Markets Rise on Global Unity

Markets Rise on Global Unity while Sector Volatility Continues

by Louis Navellier

November 24, 2015

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

Paris Parliament Building ImageThe stock market reacted surprisingly well last week in the aftermath of the tragic terrorist attacks in Paris.  What the stock market likes is certainty, so now that France and Russia are united in attacking ISIS, the stock market seemed to like the fact that there is a plan to confront terrorism. Unfortunately, there was also a horrible attack at a Mali hotel on Friday and Belgian authorities raised their terrorist alert to its highest level and warned of an imminent threat to Brussels, so its underground metro service was not running on Saturday.  Some large gatherings, such as concerts and sporting events, have also been canceled, while France continued to root out suspected terrorists in coordinated raids last week.

In the stock market, we remain in a “washing machine” cycle, as the healthcare sector corrected on Thursday in the wake of news that UnitedHealth Group may exit Obamacare exchanges for individual policies in 2017 due to continued operating losses.  Other healthcare providers, like Aetna and Anthem, said on Friday that their individual healthcare insurance businesses were performing in line with their projections, so most healthcare stocks and ETFs recovered impressively on Friday; but the churning market action continues between the S&P 500 sectors.  Ironically, Bespoke Investment Group reported last Friday that healthcare and technology are the only two of the 10 S&P industry sectors that are up year-to-date on both a capitalization-weighted basis (i.e., S&P 500) and a more equally-weighted basis (i.e., Russell 3000).

I am confident that we are in the final spin cycle of this current washing machine market and I expect the daily gyrations should settle down as Thanksgiving approaches.  I wish you all a Happy Thanksgiving!

In This Issue

In Income Mail, Ivan Martchev reviews his major predictions from 2014 and 2015, while offering a new prediction for 2016.  In Growth Mail, Gary Alexander examines the counter-intuitive behavior of markets after major terrorist attacks.  In Sector Mail, Jason Bodner compares the market unknowns to black holes while I will cover last week’s mixed messages in economic indicators and central bank pronouncements.

Income Mail:
2016 Is Likely to Bring New Treasury Yield Lows
by Ivan Martchev
Update on the Dollar and China
Here Comes Deflation

Growth Mail:
Why Markets Rise Strongly after Terrorist Attacks
by Gary Alexander
Markets Shrug off History’s Worst Tragedies
November Markets in Song

Sector Spotlight:
Down the Rabbit’s Supermassive Black Hole
by Jason Bodner
Consumer Discretionary is the New Star

Stat of the Week:
Leading Indicators Rise 0.6% in October
by Louis Navellier
The ECB and the Fed Keep Sending Mixed Signals

Income Mail:

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

2016 Is Likely to Bring New Treasury Yield Lows

by Ivan Martchev

As Thanksgiving approaches, I am ready with my 2016 forecast. For 2014, my forecast was for a massive rally in the U.S. dollar (see my December 27, 2013 Marketwatch article “2014: The Year of the Dollar”) and my 2015 forecast was for an economic unraveling in China (see January 23 Marketwatch article “Why 2015 Could Be Rough for China”). In 2016, I think U.S. Treasury yields may be headed to all-time lows.

Ten Year Treasury Constant Maturity Rate Chart

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

I know the Fed’s December well-telegraphed fed funds rate hike is all over the news and that in a normal economic environment one should be looking for bonds to sell off and consequently Treasury yields to rise if short-term interest rates are rising. Why then would I be looking for the opposite to happen?

