Markets Bend but Don’t Break

Markets Bend but Don’t Break after New Terrorist Attacks

by Louis Navellier

March 29, 2016

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

Terrorism Definition ImageObviously, the terrorist attack in Brussels on Tuesday dominated the news last week.  Financial markets were amazingly resilient, but there is no doubt that the second major ISIS attack in Europe in five months could hinder travel, which in turn could adversely impact airlines, railways, and hotels.  Crude oil prices also declined on the fear that slowing travel and economic activity might reduce global growth further.

The other big fear is that there might be more coordinated ISIS attacks after Paris and Brussels.  If anything, fear is more prevalent now than after the Paris attacks, since there is no consensus on how to defend against additional ISIS attacks.  Naturally, if there is an ISIS attack in the U.S., it could very well impact the Presidential election, since terrorism remains a major concern everywhere in the world now.

A fascinating new book about central banks was published this month – The End of Alchemy, by Mervyn King, former governor of the Bank of England.  He was on several talk shows pitching the book in which he pointed out that many banks do not have enough assets to pay all of their depositors.  King also openly discusses how central banks have their hands tied as negative interest rates cause severe imbalances.

King is very critical of the euro and suggested on CNBC that one way to fix the euro is to have Germany leave the euro-zone!  Mervyn King will likely continue to get a lot more interviews, since some of his super-controversial proposals will certainly boost ratings.  Frankly, I think that some gold dealers may want to give away copies of King’s book, since it further undermines confidence in central banks and currencies.

In This Issue

The holiday-shortened week certainly gave us a full week’s worth of news to ponder over the long weekend.  Bryan Perry will examine the hawkish chatter by two Fed officials that sent the dollar up and oil down.  Then, Gary Alexander will try to put the Belgian tragedy into historical perspective, while Ivan Martchev brings us some good news from the last BRIC standing – India.  Jason Bodner will examine the healthcare sector’s alternating chills and fevers, while I will take a closer look at this overbought market.

Income Mail:
Hawkish Fed Chatter Sends Dollar Higher, Oil Lower
by Bryan Perry
Commodity Rally Prices the Energy Sector to Perfection

Growth Mail:
Some Good (and Bad) News on Good Friday
by Gary Alexander
Terrorism is Bad, but State-Sponsored Terror is Far Worse

Global Mail:
India: The Last BRIC Standing
by Ivan Martchev
Crude Oil’s Quiet Neurosis

Sector Spotlight:
Allergy Season Turns our Attention to Healthcare
by Jason Bodner
Healthcare – Best Sector Last Week and Worst since Mid-2015

A Look Ahead:
The S&P 500 is the Most “Overbought” in the Last Three Years
by Louis Navellier
ETF Pricing Anomalies Whipsaw Investors

Income Mail:

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

Hawkish Fed Chatter Sends Dollar Higher, Oil Lower

by Bryan Perry

Less than 10 days had passed since the last FOMC meeting when two high-profile Fed officials began talking up the possibility of another rate hike at the April meeting. Specifically, Atlanta Fed President Dennis Lockhart and St. Louis Fed President James Bullard led a chorus of officials in highlighting the chance of at least two rate rises this year, with the first coming in April. (See Bloomberg’s article, “Dollar Surges as Bullard Adds to Fed Chorus for Higher-Rate Move”, published March 22, 2016.) In my view, these guys have spent way too much time in the classroom and not enough time in the world of business. It’s as if they are saying “we don’t want to let reality intrude upon our theoretical basis for creating fiscal policies.”

The ink is still wet on the dovish March 16 FOMC policy notes – in which the Fed held the line on interest rates while substantially scaling back its expectations from December’s indication of four rate hikes in 2016. That March meeting reduced that projection to two possible hikes upon lower expectations for economic growth and inflation. The FOMC now sees a 0.9% funds rate in 2016, down from its earlier forecast of 1.4% (source: 24/7 WALL St. – “FOMC Lowers 2016 to 2018 Growth & Fed Funds Rate Hikes Forecast,” March 16, 2016). But last week’s chatter sent the dollar higher, pressuring commodities – oil in particular. As a result, if the dollar keeps its footing after the long Easter weekend, it will notch up a near 2% gain and the first weekly gain against the world's other major currencies in a month.

