Markets Return to “Normal”

Stock and Bond Markets Return to “Normal” as February Ends

by Louis Navellier

February 27, 2018

The stock market has recovered most of its early-February losses and the major indexes are positive for the year, but we remain in a “washing machine” cycle, where many stocks are oscillating back and forth. This consolidation is healthy and any dip in good stocks should be viewed as a buying opportunity.

Origami Dollar Image

The other big news last week was that the 10-year Treasury bond refused to crack the 3% level and closed at 2.866% on Friday after hitting a high of 2.949% intraday on Wednesday. I have been watching the Treasury auctions closely and the bid-to-cover ratio remains very healthy, so I suspect that yields are finally settling down after rising in recent weeks. One of the catalysts for yields settling down is the fact that the U.S. dollar has strengthened in recent weeks. If the dollar continues to strengthen, then foreign buying pressure should help to keep Treasury yields from rising too much, since U.S. interest rates are much higher than in Europe and Japan. Overall, the fears of interest rates rising too fast are diminishing.

In This Issue

Bryan Perry sees “wheels up” for the next leg of the bull market, particularly for dividend-bearing blue chips. Gary Alexander sees the calendar as our friend in March and April, nudged along by the same strong fundamentals Bryan described. On the other side of the planet, Ivan Martchev sees a political, economic, and financial crisis brewing in China, while Jason Bodner has some doubts that the current rally is strong enough to avoid a test of the recent lows. In the end, I’ll take another look at inflation and Fed policies, along with a review of the polls among our Teleforum of 2,000 callers last Thursday evening.

Income Mail:
It’s “Wheels Up” for the Next Leg of the Bull Market
by Bryan Perry
Dividend Growth Takes Center Stage for Income Investors

Growth Mail:
Two Great Market Months Begin This Week
by Gary Alexander
The Fundamentals Still Point to a Rising Stock Market

Global Mail:
China's Momentous Backtrack
by Ivan Martchev
Commodity Prices are Key

Sector Spotlight:
Tuning Out the Market Noise
by Jason Bodner
This Rally is Not Broad Enough Yet

A Look Ahead:
The Fed is Increasingly Bullish on the U.S. Economy
by Louis Navellier
News and Views from Our Latest Teleforum

Income Mail:

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

It’s “Wheels Up” for the Next Leg of the Bull Market

by Bryan Perry

Last Friday was a key trading day for the stock market in that fears of interest rates rising too quickly and too often started to diminish. Rising inflation and rising interest rates have been seen as the primary headwinds to the bull trend that has the Dow gyrating by hundreds of points on a daily basis this month.

At the same time, the CBOE Volatility Index (VIX) has declined substantially from its reaction-high of 50.30 set on February 9, when the S&P 500 tested its 200-day moving average at 2,533. It closed at 16.49 at Friday’s closing bell, down -11.91% for the session. The sudden shift in investor sentiment that led a charge back into stocks at the end of last week was a direct result of the lifting of the fear of a 3.0%+ yield for the 10-year Treasury. Soft data on existing homes and retail sales, along with a healthy bond auction, put a much-needed bid under the 10-year T-Note, taking the yield back down to 2.87% from the recent high of 2.94%, causing investor attention to shift to the ever-brightening earnings picture for the S&P 500, setting off a green-light rally that was broadly represented by most sectors in Friday’s rally.

CBOE Volatility Index Chart

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

Clearly, the dual threat of rising inflation and rising interest rates that fueled investor angst and triggered the correction aren’t going away, but the stock market will adjust to both of these forces, however it will adjust over a longer timeline instead of what was being construed as a more immediate and dangerous short-term situation. The S&P 500 shed 11.8% from peak (2,782) to trough (2,533) in 10 trading days, then recovered roughly 63% of the decline as of last Friday. Core inflation is running at a rate of 1.8% on an annual basis and remains below the Fed’s target rate of 2.0%, but January’s data showed an uptick that could set the tone for February and beyond if wages perk up further. This week, investors will digest data on New Home Sales, Durable Goods, Consumer Confidence, Chicago PMI, ISM Index, and Construction Spending, all of which will become more in focus now that Q4 earnings season is winding down.

Consumer Price Index Chart

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

Without doubt, the most important set of data points to the market will be the upcoming employment report, due out March 9, exactly one month from when the market bottomed out. How investors react to what will likely be another healthy report will tell us much about whether the market acts like a three-year-old having a temper tantrum or whether the transfer of Fed leadership accompanied by slightly tighter Fed policy gets any smoother. I personally do not see a full retest of the recent lows taking place. I think last Friday’s session showed investor confidence returning to the market big time and the notion of incrementally higher interest rates with a hint of inflation is acceptable, although certainly not embraced.