Simply put, I don’t think short-term interest rates will rise in 2016. One interest rate hike in December, if it comes at all, is not an interest rate hiking cycle in which the fed funds rate goes up at every FOMC meeting. The Fed pretty much told us that their rate hiking cycle will be different than in prior cycles; so they have confirmed that after the first rate hike, the other rate hikes will likely be few and far between. (See November 19, 2015 Reuters piece, “Fed's Lockhart says rate hike path may be 'slow' and 'halting'”)

I don’t believe there will be any rate hikes in 2016. I realize this is a contrarian view. As the famous Dr. Marc Faber has noted on more than one occasion: “To be a good contrarian, you need to know what you are contrary about,” so I will present my arguments below. Before I explain my long-term interest rate forecast though, I believe it is important to update my forecasts on the dollar and the situation in China, both of which were quite contrarian at the times I made them, and neither have yet to run their full course.

Update on the Dollar and China

Simply put, the dollar is not done rallying.  I don't think that the Fed should be tightening in a global deflationary environment, but they have not yet given up on that, officially. Both the Bank of Japan and the European Central bank are in QE-mode so they are actively loosening monetary policy while the Fed is for the time being pretending to tighten. If most constituent currencies in the U.S. Dollar Index are running a monetary policy to counter that of the Fed, the dollar is naturally going to appreciate against currencies whose central banks are nudging them lower. We are right near round-number resistance at 100 on the U.S. Dollar Index and it is not inconceivable that we could challenge 120 in due course.

United States Dollar Index - Monthly OHLC Chart

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

Furthermore, many secondary currencies in Latin America, Asia, and Europe are in much worse shape than either the euro or the yen, where the unravelling in China has hurt their current account balances via the decreased demand for commodities or manufactured goods. They are not done falling either.

Commodities Research Bureau Index Chart

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

Since commodity prices have already taken out the August 2015 low and are challenging 40-year support levels in the CRB Commodity index (in the 180 area), any further and significant decline below that level is going to depress commodity-related currencies further and give another push to the dollar as a safe-haven currency. Due to the economic unravelling in China and increased supply of commodities at a time of weakening demand, I do not believe the 180 area in the CRB index will hold.

Furthermore, there has been massive dollar borrowing since 2008, which has increased dollar debts by corporate borrowers and governments by 50%, from $6 trillion to $9 trillion at present. This constitutes a gargantuan synthetic short position against the dollar as those dollars were sold after they were borrowed (see April 12, 2015 Bloomberg article, “The $9 Trillion Short That May Send the Dollar Even Higher”). The government and corporate borrowers have to roll over or repay their massive debts at precisely the wrong time with weaker currencies. This is bound to push the dollar higher.

As for China, the real estate market crashed in 2014 and their stock market crashed in mid-2015, both of which are subsets of the great Chinese credit bubble, which may crash in 2016. China went from 100% total debt-to-GDP ratio to about a 400% debt-to-GDP in 15 years, if one counts credible estimates of shadow-banking leverage  (See the March 2015 Brookings Institution piece, “Shadow Banking in China: A primer,” combined with  official Debt/GDP metrics). At the flip of an economic switch, China went from a savings- and investment-driven economic growth model to a borrowing-at-any-cost model in order to grow. Debt-driven growth cycles typically end in deflationary busts.

There are a lot of similarities between China today and what happened in 1929 in the U.S. While I don't know if we will see a Second Great (Chinese) Depression in this case, I think we may see a bad recession. I think the excesses in the Chinese economy of building empty cities with brand-new highways between them and bridges in the middle of nowhere have not been unwound.  I do not believe that the Chinese consumer can grab the economic baton and save the Chinese economy from its precarious situation. I think Chinese demand for commodities will continue to deteriorate and Chinese aggregate demand will hurt their trading partners in Asia. All of these dynamics are highly deflationary as China is the second-largest economy in the world with a GDP of $10.9 trillion in 2015, according to estimates from Trading Economics LLC.

Here Comes Deflation

In January 2015, 30-year Treasuries registered a fresh all-time low yield of 2.23%. I think the 10-year Treasury yield may do the same in 2016 with the cancellation of presently-telegraphed, misguided Fed rate hikes and a global deflationary outlook. I believe that before this bull market in bonds is over, the 10-year Treasury yield will fall below 1%.