Meanwhile, the fed funds futures market expects only one rate increase in 2016, as bond traders suspect an orchestrated attempt by the Fed to shift that thinking. Equity investors tend to dislike any hint of tighter U.S. policy. Wall Street is looking at this new hawkish language with caution as WTI crude slipped back under $40 and rekindled jitters about the nascent rebound in the commodities sector.

So much for a relaxing pre-Easter holiday week! In addition, a deluge of data was released last week, led by a fall in durable goods orders, which exacerbates the strains that a strong dollar exerts on exports. The militant attacks in Brussels provided yet another catalyst for the dollar rally in a flight-to-safety trade.

For all of the Fed's chatter about multiple rate hikes, the bond and interest rate markets seemed far less convinced than the dollar market. Fed fund futures imply almost zerochance of a move in April and a rate of just 61.5 basis points by year end (source: CME Group FedWatch March 25, 2016. The current effective funds rate is 37 basis points). It was also notable that Treasury yields actually fell in response, with the 10-year U.S. Treasury Note back down at 1.88% from a high of 1.95% at mid-week.

Effective Federal Funds Rate Chart

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

Aside from the hawkish Fed chatter and attacks on Brussels sending the dollar higher, oil prices buckled after data showed crude stockpiles had risen by 9.35 million barrels, or three times the amount expected, in the latest week. Russia piled on extra pressure as it said its crude exports were expected to rise sharply in the coming months. Both headlines caused crude to fall to $38.70 after trading above $41 per barrel. Oil is still the center of attention for many markets. As crude oil prices fall, markets generally turn “risk off.”

Commodity Rally Prices the Energy Sector to Perfection

Erin Gibbs of S&P Investment Advisory pointed out in a CNBC interview last week that the S&P 500 energy sector has been leading the overall market recently, rising 8% in March while the broader S&P 500 has risen 5%. Unfortunately, as energy stocks have gone up in price, they’ve skyrocketed in valuation. Gibbs said that the S&P energy sector looks extremely expensive given an expected 60% earnings contraction for 2016, trading at a price-to-earnings ratio of 70 times expected forward earnings.

While a recent pop in prices has driven the sector higher, shrinking profits and high amounts of debt will continue to weigh on the sector, longer term. Conversely, if crude’s rally continues, bullish sentiment may be sustained as investors’ perception that higher oil prices heal all wounded energy companies takes hold.

My take on this fluid energy scenario is to watch it from the sidelines and let the first-quarter earnings season and intermediate-term price movement for crude dictate whether or not to get involved.

The big integrated oil companies are sporting some juicy yields for sure.

ExxonMobil (XOM), Yield 3.5%
Chevron (CVX), Yield 4.6%
Royal Dutch Shell Class B (RDS-B), Yield 5.3%
Total S.A. (TOT), Yield 5.8%
BP PLC ADR (BP), Yield 7.9%

(Please note: I have no position in any of these stocks. Navellier & Associates, Inc. does not currently hold positions in RDS-B or BP for client portfolios. Navellier & Associates, Inc. does currently hold positions in XOM, CVX, and TOT for some client portfolios)

Then again, ConocoPhillips (COP) and Kinder Morgan (KMI) had lofty dividends before they slashed their quarterly dividend payouts to conserve cash and credit ratings. Both companies now pay out a fraction of their prior levels. ConocoPhillips reduced its annual dividend nearly 60% from $2.40 to $1.00 per share while Kinder Morgan chopped its annual dividend nearly 70%, from $1.61 to $0.50 per share.

The red flag in all of this is that ExxonMobil’s annual dividend payout of $2.92 comes against forecasted 2016 earnings of $2.32 per share while Chevron’s $4.28 annual dividend payout comes against forecasted earnings of $1.41 per share. (Source: Yahoo Finance.)

(Please note: I have no position in COP or KMI. Navellier & Associates, Inc. does currently hold a position in COP for some client portfolios Navellier & Associates, Inc. does not currently hold a position in KMI for any client portfolios.)

The big bet by ExxonMobil, Chevron, and the rest of the lot is to finance current dividends with cheap debt and bank on oil prices recovering back to levels above $50, where forward earnings for 2017 would have the potential to be restored to levels that support 100% coverage of dividends. Maintaining current dividend policy is the Holy Grail for these companies, which boast a rich history of raising dividends year after year. These companies will likely slash capital expenditures (future projects) and stock buy-backs before considering lowering quarterly dividend payments. (On December 15, the Australian Associated Press reported Chevron slashed 1,200 jobs from its Gorgon LNG project in Western Australia.)