With computer-generated buy and sell programs in full control of the intra-day market swings, key technical levels are important to take note of in that a failure of the S&P to take out overhead resistance at 2,750 could incite a pullback. Most technicians argue that another test would be very constructive and relevant to the bullish camp and bring satisfaction to the majority of market professionals that want to see a double-bottom – a higher-low formation that presents a super-sweet entry point to commit new money.

To me, it’s looking like that opportunity will not materialize. Last week, the largest asset manager in the world got a lot more bullish on U.S. stocks — claiming tax cuts are “supercharging” corporate profits. BlackRock expects stimulus from the tax reform will boost earnings growth this year by as much as 19%. Strategists at BlackRock feel business spending plans, accelerating earnings, the pace of stock buy-backs, and dividend growth are still not appreciated by investors (source: CNBC Market Insider – “BlackRock is suddenly a lot more bullish on stocks with tax cuts ‘supercharging’ corporate profits,” February 19, 2018).

Last Friday, FactSet released the latest metrics for the market now that 90% of companies within the S&P 500 have reported fourth-quarter 2017 results. Their data implies BlackRock is not alone in their euphoria.

Earnings Scorecard: For Q4 2017 (with 90% of the companies in the S&P 500 reporting actual results for the quarter), 74% of the S&P 500 companies have reported positive EPS surprises and 78% have reported positive sales surprises. If 78% is the final number for quarter, it will mark the highest percentage since FactSet began tracking this metric in Q3 2008.

Earnings Growth: For Q4 2017, the blended earnings growth rate for the S&P 500 is 14.8%. If 14.8% is the final number for the quarter, it will mark the highest earnings growth since Q3 2011.”

Dividend Growth Takes Center Stage for Income Investors

By overwhelming numbers, most Navellier investors favor dividend-growth as their primary investment objective. In a rising rate environment, owning blue-chip stocks that offer rapidly rising dividend payouts is the best way to drive income growth when bond prices are in a bear market.

The chart below shows that 2017 saw dividends grow 7.07% on average – pretty good, but well below 2012’s 18.25% growth rate. However, 2012 saw a number of companies reinstate dividends after slashing and eliminating dividends during the 2008-2010 Great Recession years, which skews the number.

Current Standard and Poor's 500 Dividend Growth Chart

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

The best news is that we could see double-digit dividend growth in 2018 and 2019, based on a powerful combination of strong earnings and tax reform. We’re only one quarter into this new era of widespread economic prosperity and already the pace of dividend increases is brisk, and the outlook is very positive for income investors that accumulate Navellier’s buy-rated dividend growth stocks for their portfolios.

The Navellier Private Client Group oversees a dividend growth strategy called Power Dividend that has a fantastic 10-year track record, outpacing the S&P 500, in the sweet spot of this super-cycle for dividend growth. Tax reform means big earnings growth ahead. It also means big return-of-capital to shareholders in the form of rapidly rising dividend payouts for the next two to three years. We might be in a Goldilocks economy, but the prospects for the dividend-growth sector could be upgraded to “platinum blond.”

Growth Mail:

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

Two Great Market Months Begin This Week

by Gary Alexander

March Madness begins Thursday. I’m not talking about basketball, but the end of this crazy month of February, when the first 10 days gave us a 10% correction and the rest of the month tried to erase it.

Specifically, we gained almost 8% in the first four weeks of the year, then we lost about 12% in two weeks, then gained 8% in two weeks, ending up about +2.5% for the year – a real roller-coaster ride:

Market Change Since Year Start Table

File that data under “much ado about nothing.” Looking forward, March is a better-than-average market month, while April is the #1 historical month for the last 50 years, according to the latest “Seasonality Report” by Bespoke Investment Group. Taken together, using the Dow Industrials, March and April comprise the best combination of two consecutive months over the last 50 years, according to Bespoke, with March averaging +1.20% and April at #1, averaging +2.04%. Over the last 20 years, according to Bespoke, March averages +1.80% and April averages +2.39%, but that comes in slightly behind the recent upsurge in the fall months, with October averaging +2.49% and November coming in at +1.87%.