I cannot be sure if this will happen in 2016 or 2017, but I think we have better-than-even odds that the 10-year note may see its yield fall below the all-time low of 1.39% next year. If we do fall below 1% in 2016 that simply means I have underestimated the seriousness of the global deflationary shock.

If you do not believe there is a deflationary shock, consider that the earnings for the S&P 500 have been declining for two consecutive quarters while sales have been declining for three consecutive quarters (see November 6 2015 FactSet Earnings Insight). Weak corporate revenues are a sign of deflation. The dollar is partially to blame but there is also weakness in global aggregate demand that goes beyond the relative health of the greenback.

United States versus German Bonds Chart

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

The German 10-year bund fell rather swiftly below 1% when government bond markets in Europe began to discount deflation, and I think the same may happen in the U.S. in 2016. The U.S. has some of the highest long-term interest rates compared to other developed markets and Treasuries still offer a safe haven from problems in the emerging markets, where ironically we may see a deflationary rise in interest rates as foreign investors flee foreign shores in order to hide in Treasuries.

China Foreign Exchange Reserves Chart

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

Furthermore, I think the Chinese are likely to realize that they are at a major disadvantage compared to significantly depreciated currencies in the emerging and developed world and they will loosen their grip on the yuan. They have spent a lot of money defending the yuan and have seen their forex reserves fall from nearly $4 trillion (in June, 2014) to the October 2015 level of $3.52 trillion as reported by the People’s Bank of China (PBOC). Since most of China’s reserves are in U.S. dollar-denominated assets, there was a lot of forced selling of Treasuries in 2014 and 2015. If that forced selling of Treasuries diminishes as the PBOC lets the yuan depreciate in 2016 amidst worsening global deflation, I think it is likely the 10-year Treasury may make an all-time low.

Growth Mail:

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

Why Markets Rise Strongly after Terrorist Attacks

by Gary Alexander

I should have known better.  Last week, I led off Growth Mail by saying, “the world is reeling from the attack on France, which will no doubt send the European markets down this week, perhaps depressing Wall Street stocks as well.”   Well, the S&P 500 rose 3.27% last week, which turned out to be its biggest weekly gain so far in 2015. According to the weekend Wall Street Journal, the German DAX index rose 3.84% and the French CAC index rose 2.12% last week.  European markets reached a three-month high on Friday, with the Stoxx Europe 600 index up 3.3% last week.  The major indexes in Japan and China rose 1.4%.

Despite the attack on France and the generally slow recovery in Europe, France is exceeded only by Italy in the 2015 global market sweepstakes, year-to-date, according to the weekend Wall Street Journal’s tally:

The Best National Markets so Far in 2015
 Source: Wall Street Journal, Nov. 21-22, 2015, 
 “International Stock Index” table, page B6 
  Market    Index   Gains YTD 
Italy FTSE MIG +16.5%
France CAC 40 +14.9%
Japan  Nikkei stock average  +13.9%
 Germany  DAX +13.4%

 

Stocks usually rise after disasters, in part because a surprise attack tends to clarify our vision and unite us. The market hates uncertainty. A surprise attack ironically delivers a greater sense of unity and resolve. After the attack on Paris 10 days ago, we saw nations more allied in spirit (and military action) to uproot this fast-advancing cancer called ISIS. It even seems like Russia is finally on the same page as Europe.

I knew better than to predict a market decline!  Two years ago in this space, on the occasion of the 50th anniversary of JFK’s assassination, I wrote a column entitled, “What Happens When Disaster Strikes?” In most cases, as I showed then, the markets actually rise strongly in the wake of such disasters.  After the JFK tragedy in 1963, the market was closed the following Monday, but on Tuesday, November 26, the DJIA gained 32 points (+4.5%) and gained 5.5% for the holiday-shortened week.  In part, that came from a sense of unity and hope that the new LBJ administration would follow the late President’s policies.  (For more details on this market anomaly, see my August 17 Growth Mail, “The Secret Formula for Greater Economic Growth & Job Creation.”)  The DJIA rose 17% in 1963, 14.6% in 1964, and 10.9% in 1965.