Energy Select Sector SPDR ETF (XLE) Chart

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

The Energy Select Sector SPDR ETF (XLE, in which I have no position) represents the who’s who of the U.S. energy market. It has not traded above its 200-day moving average and the trend remains down. A break above 65 would signal a significant shift in the technical picture and would probably reflect WTI crude trending towards $50. Until then, I’m a spectator and I recommend investors take the same position.

(Please note: Navellier & Associates, Inc. does not currently hold a position in XLE for client portfolios.)

Growth Mail:

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

Some Good (and Bad) News on Good Friday

by Gary Alexander

While the market was closed for Good Friday, the Commerce Department reported that U.S. economic growth increased 1.4% in the final quarter of 2015, up from the previously reported 1.0%, raising full-year 2015 growth to 2.4% (Source: Reuters). Economists expected just 1.0% (no net revisions), but stronger-than-expected (+2.4%) consumer spending moved the needle up. This rise in spending was supported by lower gasoline prices and a tighter labor market, which is raising wages (and house prices).

The bad news was that inventories remain high relative to domestic demand. Businesses accumulated $78.3 billion of inventories vs. the $81.7 billion reported in the last iteration. These inventories subtracted 0.22 percentage points from GDP growth instead of the previously reported -0.14 percentage points.

There was more bad news about business in the Friday GDP report. Corporate profits fell for a second straight quarter, due mostly to a stronger dollar and cheap oil hurting multinational profits. After-tax profits, after adjustments, fell 8.4% in the fourth quarter, after falling 1.7% in the third quarter.  For all of 2015, profits dropped 5.1%, providing the main reason for the market’s net flat-lining since late 2014.

First-quarter profits for the companies in the S&P 500 are expected to be down 6.2%, mostly due to troubles in the energy sector. Ex-energy, profits are expected to be down just 0.7%, but we may see a market rally after some upside surprises when profits are actually reported starting in about two weeks.  (Source for this section: “Fourth-quarter GDP revised up; corporate profits fall,” Reuters, March 25.)

As of last Thursday, the Atlanta Fed projected first-quarter GDP to come in at 1.4%, but that projection was posted before Friday’s positive GDP update was released. Their next forecast is March 28, after this MarketMail goes to press, so you can check with the Atlanta Fed website for their most current estimate.

Gross Domestic Product Forecast for 2016 Chart

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

We also got some better-than-expected growth numbers out of China. Industrial output in January and February (the months were combined because of the impact of China’s new-year holiday) was up 5.4% year-over-year. Retail sales were up 10.2%, as China is moving toward promoting domestic growth over a primarily export-driven economy. (Source for China statistics: The Economist, March 19, Buttonwood.)

Long-term, China’s growth has been good for the creation of more American jobs, including the sales, marketing, and distribution of all those global imports. According to economist Ed Yardeni, writing in his last Thursday (March 24) Morning Briefing, (1) “February was an awesome month for truck tonnage. The American Truck Associations’ measure soared 7.2% m/m and 8.6% y/y.” (2) “Imports have surged recently at the West Coast ports. Inbound traffic of 20-foot equivalent containers made a good showing during February, jumping 8.6% y/y,” and (3) “Manufacturing business survey results came in strong for three of the earliest reporting Fed districts: New York, Philadelphia, and Richmond. The average of their composite manufacturing indexes shot straight up from -7.8 in February to 11.7 this month.”

The stock market is still overbought, but before it makes a new upward move we need to see a wave of positive earnings surprises in April and May. The market is in a “show me” phase, and the “showing” involves real earnings growth. With earnings expected to fall, we can only hope for a “slower decline.”

Terrorism is Bad, but State-Sponsored Terror is Far Worse

A long holiday weekend is always a good time for reflection – especially the Good Friday / Easter break. For over 25 years, I have been trying to convince doubting or fearful investors that the future is brighter than they might expect from looking at the daily barrage of headlines or the talking heads on television.

In particular, I have often written that markets don’t care about one-of-a-kind surprise events. Markets rose after the JFK assassination and the Challenger explosion. Markets shrugged off 9/11 in just 30 days.  Last week’s attack in Belgium was tragic, to be sure, but most global stock markets did not waver much.

The latest terrorist attack – even more deadly than Belgium – was against a group of minority Christians celebrating Easter in Pakistan. At least 60 are dead and over 300 injured in the Easter Sunday attack.