I’ve just looked up the March/April combined gains over the last dozen years for both the S&P 500 and the Dow Industrials and I have found that they have risen 11 of 12 times (2015 was the sole exception):

March/April Market Gains Since 2006 Table

March and April are seasonally strong for the same basic reason that November and December are strong – namely, taxes and good feelings. The Thanksgiving-to-New Year’s holiday season brings us feasting, football, family, and tax-related trading. Likewise, the nation is overwhelmed with good feelings in March and April: The days are getting longer (set your clocks forward March 11), the snow starts melting, as do your heating bills. Flowers begin budding and many offices become transfixed with regional rivalries in March Madness office pools. And don’t forget April 15, the deadline for funding various pension plans.

We’re also coming up to the ninth anniversary of the start of this bull market on Monday, March 9, 2009. Some analysts tell us that the bull market is getting “long in the tooth” or senile – but the bears have been warning us of that for the last few years. Worried investors have lost a lot of gains listening to those bears.

The Fundamentals Still Point to a Rising Stock Market

Stock markets don’t die of old age. They only die from recessions or deteriorating fundamentals. The fundamentals aren’t perfect, but they’re positive enough to deliver a strong March-April market surge – sufficient enough to deliver new all-time highs in the S&P 500 and Dow Jones Industrials by April 30.

The First-Quarter Small Business Optimism Index (SBOI) rose to 106.9, just shy of the 108 record set in 1983. Released on February 13 – the week after the market bloodbath – the SBOI reflected a business environment not fixated on Wall Street’s melodramas. The SBOI was in a long-term funk (under 100) during Mr. Obama’s eight years in office. It was mired at 94.9 in October 2016, right before the election, but it shot up after the election. In a single quarter, it leaped to 105.9 in the first quarter of 2017. When business owners are confident, they tend to hire, expand, advertise, and create other new start-up efforts.

Small Business Optimism Chart

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

The Best Earnings in Years (and Better to Come). While the stock market was careening down 10% in about six trading days in early February, wave after wave of exceptional earnings reports were coming in. FactSet reported last Friday that 74% of the S&P 500 companies reported positive EPS surprises and 78% reported positive sales surprises, the highest percentage since FactSet began tracking this metric in 2008. For Q4’17, the blended earnings growth rate for the S&P 500 was +14.8% over the same quarter in 2016, the highest quarterly earnings growth rate since Q3’11. On December 31, estimated growth was just 11%.

Forward earnings look even better. Last week (in “Soarin’ Fundamentals for Stocks,” February 21, 2018), Yardeni Research reported that the forward earnings of the S&P 500, 400, and 600 have increased by 9.5%, 8.3%, and 10.4%, respectively, since the passage of the tax act. Over the past eight weeks, says Yardeni, analysts have increased their 2018 estimates for S&P 500 earnings by $10.62 to $156.88 per share. Their consensus estimate for 2019 is up $11.60 to $172.67 over the same period. Due to rising earnings guidance and falling stock prices, the S&P 500’s forward 12-month P/E ratio is now only 17.

 

Repatriated earnings from the new tax bill keep flowing in from more and more big-name corporate giants. According to Yardeni Research, We find it hard to believe that the stock market suddenly has a liquidity problem given that a couple of trillion dollars in corporate earnings retained abroad are about to be repatriated …. The cumulative total of such earnings of nonfinancial corporations since Q1-1986 through Q3-2017 is $3.5 trillion. A significant portion of these funds is expected to come back and be used for share buybacks and dividend payments,” two major drivers of the current bull market.

Non Financial Corporate Business: Foreign Earning Retained Abroad Chart

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

These repatriated earnings mean the federal government will collect more tax revenue this fiscal year than last year. Lower tax rates generate more tax revenues, defying most political pundits. On December 27, I predicted “Tax Collections will RISE by $150 Billion (4%) or More in 2018.” So far, I am right. January brought in $361 billion in tax revenues and a $49 billion budget surplus. On February 7, however, our deeply divided Congress used the debt ceiling and a threatened government shutdown to agree to spend a lot more borrowed money – $300 billion more over the next two years – to keep government doors open.

Sorry to end on a sour note, but this new spending, combined with the Fed raising rates and reducing its holdings of U.S. Treasury securities by $180 billion this fiscal year and $360 billion in fiscal’19 – promises to increase our deficit from a devilish $666 billion in fiscal’17 to perhaps $1 trillion in FY’19. This will wrongly be blamed on the tax cuts, when it should be blamed on higher spending. This will tend to slow the economy, perhaps causing a recession as we go into the 2020 election year. Shame on you, Congress!