Markets Shrug off History’s Worst Tragedies

Dow Index Chart

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

 In the worst terrorist attacks in Europe and America since 2001, our stock markets hardly hiccupped, and then kept rising.  When terrorists attacked Madrid exactly 2-1/2 years after 9/11, on March 11, 2004, killing 191, the S&P 500 rose 1.25% the next day.  When suicide bombers attacked London’s bus and subway transport systems twice (July 7 & 21, 2005), the UK market recovered within days and the British GDP rose 0.8% that quarter.  (The S&P 500 rose 3.6% in July, 2005.)  On April 15, 2013, the day of the Boston Marathon bombings, the S&P dipped 2.3% but fully recovered within 15 days.

Looking further back to some of the worst political or personal tragedies since World War II, markets usually rose for several days after the unexpected tragic event. Here are some of our darkest days:

  • On Friday, September 1, 1939, the Friday before Labor Day, Hitler invaded Poland, reaching Warsaw within a week. When Wall Street re-opened on Tuesday, September 5, 1939, the Dow rose 12.87 points (a massive +9.5% daily rise), rising 15.3% by mid-September 12, 1939.
  • On Monday, December 8, 1941, the morning after Pearl Harbor, the DJIA fell only three points and then stayed level through January 15, 1942.  The market started rising again in April, 1942.
  • During the 1962 Cuban Missile Crisis, the DJIA fell less than 1% and then rose 3.5% in the two days after the crisis passed. The 1962 “crash” (-28%) concerned U.S. Steel in the spring.
  • There were two major assassinations in the spring of 1968.  In the week after the death of Martin Luther King, the DJIA rose 4.6%.  After RFK’s death, the DJIA rose 1.8% in the next two days.
  • On Tuesday, January 28, 1986, after the explosion of the space-shuttle Challenger, the DJIA gained 1.2% that day, and then it just kept on rising the next day, week, month, and year.

The world finds strength in adversity. Instead of fearing a crash or rising volatility, the greatest risk in times of trouble would be to “sell all stocks” prematurely and then fail to re-enter the market as it may rise to new highs.  If you assume the worst and sell all stocks after a crisis, you could miss the potential quick recovery.

Here’s a piece of investment advice not tied to the stock market.  Travelers are now avoiding Europe, opening up some great travel deals in hotels and air fare.  The historical statistical risk of terrorist attacks or plane crashes is very close to zero, despite what the headlines are screaming.  Why not visit Italy in the winter, when the weather is mild and tourists are scarce, or consider Paris in the spring?  And, speaking of “April in Paris”:

November Markets in Song

I’ve given you a lot of history already, so I want to take a holiday break from “This Week in Market History” to bring you a highlight from my weekly radio music programs tied to songwriter birthdays:

Two great American songwriters – Johnny Mercer (born November 18, 1909) and Hoagy Carmichael (November 22, 1899) – were born right before Thanksgiving, so it’s ironic that their first song written together was called “Thanksgiving,” published in 1932 at the depths of the Depression.  With 25% of Americans out of work and the Dust Bowl sweeping over the Midwest, Mercer managed to write upbeat lyrics like, “Sweet sunshine smiles at me; every day a Jubilee.  Oh, Thanksgiving! Boy, I’m living.”

Mercer’s 1944 song, “Accentuate the Positive” came after the Depression and near the end of World War II, but the upbeat attitude he expressed in that song turned out to be good investment advice at the end of a long bear market. As we break for Thanksgiving, let’s put aside market concerns and sing some songs.