“Terrorism” is in many ways scarier than declared wars because it creates what the enemy wants – a near-perpetual state of terror.  I lived near DC when the DC sniper was active in October, 2002. I would skulk out of my car in a parking lot, looking all around for a rifle stock – or that mythical “white van.” It kept us indoors a lot, fearful of walking near a group of parked cars. Terrorism, as its name implies, creates terror.

But if you do the cold calculations, we have never been safer from death by violence. Let me use a few real-life examples – concentrating on one slice of history and geography – Great Britain around Easter.

555 years ago, on Palm Sunday, March 29, 1461, the Battle of Towton launched the War of the Roses in the bloodiest battle ever fought on British soil. In the end, the forces of the Duke of York, who became King Edward IV, displaced the House of Lancaster’s Henry VI; but on this one day, more than 50,000 soldiers fought face-to-face in a driving snowstorm, with over half (28,000) dying in that single day.

Next month marks the centennial of the 1916 Easter Rebellion in Ireland, which resulted in at least 485 deaths, as the Irish Republicans sought to end British rule in Ireland. Their timing was due to the pre-occupation of the British Army in Europe, fighting in the trenches with the Allies in World War I. In just one day – the first day of the 130-day Battle of the Somme – the British Fourth Army suffered 57,470 casualties, including 19,240 killed in battle. But enough Brits remained at home to suppress the Irish.  World War I killed about 17 million, but the influenza that followed it killed about twice that many.

Chances are you haven’t heard much about Irish violence since the Good Friday Agreement of April 10, 1998, signed in Belfast 18 years ago. The relative lack of violence between Ireland and England is one of the keys to the economic recovery in both Ireland and in Britain over the last two decades.

Small bands of terrorists now roam the earth, but they are small insects compared to state-sponsored terrorism. Professor R.J. Rummel (1932-2014) made a lifetime study of death by violence in the 20th century, concentrating on government-sponsored terror, which he dubbed “democide.” He calculated that over 169 million people were killed by governments and their occupying armies during the 20th century.

Most of these major political killers lived a long time ago, with the majority of their killing taking place over 50 years ago. According to Rummel’s data the following list of the worst mass-murdering despots accounted for about 70% of the violent deaths in the last century. All have been dead for at least 40 years.

Twentieth Century's Biggest Killers Table

The 20th century was also a time of great technological advancement and a much longer lifespan for those fortunate enough to be born under the protection of law in the more enlightened democracies. But state-sponsored terrorism roamed this earth for most of last century, peaking from about 1930 to 1965. Here’s a bell chart that represents the highlights of Rummel’s research (in the red line, top) with the more recent research by the Political Instability Task Force (PITF) in terms of annual per capita death by government.

Rummel's Genocide Estimates Chart

Due to the exceptional new powers and scope of mass communications – particularly the Internet, instant social media and live cable television coverage – we tend to assume that U.S. violent crime is increasing.  From the 1960s through 1991, that was true, but no longer. According to the latest FBI statistics, the proportion of U.S. violent crimes per 100,000 population peaked in 1991 and is down 50% since then:

Reported Violent Crime Rate in the United States Chart

I hope these charts give you some hope in the future of our species and your relative personal safety today vs. any time in history. In my experience, media negativity makes these historic trends hard to believe.

Global Mail:

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

India: The Last BRIC Standing

by Ivan Martchev

Most hot investing trends get acronyms (“Dot.com” comes to mind at the top of the list), but the dearest to my heart is the acronym coined by former Goldman Sachs chief economist Jim O’Neill – the BRICs.

What does “BRIC” stand for?  Brazil, Russia, India, and China – four giant-sized emerging economies.

Later on, these overly-confident BRIC countries put together their own “BRICS Summit” (by including South Africa in the mix, without consulting Jim O’Neill). Their annual summit, however, is rapidly losing relevance as economic turmoil driven by the unraveling of the Chinese credit bubble is wreaking havoc in global commodity markets. As a result, any emerging economy that has its fortunes tied to the fate of commodity prices – Russia, Brazil, and South Africa fit the definition – are struggling; but India does not depend on commodities, which is why it has been massively outperforming the other emerging markets.

India Bombay Stock Exchange Sensex Index Chart

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

Because the MSCI Emerging Markets Index is driven by China, India gets to be a stand-alone emerging market as its economy is driven by its own consumers. While China is having generational economic problems, India is actually benefiting mainly via the decline in the price of oil which lowers Indian inflation and allows for central bank rate cuts, which then act as an economic accelerator.

