels like centuries from now. We humans are wired to be reactive and focused on the moment. We dream and wonder and some of us even plan, but genetics makes us focus on immediacy. Think back to when our ancestors had to outrun a potential predator, “to kill or be killed.” We lived that way for hundreds of thousands of years. Genetic programming like that does not wash away in a few hundred years. It is innate and hard to resist.

Despite the animal within us all, there are plenty of visionaries who are able to look beyond today, next week, next month, next year, next decade, or even a century. It may surprise you to learn that there are literally hundreds of businesses older than 200 years. In fact, there are well over 50 businesses which predate the year 1300! The honor of being the oldest company in continual existence for over a millennium goes to Kongō Gumi, a Japanese construction company which ran continuously for more than 1,400 years. It was absorbed and ultimately liquidated as a subsidiary of Takamatsu in 2006, but it still holds the title of longest-running business. There are still several other businesses over 1,000 years old.

Kongo Gumi Workers Image

As we reflect on last week’s much-hyped Snap IPO (of which I have no position), the media love to tell a story about a stock going up double-digits after its opening. The anchors can dangle the wealth carrot and say things like “so-and-so just made a billion dollars in an hour!” It makes for a great story. The fact that the company itself makes no money is a minor detail, that is, if we only think a few weeks or quarters out. (Please note: Navellier & Associates, Inc. does not participate in IPOs for any client portfolios.)

In the current landscape of money management, we face a never-ending barrage of financial stories which we feel forced to adapt to on a daily basis. Investors face all sorts of challenges and “new-fangled” aspects of investing that make days of yore seem so simple. There are new sectors, vehicles, illiquid products, style risks, correlations, decorrelations, and of course algorithms, to name just a few. It’s enough to further obscure an already puzzling subject. But must the subject of investing be so confusing? What if we think in terms of “the next 25 or 50 years” and follow up with some frame of reference?

Let me tell you why this picture is one of the most beautiful things an investor will ever see:

McDonald's Double Cheeseburger Image

This photo represents a major product of a company that everyone knows about. I do not currently hold a position in it, but McDonald’s (MCD) started in 1940 as a BBQ. Ray Kroc joined the firm in 1954. The stock IPO date was April 21, 1965 at $22.50 (100 shares would have cost $2,250). The company didn’t announce a dividend until 1967, but it had its first stock split before that, in 1966. Now, let’s fast forward 52 years. That hypothetical initial $2,250 investment would be worth well over $9 million today! Let’s assume you reinvested dividends by purchasing additional shares. After all splits and dividend reinvestments, you would have close to 75,000 shares now. With a forward annual dividend rate of nearly 3%, those shares would net estimated annual dividend payments of almost $300,000. What that means, is that you would earn back your original investment in the form of the daily value of the dividend – every three days! (Please note: Navellier & Associates, Inc. does currently own a position in MCD for some client portfolios. The situation explained above is purely hypothetical. Please see important disclosures at the end of this letter.)

McDonald's Price Chart

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

Growth in the first 25 years seemed slow, and there was a big correction in 2000-03, but with patience and vision – by foregoing immediate dividend rewards – your income and wealth soared over 50 years!

Keep in mind that there are many success stories like MCD. Many household names today were once massive growth stories which caught their stride and grew sales and earnings. Therein lays the key. If you can identify great growth stories today, and have patience and discipline, then there are no better ways to build phenomenal wealth over time. Now, let’s see what happened in the span of the last few days…

Wednesday Brought a Cascade of Green

Wednesday’s rally was big and frothy in response to inspiring words coming from the Commander-in-Chief. His seeming willingness to abandon “trivial fights” and implement real change motivated markets to elevate on Wednesday. Nine sectors (save Real Estate and Utilities) saw a positive surge following Trump’s address, but the market hit a snag on Thursday as traders refused to stage a rally into the close.

Standard and Poor's 500 Daily Sector Indices Changes Table

Despite that, the week still posted a respectable performance, led by Financials, Energy, and Health Care, while rate-sensitive stocks like Utilities, Real Estate, and Telecom posted a negative weekly performance.

Standard and Poor's 500 Weekly, Monthly, and Semi-Annual Sector Indices Changes Tables

The market continues to be overbought, and the media’s time horizon continues to be moment-to-moment. After all, “breaking news” is what keeps eyeballs glued to the screen – and watching commercials. But for those with patience and poise, the long term can reap unmatched rewards if you can find the companies that can grow into the titans of tomorrow.

Have you noticed that some of the wealthiest people love talk about their dividends? John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It's to see my dividends coming in.”

John D. Rockefeller 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.*

Yellen Outlines the Fed’s Long-Range Plan

by Louis Navellier

Last Friday, Fed Chair Janet Yellen spoke at the Executives’ Club of Chicago, where she said that “Indeed, at our meeting later this month, the (Federal Open Market) Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”  Furthermore, Yellen said, “The economy has essentially met the employment portion of our mandate and inflation is moving closer to our 2% objective.”