Here are 51 Johnny Mercer song titles strung into an economic narrative for your holiday enjoyment:

Investors tend to fear Early Autumn, when Autumn Leaves fall In the Cool, Cool, Cool of the Evening, but When October Goes, If I Had a Million Dollars (One for My Baby and Another One for the Road), my Dream – My Shining Hour – would be to Take the Long Road Home, on the Atcheson, Topeka and Santa Fe, with my Dearly Beloved Satin Doll, Laura, to Moon River, the Land Where Old Dreams Go, where the Skylark and Bobwhite sing.  I’m Travelin Light, so Any Place I Hang My Hat is Home.

I’m Old Fashioned.  I like to Accentuate the Positive. It’s Great to Be Alive. Money Isn’t Everything, but If I Had My Druthers, markets would rise Day In, Day Out, Come Rain or Come Shine.  That would be Too Marvelous for Words, but The Days of Wine and Roses can be a Charade.  Fools Rush In, seeking Out of This World riches, while Lazy Bones Hit the Road to Dreamland, Building Up for an Awful Letdown, and I Want to Be Around to Pick up the Pieces when they sing the Blues in the Night.

As for politics, The Country’s in the Very Best of Hands.  Goody, Goody, and Hooray for Hollywood!  But the Smarty Pants in Washington use That Old Black Magic, while The Men Who Run the Country are Whistling Away the Dark, saying This Time, the Dream’s on Me.  How Little We Know!  It’s Always Darkest before the Dawn, but Jeepers, Creepers! Something’s Gotta Give.*

*All Capitalized Words are song titles by Johnny Mercer (1909-1976).  For Thanksgiving, you can add three more of Mercer’s tasty titles to your menu: Hooray for Spinach; Life’s a Piece of Pie, and Bon Appetit. Happy Holidays.

Sector Spotlight:

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

Down the Rabbit’s Supermassive Black Hole

by Jason Bodner

Black Hole ImageLet's go on a quick journey... The average man is about 170 pounds, while the average woman is 130. In the aggregate, the roughly 7 billion people on earth weigh approximately 1 trillion pounds. While that seems like a staggering sum, it’s hardly anything at all when compared to the mass of the entire earth itself, which is on the order of 1.3 million trillion pounds! But if we skip a scant 93 million miles away to the Sun, our earth is only 1/330,000th the mass of the sun, meaning that the sun weighs 330k earths. But the sun is one of just 400 billion estimated stars in the Milky Way Galaxy – all of which spin around a single point in the center of our galaxy called Sagittarius-A, which is the location of a supermassive black hole. This point is only 4 million solar masses squeezed into 45 au (astronomical units), or 45 times the distance from the sun to the earth. It is slinging everything in our entire galaxy – an estimated 1 trillion solar masses around itself at phenomenal speeds of roughly half a million miles an hour! But wait! Continuing on our journey, there are an estimated 100 billion galaxies in the known universe! If you don't feel insignificant or dizzy enough yet, all of those galaxies, including our own, which comprise our observable universe account for only 4% of the mass/energy of the total universe!

The rest is dark matter and dark energy, which we frankly know hardly anything about.

Welcome back home! While that recap may have seemed a bit “out there,” it pays to have some perspective, especially in financial markets. The universe of equities seems to be slave to the Fed and general concerns over global growth, and rightly so. However, in the same way one can get lost going down the rabbit hole trying to wrap one’s head around the size of the universe and our physical place in it, one can pass over many individual equity opportunities while lost in the relentless pursuit of the impossible answer of “where the market is going” tomorrow. This is especially true of volatile markets. But first, let’s start by looking at where we’ve been. Here is the sector performance last week:

Standard and Poor's 500 Weekly Sector Index Chart

The week before last, while investors were expressing their fears over exposure to slowing growth – by selling anything retail-related – there were still plenty of individual stories with positive catalysts to take advantage of. Just as the weight of all humans is insignificant when thinking about our planet as a whole, these frequently bumpy sector shifts that embody the current market volatility will eventually seem insignificant in the grand scheme of things. What will be telling is when a sector or group takes hold as the firm leader of the market; that can dictate direction for a long time to come.