Global Mail:

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

China's Momentous Backtrack

by Ivan Martchev

Over the weekend, China’s Communist Party proposed amending the country's constitution to remove the provision that the President and Vice President “shall serve no more than two consecutive terms.” The proposed amendment will have to be ratified by the National People's Congress (NPC) in March – even though the NPC has never failed to ratify anything proposed by the CCP Politburo. That means President Xi Jinping will be free to serve indefinitely as China's head of state, which is a huge backtrack, given that his predecessors for the past 20 years had a limit of two five-year terms.

Before the historic visit of Secretary Henry Kissinger and President Richard Nixon to China, their political and economic structure could hardly be distinguished from today’s North Korea. After 46 years of reforms and changes in policy since then, the PRC developed its economy to be the second largest in the world and emerged as a global superpower. Still, a free market economy and a totalitarian political system have many inherent conflicts and ultimately are headed for a nasty collision.

Because of their economic successes, one would have thought that the Chinese were moving towards reforming their political system. Instead they are making a giant step backwards, which ultimately may harm them economically. Term limits have the simple purpose to provide the necessary checks and balances when it comes to any government structure. Removing term limits is the same as institutionalizing conflicts of interest between those of a single individual and those of the country.

This momentous political backtrack comes at a precarious time for the Chinese economy. While the Chinese government has stabilized the yuan exchange rate and plugged the massive outflows of foreign exchange reserves that China began to experience in 2014, I think the Chinese economy is not out of the woods yet. The odds are strong that President Xi with his soon-limitless reign will run into a giant deleveraging process that is guaranteed to produce a nasty recession. He will be blamed for this unfortunate event, which would ultimately be his downfall. The Chinese Politburo is known to intervene in precarious political and economic situations so, term limits or not, Xi’s cling to power is not unlimited.

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.

Due to the extreme intervention in the economy and financial markets by the Chinese authorities, many market-driven indicators in China do not give signals that would be reliable in normal capitalistic systems. We know the exchange rate is controlled by the People’s Bank of China and the Chinese have also been tightening capital controls, but the stock market may very well have been propped up, too.

China Shanghal Composite Stock Market Index Chart

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

The Shanghai Composite index has not managed to recover in the past two years what it lost in the single month of January 2016, when malfunctioning circuit breakers on mainland stock exchanges caused quite a repercussion in global markets. The reason why I think the Chinese government may be intervening in the Chinese stock market is that other indexes, like the small-cap Shenzhen Chinext Price Index (symbol: 399006), have long taken out those climactic January 2016 lows and are virtually moving in the opposite direction of the Shanghai Composite as the Chinese authorities have been “stabilizing” the economy.

Shenzhen Chinext Price Index Chart

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

I have never seen a situation where the small cap index is going down – for two years! – while the large cap index is going up, albeit in weak fashion. This type of a divergence smells of government intervention, which is something that the Chinese authorities are famous for.

I think China will end up in a nasty recession simply because I think they have a credit bubble that has now burst. The Chinese authorities are clamping down on unregulated lending and overall credit growth, but it is precisely such lending that caused the Chinese economy to grow as much as it did over the last decade. If one counts credible estimates of shadow banking leverage, China’s total debt-to-GDP ratio is close to 400%. At the turn of the century, that credit metric was about 100%. A deleveraging cycle that brings that credit metric into more sustainable territory is sure to produce a recession, or a similar outcome to the Asian Crisis that saw such a deleveraging cycle 20 years ago.

Commodity Prices are Key

The CRB Commodity Index is at a crossroads. The 180-200 area has served as a support area in prior problematic periods for the world economy, including the Asian Crisis in 1998 and the Wall Street Crash of 2008. The latest (2015) crash in commodity prices was clearly driven by China’s economic slowdown. Given that China is the #1 or #2 consumer of most commodities, any renewed weakness in the Chinese economy is likely to show up in the CRB Index since commodity prices are significantly more difficult to doctor than the level of the Shanghai Composite Index, given the global nature of commodity trading.

Commodities Research Bureau Commodity Index Chart

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

I have great difficulty seeing a positive year for the CRB Index in a year the Federal Reserve is poised to accelerate its rate tightening cycle, which should be supportive of the U.S. dollar. Higher interest rates and a stronger dollar exchange rate have not supported commodity prices in the past, nor have they supported the broader emerging markets universe. On top of that, if the Chinese credit bubble unravelling accelerates in 2018, it should show up in the prices of major commodities, like it did in late 2014 through 2016.