India’s 5-Year Inflation and Interest Rate Trend

India's Inflation and Interest Rates Chart

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

Last year, there were four interest rate cuts in India as the Reserve Bank of India has followed the inflation rate lower. One could say that one place that would not mind seeing the price of oil drop below $20 per barrel and stay there for a while is India, while Brazil and Russia would prefer a price increase.

India Surpasses China in GDP Growth Rate

India's and China's Gross Domestic Product Growth Rate Chart

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

The collapse in commodity prices driven by the unravelling of the credit bubble in China is causing the Indian economy to accelerate to a 7.3% annual GDP growth rate (left-hand scale) while China’s economy has been decelerating to 6.8% (right scale), if one believes that number. Chinese economic statistics are notorious for being smoothed to fit the party line. I think Chinese economic numbers may be quite a bit worse, given how far the commodity markets made it to the downside (the latest seasonal rebound in oil notwithstanding) and how far shipping rates have declined according to the Baltic Dry Index (see below).

Baltic Dry Index Chart

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

One problem with the Indian bull market story for U.S.-based investors is that other than a few dedicated mutual funds and ETFs, there are very few American depositary receipts (ADRs). Institutional investors can invest directly in Indian markets without the ADR conduit, so restrictions for them are less relevant; but there are only three ADRs on NASDAQ and eight on the NYSE, which does not exactly represent a diversified portfolio.

Market Vectors India Small Cap Index Chart

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

A rather interesting ETF that came to market in 2010 is the Market Vectors India Small Cap ETF (SCIF). None of the holdings have ADRs. With $128 million in assets, SCIF allows individual investors to participate in a difficult-to-access sector of the Indian market. As was the case with small caps globally, SCIF had a rough couple of years after introduction, which was followed by a big surge when the Modi administration came to power. Despite the accelerating economy, SCIF slid from its 2015 highs as investors pulled a record net $735 billion from emerging markets in 2015 – the first net negative figure since 1988. For 2016 the Institute of International Finance forecasts total net capital outflows of $448 billion and the finger is pointed squarely at China, where the flight of capital has been monumental. (Please note: I do not currently hold a position in SCIF. Navellier & Associates, Inc. does not currently hold a position in SCIF for any client portfolios.)

While I don’t think we are past the low point in the Chinese economic cycle that does not affect the Indian economy, which is relatively closed and is driven by its own internal growth dynamics. India is a much poorer country than China with a fraction of the GDP per capita, but India does not have a credit bubble based on all the data I have examined. That means Indian economic growth is more sustainable and its banking system, which is famous for being conservatively run, is unlikely to be swept up by a tsunami of non-performing loans (see my February 3, 2016 Marketwatch article, “Something broke in China in 2016”). Both HDFC Bank (HDB) and ICICI Bank (IBN) have ADRs listed on the NYSE. (Please note: I do not currently hold positions in HDB or IBN. Navellier & Associates, Inc. does currently hold a position in HDB and IBN for some client portfolios.)

The problems associated with the epic emerging markets capital outflows are likely to persist in 2016, so that means one should be patient even with a “buy on dips” strategy as the Indian market will be like a fish swimming against the emerging markets current. This is particularly true for the small-cap sector represented by SCIF, which is easier to move. But if the Indian economy develops without any China-driven negative effects present in the rest of the BRICs, this creates a “beach ball underwater” effect, as the Indian market would reflect this the minute the outflows calm down, which regrettably may not be until 2017. Even though India is a long-term bull story, investors should keep in mind that if they wait for emerging markets capital outflows to subside, they are likely to miss the sale in Indian stocks.

Crude Oil’s Quiet Neurosis

Last week’s whack in oil prices, if I may borrow some Sopranos’ terminology, is certainly unnerving investors as the rally in the U.S. stock market has been primarily driven by a massive unwinding short squeeze in materials and energy stocks, according to the numerous statistical indicators we follow.

Crude Oil West Texas Intermediate - Daily OHLC Chart

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

This chart is of the front-month May 2016 WTI Crude Oil futures, which had risen 40% or so off the January lows. The volume of oil in storage has not decreased meaningfully nor has production dropped to warrant such a rise. That said, I would be surprised if the oil bulls don’t see another recovery, given that this is the seasonally strong time of the year and last year’s seasonal top came in May.