Consumer Discretionary is the New Star

The Consumer Discretionary sector staged a big rebound and was the winner last week. TMT was the next clear runner up, while Energy and Utilities lagged (although they finished positive for the week). The one theme we can see is that the market is still choppy. We continue to see sector rotations.

For example, look at the how the retail group has been punished recently. The sector has proven quite resilient and staged a nice comeback and was largely responsible for the S&P 500 Consumer Discretionary Index finishing +4.52% last week. Positive earnings reports, stock splits, and other catalysts helped lift that recently ailing space. And despite the recent retail slowdown scare, the retail group has still been the star group within Consumer Discretionary.

At left is a chart of the S&P 500 Retailing Industry Group Index vs. Consumer Discretionary (right).

Standard and Poor's 500 Retailing and Consumer Discretionary - Daily OHLC Charts

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

The other sectors exhibiting signs of true potential leadership in this bumpy market are Info-Tech and Financials.  As we can see in the S&P 500 Information Technology Index one-year chart (below), it is just off of its 52-week highs. Semiconductors have been performing well, as has the Internet group.

Standard and Poor's 500 Information Technology Sector - Daily OHLC Chart

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

Financials as a sector are further off their highs, but the sector has been performing quite well due to the anticipated rate hike. Regional banks have been doing particularly well.

Standard and Poor's 500 Financials Sector - Daily OHLC Chart

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

One area that seemed characteristic of recent outsized reactions to headlines was Healthcare. The sector has been saddled with anxiety since we heard specific political attacks on their pricing practices, calling for potential investigations. “Specialty pharma” became a household phrase a few weeks ago.  While the sector was staging a recovery last week, a negative outlook about Obamacare potentially crippling margins and causing withdrawals from exchanges was accompanied by some heavy selling pressure.

As you can see at the right, the one-week S&P 500 Heathcare sector was a jerky ride. Despite that, the sector still put in a respectable showing to finish the week +2.76%.

Standard and Poor's 500 Health Care Sectors - Daily OHLC Charts

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

The S&P 500 Energy sector continues to be a volatile space. The largest one-day move of any sector this week belonged to Energy when on Monday the sector index staged a +3.26% move! The rest of the week was less exciting, and the sector index finished the week at the bottom of the list, +1.31%. There is great volatility in the S&P 500 Energy Sector Index in both a two-week chart (top) and 12-month chart (bottom).

Standard and Poor's 500 Energy Sectors - Daily OHLC Charts

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

As we try to navigate the market in this heightened state of volatility, it helps to maintain a bigger-picture perspective. The universe of equities can sometimes seem as infinite as the universe itself. If we use these 10 sectors as a guide toward where leadership and weakness begin to appear, we can then start to identify opportunities. Just as outer space is really big, so are the financial markets. It can be easy to get lost going down a rabbit hole, but investors can have a calmer ride by letting the market tell them what works best.

Stat of the Week:

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

Leading Indicators Rise 0.6% in October

by Louis Navellier

The economic news was mixed last week, but the most encouraging indicator came on Tuesday, when the Conference Board announced that the Leading Economic Indicators (LEI) rose 0.6% in October after declining the previous two months.  Especially impressive was that nine of the 10 LEI components (all but “new factory orders”) rose in October. In releasing the report, Ataman Ozyildirim, the director of business cycles and growth research at the Conference Board, said, “Despite lackluster third quarter growth, the economic outlook now appears to be improving.  While the U.S. LEI’s six-month growth rate has moderated, the U.S. economy remains on track for continued expansion heading into 2016.”