Sector Spotlight:

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

Tuning Out the Market Noise

by Jason Bodner

The Big Bang created no sound. The Big Bang theory says that everything in the universe expanded at the same rate, so nothing collided. Sound is energy in the form of waves. With no collisions, there were no sound waves. Sound can be amplified to cause physical impact. Think of soundwaves breaking glass, or an ultrasonic wave destroying a kidney stone. Sound waves can also be cancelled out. Anyone who flies a lot probably has noise-cancelling headphones. The headsets have a microphone and collect the constant noises, like a jet engine. The headphone then sends a mirror image of the wave into the ear. The peaks of the mirror image wave line up with the troughs of the original, thus cancelling out the sound entirely.

Wave Cancellation by Opposite Phase Image

Noise surrounds us. It is everywhere. Some people can ignore it, others can’t. Looking for information on the market, the door opens to a cacophony of noise. What we have today are conflicting opinions, loud guests on news shows, CEO interviews, analysts, pundits, and over-the-top showmen pushing buttons:

Over the Top Showman Image

The stock market is an exchange for making long-term investments in specific companies, whereas trading is a short-term game with a lot of excitement. Noise is a perfect backdrop for a trading market.

Personally, I have a problem with noise and find it very distracting; it hampers my ability to focus. The best way for me to tune it out is to focus on data, not opinion. With all the recent flap about interest rate increases potentially coming faster, the controversy over volatility products, and retail monopolies, it’s important to keep one thing in mind. The more you buy into these stories, the more advertisers can tap into your attention span. Ultimately, financial news or any media is about one thing only: selling ads.

As you know by now, I focus on hard data. At my research company, MAP, we look at stocks that are being bought or sold by institutions in an unusual way. When everything moves in one direction, it’s typically a sign that a reversion is around the corner. This is what happened January 24, when MAP observed that unusual institutional buying was unsustainable and issued an “overbought” signal. This MAP-IT ratio tallies buying and selling to take the temperature of the market. So, what is it saying now?

Map-It Ratio Image

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

What I find interesting is that even as the market is rallying from the depths of the correction, we are seeing more selling than buying. This could be for several reasons: In order to get an unusual buy signal, stocks typically have to power through upper ends of price ranges on big volume. With the market having been so overheated, it is easier to break through a lower-end price range than a higher one. Volume is also lower than recent averages. Finally, sector rotations are continuing. Notice the black line (ratio of buys to sells) falling as the blue line (Russell 2000 Index) rises. What this means to me is that we have a potential to retest the lows. If we do not, the market pause is allowing stocks to gather steam for a surge higher.

This Rally is Not Broad Enough Yet

On a big rally day, like last Friday, I typically like to see 100 to 200 stocks showing me big accumulation signals. However, I only saw 33 buy signals Friday. What this means is that we still have some way to go to see the “all-clear” signal, in my opinion. Now is when we need to pay attention to sector leadership.

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

Remember when Amazon (AMZN) was going to ruin all the other retail stocks? Well the Consumer Discretionary sector has been the strongest sector for the last three months. It’s up nearly 12% since late November, the traditional start of the holiday shopping season. Financials came in second, up over 11%. Industrials quietly (relative to the news media) added 8.3% in the last three months. Information Technology battles to regain lost ground. In the past three months, it’s only our fourth strongest sector. (Please note: Jason Bodner does not currently hold a position in Amazon. Navellier & Associates does  currently own a position in Amazon for client portfolios).

The laggards are the rate-sensitive securities. Real Estate and Utilities are favorites when there is market pressure or low rates. With the speculation that rates will rise more aggressively due to potential inflation, these sectors have fallen out of favor. Real Estate is -6.6% while Utilities are down -9.8% (in 3 months).

Market pundits can talk for as long as they have screen time. Talking heads are available 24 hours a day. Opinions can flip-flop overnight, but what doesn’t change is cold, hard data. Right now, I have my eyes on Consumer Discretionary, Financials, and Industrials. As leading stocks of these sectors emerge, I would be on the lookout for those with great earnings and sales growth, low debt, and high profit margins. These will be the stocks with the potential to lead the leading sectors (and the market) higher over time.

My takeaway is this: As the market sets itself for its next move, any pullbacks we see are opportunities to buy great companies, but sometimes even the best stocks get swept up in the emotions of the unknown future. Marvelous things can happen in the absence of noise. The Big Bang made no noise. As the designer Jonathan Adler said, “To execute a vision, good or bad, you’ve got to tune out the noise.”