Those May 2016 futures reached a bottom at $30 or so in the sell-off earlier in the year but they were not front-month futures at the time. At the time the front month futures reached $26 or so. I think we have better-than-even odds for crude oil to ultimately fall below $20 per barrel, since I believe that (1) the Chinese economic cycle has not bottomed, which may not happen till 2017 and (2) U.S. production is too high, since many high-cost producers are pumping oil at a loss in order to service their debts.

Those are long-term considerations, which is how I prefer to think about the markets; but I would admit that tactical short-term moves are not my specialty. That said, I would be surprised if we don’t see one more attempt for a recovery in the oil market. Use it to unload energy losers.

Sector Spotlight:

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

Allergy Season Turns our Attention to Healthcare

by Jason Bodner

The tragic attacks in Belgium have me saddened and disappointed in humanity, but not shocked. Terrorism is a harsh fact of life. My heart goes out to those lost and injured in this latest senseless act of brutality. Yet these attacks in particular hit close to home. You see, my wife is from Antwerp, Belgium. As it turns out, some of her family was arriving at Brussels airport in Zaventem last Tuesday. They were walking through the arrivals hall as the bomb blasts went off in the departures hall. Thanks to the powers that be, they survived unharmed but not unscathed. It was either incredibly lucky or incredibly unlucky timing, depending on the perspective. It would seem my family continues its lucky streak of narrowly escaping disaster. I worked at Cantor Fitzgerald in the twin towers in 2001, moving to London just six weeks before 9/11 - narrowly missing that tragedy. Then I was on a jet struck by lightning; we lost an engine and the masks came down. I have already recounted my family’s Thailand tsunami tale a few weeks ago. These near misses just further reinforce the reality that health is the best wealth of all.

Belgium Flag Image

The advent of allergy season also has me thinking about healthcare. I estimate that between the Claritin, Benadryl, asthma inhalers, and Visine, I spent roughly $100 on remedies to lessen my misery caused by that tiny pesky pollen. The FDA estimates about 35 million Americans suffer from seasonal allergies and 25 million Americans suffer from asthma. Let’s assume half of them do anything about it and buy some medicine. Let’s err on the side of conservative and say those 17.5 million Americans spent half as much as I did this season. That’s still just shy of $1 billion spent on a few weeks of allergy relief. Now that’s not accounting for any doctor’s visits, additional prescriptions, or anything sold outside of the U.S.

Now I’m not trying to be a conspiracy theorist, but one has to appreciate that with pretty conservative calculations and the exclusion of a doctor visit or any prescriptions, the advent of spring is a big business opportunity for the healthcare industry. But it’s tiny compared to everything else in healthcare. I read somewhere that someone calls it the “sick-care Industry.” That now seems less silly to me than it used to.

Allergy Car Image

Why does any of this matter? Well, here are some interesting facts about the U.S. healthcare system:

  • According to CMS.gov, U.S. healthcare spending grew 5.3% in 2014, reaching $3.0 trillion (or $9,523 per person). As a share of the economy, health spending accounted for 17% of GDP. From 2014 to 2024, health spending is projected to grow at an average rate of 55.8% per year.
  • If the healthcare system were a separate economy, it would be the fifth-largest in the world.*
  • The U.S., which has a mostly private healthcare system, spends more on its public healthcare system than countries where the healthcare system is almost entirely public. America's government spends more, as a percentage of the economy on public healthcare, than Canada, the UK, Japan, or Australia. And then it spends even more than that on private healthcare.*
  • Compared with Australia, France, Canada, the UK, and Germany, the U.S. actually logs the lowest average doctor visits per person.*

(*Source: Physicians for a National Health Program (PNHP): “8 facts that explain what’s wrong with American health care,” September 2, 2014.)

So if we see a doctor less than anyone else but it costs the most to stay healthy here, then what does that mean? It means that everything about healthcare is very costly here. Take the average cost of the heartburn pill Nexium. It costs almost 10 times more in the U.S. at $215 then it does in the Netherlands.*

Doctors and pharmaceutical companies stand to gain significantly more if we are sick than if we are well. In ancient Chinese medicine, the doctor was paid a retainer to keep the patient healthy. When the patient became sick, the doctor was not paid until the patient became well again. It was reputed as well that if a patient died, the doctor had to leave a lantern outside his home, and lanterns were bad for business.