As a result of her talk, odds of a March key interest rate hike are rising fast.  Due to this uncertainty, the stock market may just “tread water” this week until the February payroll is announced on Friday, and then the Consumer Price Index and Retail Sales reports are to be announced March 15th, while the FOMC meets.

Last Wednesday, the Fed released its latest Beige Book survey, which reflects a more downbeat economic outlook than Yellen’s rosy speech seemed to indicate.  The Beige Book reports on the economy in the 12 Fed districts.  Specifically, the current Beige Book survey said that the U.S. economy was meandering along at a “modest-to-moderate” pace, while citing some slowdowns in the healthcare sector.  The Beige Book survey also cited uncertainty from multiple industries due to the possibility of a border tax.  Overall, the Beige Book seems to signal that the Fed remains in a “wait-and-see” mode.  An interest rate hike at the mid-March FOMC meeting is still a possibility, but a June rate hike seems more certain to most observers.

What on the Fed’s “Data Dashboard” Now?

The economic news last week was mostly positive.  On Tuesday, the Conference Board announced that consumer confidence rose to 114.8 in February, up from 111.6 in January, reaching the highest level in over 15 years (since July 2001).  Especially encouraging was the employment component, since the folks who said that jobs are “hard to get” fell to an 8-year low of 20.3%.  Also encouraging is the present situation component rising to 133.4 in February, up from 130 in January.  The expectations component rose to 102.4 in February, up from 99.3.  Overall, this was a stunning consumer confidence report!

House for Sale Sign Image

Also on Tuesday, the S&P/Case-Shiller 20-city index reported that median home prices rose at a 5.6% annual pace in the fourth quarter and its broader national index rose at a 5.8% annual pace.  The National Association of Realtors reported that January home prices rose at a 7.1% annual pace, but sales declined in the Midwest and West due largely to ultra-tight home inventories.  Pending home sales declined 2.8% in January due to a lack of existing homes for sale.  If the Fed raises rates, they run the risk of curtailing home sales and potentially hurting home prices, so that is another reason that the Fed may wait until June.

On the negative side, the Commerce Department reported last Monday that durable goods orders rose 1.8% in January, but almost all this increase was due to a 70% surge in commercial aircraft orders and a 60% jump in orders for fighter jets and other military goods.  Excluding the surge in commercial aircraft and military orders, durable goods fell 0.2% in January.  Orders declined for computers, networking gear, electrical equipment, and metals used to make goods, which caused business investment to decline 0.4% in January, which was the first decline in the past four months.  Core business investment has risen 2.4% in the past three months and is expected to surge if the Trump Administration passes corporate tax reform.

Turning to GDP growth, the Commerce Department reported on Tuesday that fourth-quarter GDP growth remained at an anemic 1.9% annual pace.  Consumer spending in the fourth quarter was revised up to a 3% annual pace from the 2.5% previously estimated.  Business spending on new equipment was revised down to a 1.9% annual pace, from 3.1%.  Inventory growth in the fourth quarter was trimmed to $46.2 billion, down from $48.7 billion previously estimated.  The trade deficit provided a severe drag on fourth-quarter GDP growth, since exports declined at an annual pace of 4% and imports soared at an annual pace of 8.5%.  Clearly, a strong U.S. dollar is impeding U.S. exports and encouraging cheaper imported goods.

As for the current quarter, the Atlanta Fed cut its first-quarter GDP forecast last week to an annual pace of 1.8%, down from its previous forecast of 2.5%.  The culprit for this latest downgrade was the fact that consumer spending only rose at a 0.2% annual pace in January.  Economists were expecting a 0.4% rise.  I should also add that Morgan Stanley is estimating the first-quarter GDP will be only a 0.7% annual pace.

Across the pond, after years of fighting stubborn deflation, the headline CPI rate in Europe rose from zero last April to 1.8% through January, 2017.  The Eurozone’s Economic Sentiment Index (ESSI) is now 108, up from 103.9 a year ago.  Germany’s IFO business confidence index is up 5.4 points over the past six months to 118.4, the highest reading since August 2011.  China is reviving, too.  Economist Ed Yardeni says, “This confirms our view that the global economy may be improving more than widely expected.”

Finally, on Friday, the Institute of Supply Management (ISM) reported that its service sector index rose to 57.6 in February, up from 56.5 in January.  Fully 16 of the 18 service sectors surveyed by ISM (and 33 of 36 sub-industries) expanded in February, the highest batting average since mid-2014.  Due to this strong ISM service report and record high consumer confidence, if this week’s February payroll report and next week’s retail sales report are also strong, the FOMC may elect to raise rates at its mid-March meeting.


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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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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