Jonathan Adler Quote Image

A Look Ahead:

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

The Fed is Increasingly Bullish on the U.S. Economy

by Louis Navellier

The stock market was rattled on Wednesday by the release of the minutes of the last Federal Open Market Committee (FOMC) meeting, which painted a bullish outlook for U.S. economic growth. Specifically, the FOMC minutes said that the U.S. economy was growing faster than the Fed had previously estimated. These comments spooked some investors, since they interpreted those statements to mean that the Fed might raise key interest rates more aggressively than previously planned in the second half of 2018.

Their minutes did not directly refer to inflation, but the Fed’s favorite inflation indicator, namely the core personal consumption expenditure (PCE) index, has not hit its inflation target of 2% since 2011. It was running at a 1.5% annual rate in December. The PCE is updated quarterly and due to disappointing retail sales and home sales, it is unclear whether or not the core PCE will increase significantly. Minneapolis Fed President, Neel Kashkari, said on Wednesday that “We keep saying inflation is right around the corner and then it disappoints us.” Economists are increasingly citing the “Amazon effect,” in which online price competition is preventing retailers from raising prices, subsequently squelching inflation.

The Fed also released its semi-annual monetary report last Friday, signaling that it was unperturbed by the recent volatility in financial markets, reminding the market that it remains on track to gradually raise key interest rates throughout the year. Interestingly, this report said that the “overall vulnerabilities in the U.S. financial system remain moderate on balance.”  This is the first indication that new Fed Chairman Jerome Powell will likely be market-friendly during his much-awaited first Congressional testimony this week.

Another market-friendly comment in the Fed’s semi-annual monetary report was that the measures of long-run inflation expectations have been generally stable and remain low by historical standards. This is a clear indication that the Fed remains supportive of financial markets and will gradually raise interest rates if market rates rise. I expect new Fed Chairman Powell to stick to the dovish script outlined in the Fed’s semi-annual monetary report, which bodes well for a potentially bullish FOMC statement in mid-March.

News and Views from Our Latest Teleforum

Last Thursday, we held a one-hour Teleforum for about 2,000 callers. The title was “New Growth and Income Strategies in an Era of Market Volatility and Interest Rate Hikes.” Early in the call, we polled the attendees on two questions, one about the general market and one about their favorite income strategy.

In the first poll, 46% thought the market would trend higher over the next 10 months, while only 7% thought it would close the year lower than where it is now, but that left 53% who thought it would be generally flat or they “didn’t know” where the market would end the year. That was fairly encouraging to me, since it showed no great overwhelming bullish bias. It’s good to be a little humble about where the market is going next. After all, we expected a correction, but we didn’t expect it would come so fast!

I believe the market will continue rising due to rising earnings and a healthy economy. On the same day our call was held, the Conference Board reported that its leading economic index (LEI) surged 1% in January for the fourth straight monthly gain and the largest increase in three months. Economists were expecting the LEI to rise only 0.7% in January, so this was a pleasant surprise. Fully 8 of the 10 LEI components rose, led by building permits and financial components. Ataman Ozyildirim, the director of business cycles and growth research, said, “The leading indicators reflect an economy with widespread strengths coming from financial conditions, manufacturing, residential construction, and labor markets.”

As for the second question, an overwhelming 80% of respondents thought the best income strategy was dividend-paying stocks in the S&P 500. Only 2% favored Treasury bonds or money market funds and about 3% favored utilities. The other 15% favored overseas stocks or other income alternatives. I am certainly in alignment with the 80% majority in this regard as we have been recommending dividend-paying stocks over bonds and Treasury instruments in these weekly letters for several years now.

With Corporate America repatriating cash from overseas, they will be able to buy back shares and raise dividends, so we expect dividend-paying stocks to continue as a favorable after-tax income strategy.


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Past performance is no indication of future results.

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IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Blue Chip Growth, Louis Navellier’s Emerging Growth, Louis Navellier’s Ultimate Growth, and Louis Navellier’s Family Trust, 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. 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. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. As noted above, there are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC, newsletter portfolios. In most cases, Navellier’s Investment Products have materially lower performance results than the InvestorPlace Media, LLC newsletter portfolios and advertising materials claim to have. The InvestorPlace Media, LLC newsletters and advertising materials typically contain performance claims that can significantly overstate the performance results compared to actual results for similar Navellier Products.

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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