Healthcare – Best Sector Last Week and Worst since Mid-2015

I am picking on the Healthcare sector because the media has been vocal about how Financials and Energy have been so weak, but what about the health of…Healthcare? Looking at the performance of Healthcare last week, it seems fairly healthy. In fact, Healthcare was last week’s winner! But looking at it over the past three months it seems clear that Healthcare is sick. Would it surprise you to know that Healthcare is the weakest performing sector of the last nine months – worse even than even Energy and Financials?

Have a look at the charts:

Standard and Poor's 500 Sector Indices Changes Tables

If we compare charts of the last 12 months of performance of the S&P Healthcare Sector Index to the S&P Telecom Services Index it’s like looking at inverse images. And as we all know well by now, Energy and even Financials have staged notable recoveries, while Healthcare is languishing. Is this due in part to Hillary Clinton’s likelihood of ascending to the Presidency? She seemingly singlehandedly dealt the death blow to the Healthcare sector in August of last year with her comments targeting Big Pharma.

Standard and Poor's 500 Yearly Sector Indices Changes Tables

So as you read this, and the markets continue to meander wherever they want to go, you may be left feeling anxiety from the headlines: anxiety about the safety of your assets, your health, and even your very life. But just remember that health is your best long-term asset, even if it’s really, really expensive!

Prescription Pills 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.*

The S&P 500 is the Most “Overbought” in the Last Three Years

by Louis Navellier

The most important statistic released last week was a study from Bespoke in which the title says it all: “Largest Percentage of Overbought Stocks in More Than Three Years” (March 23).  Their study showed that “in the wake of the big rally of the last six weeks, the net percentage of overbought (1+ standard deviation above 50-DMA) stocks in the S&P surged above 75% earlier this week, the highest in over three years.”  This has happened five times since 2009, beginning in May 2009, two months (to the day) after this bull market began.  Bespoke charted these five previous occurrences and found that the S&P averaged a small decline (about 1%) over the next week and month, but a sizable gain 3-6 months later.

Standard and Poor's 500 Performance Table

This “happy ending” does not mean that all stocks will rise equally, of course.  The most overbought stocks will likely fall the furthest in the short run.  Leading the overbought stock market environment are the energy stocks, which have truly scary high price-to-earnings (P/E) ratios and even more frightening forward-looking P/E ratios.  They have benefited from a short-covering rally, which is not a fundamentally sound basis for growth.  There is no doubt that the upcoming first-quarter earnings announcement season will rearrange the leadership of the S&P 500.  For the time being, however, too many stocks with poor sales, weak earnings, and high P/E ratios remain ripe for profit taking.  Our best defense remains a strong offense of fundamentally superior stocks, while ditching those stocks with weaker fundamentals.

ETF Pricing Anomalies Whipsaw Investors

I don’t view Wall Street as a single, monolithic market but as the epicenter of a trading war over volatile ETF products.  The “algometric trading” folks have been running amuck since the February 11th lows, creating a “V” shaped dip and recovery.  Specifically, the algometric trading folks all too often try to profit from High Frequency Trading (HFT) systems and have been arbitraging the anomalies with ETF pricing and other big block trades, since many ETFs are all too often trading at premiums and discounts.

Meanwhile, the robo-advisors have been whipsawed by the big hedge funds that have outsmarted them.  I am keenly aware of the fact that too many ETFs trade at premiums and discounts, making them prime targets for trading.  As the number of ETFs has grown, the algometric trading folk have also learned how to “pick off” investors that do not place limit orders, or who pay no attention to bid/ask spreads.

All ETFs are legally index funds and the SEC is expected to have hearings soon to discuss (1) why many ETFs are trading at wider premiums/discounts, (2) what caused massive ETF price anomalies during the August 24 flash crash, and (3) what can be done to restore order in ETF trading and investor confidence?

I can answer all those questions for the SEC!  However, the ETF industry does not want to admit that ETFs can have liquidity problems from time to time, so I remain pessimistic that there will be no serious reforms to prevent future flash crashes.  That’s why I prefer stocks with (1) growing dividends, (2) persistent stock buy-backs, and (3) strong sales and earnings in this highly selective market environment.


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

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

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

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

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

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

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

Past performance is no indication of future results.

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

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

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

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

Marketmail Archives Trade Summary

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

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

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

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

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

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

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

Past performance is no indication of future results.

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

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

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

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

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