Also on Tuesday, the Labor Department announced that the Consumer Price Index (CPI) rose 0.2% in October, due largely to slightly higher prices for food (+0.1%) and energy (+0.3%) – even though gasoline prices declined.  Excluding food and energy, the core CPI still rose 0.2%, led by higher rent (+0.3%) and medical care (+0.7%).  This was the first rise in the CPI in the past three months.  In the past 12 months, however, the CPI has risen only 0.2%, due largely to a 17% decline in energy costs.  Wages have risen 2.4% in the past 12 months.  Overall, inflation remains tame on the consumer level, but chronic deflation is widespread on the wholesale level, via the Producer Price Index.  Due to 2.4% wage growth, I believe the “data dependent” Fed may choose to raise key interest rates at its December FOMC meeting.

Open Pit Mine ImageThe Fed announced on Tuesday that industrial production declined 0.2% in October, slightly below the economists’ consensus estimate of a 0.1% decline.  Fortunately, most of this decline was attributable to a 2.5% drop in utility output due to abnormally warm weather.  The bright spot in the industrial production report was that the manufacturing sector rose 0.4%, a welcome sign after two previous monthly declines.  Mining remains weak, declining 1.5%, due largely to low crude oil and natural gas prices.  The headline number seemed negative, but the details of the October industrial production report were encouraging.

On Wednesday, the Commerce Department announced that housing starts declined 11% in October to an annual rate of 1.06 million – the lowest level since March. In addition, September housing starts were revised lower to a 1.19 million annual pace.  September housing starts were plagued by a big drop in the Northeast, while October housing starts were impacted by an 18.6% drop in the South, due to severe flooding.  Half of all new housing starts are now in the South, so October’s big drop looks to be mostly weather related.  Interestingly, building permits rose 4.1% in October to a 1.15 million annual pace, so hopefully, with fewer weather-related delays, housing starts should follow building permits higher in the upcoming months.  Currently, buildings with five or more units are now being built at the highest level in four decades and the overall number of new homes under construction is at a seven-year high.

The ECB and the Fed Keep Sending Mixed Signals

On Friday, the European Central Bank’s (ECB) President Mario Draghi suggested that further stimulus measures could be deployed to fight deflation in the euro-zone.  It is widely anticipated that the ECB will lower its key interest rate of -0.2% at its early-December meeting, pushing it to -0.3% or even -0.4%.

On Wednesday, the Federal Open Market Committee (FOMC) minutes were released and Wall Street liked the statement that the FOMC revealed that “most participants” anticipate that conditions for beginning to raise key interest rates “could well be” achieved at its next meeting in mid-December.

Specifically, the FOMC minutes revealed that “most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting.”  This was an unusually assertive statement from the FOMC, so the odds of a December rate hike are now very high, based on fed fund futures.  Another assertive statement in the FOMC minutes was that “some participants noted that it would be prudent to have additional policy tools that could be used in such a situation.”  Translated from Fedspeak, the Fed wants to raise key interest rates so that they can then cut them again, if needed, in the future.  In their best doublespeak, the FOMC minutes revealed that it would take an “unanticipated shock” or weak economic data for the Fed to postpone its anticipated December key interest rate hike.

Chinese Waterway ImageIn an attempt to stimulate economic growth, China’s central bank announced last Thursday that it is cutting its Standing Lending Facility to a rate of 2.75%, down from 4.5% (see the Wall Street Journal from November 19).  The People’s Bank of China also cut its seven-day lending rates to 3.25%, down from 5%.  As interest rates continue to decline around the world, it might cause the Fed to delay raising key interest rates, but based on FOMC minutes, it looks like the Fed will be raising its key interest rates 0.25% in December in a “one and done” manner.

In the meantime, more countries continue to fall into recession.  The latest is Japan, which announced last week that its third-quarter GDP contracted at a 0.8% annual pace, following a 0.7% contraction in the second quarter.  Since two negative GDP quarters constitute a recession, Japan has joined several other nations by falling into a recession.  Generally, the more business a country does with China, the more likely it has fallen into a recession due to slowing exports.


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Past performance is no indication of future results.

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

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

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

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

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

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

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

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

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

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

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

Past performance is no indication of future results.

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

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

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

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

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