May Bring Certainty Back

Election Results May Bring Certainty Back to a Nervous Market

by Louis Navellier

November 6, 2018

The S&P 500 gained 2.42% last week in a recovery rally. The good news is that there has been (1) wave after wave of positive third-quarter earnings announcements, (2) more big stock buy-backs, and (3) mergers like Electro Scientific (ESIO) accepting a $30 per share buyout offer from MKS Instruments (MKSI), which was announced in conjunction with ESIO’s better-than-expected sales and earnings announcement.

(Navellier & Associates owns ESIO, and MKSI, in managed accounts and a sub-advised mutual fund.  Louis Navellier and his family own ESIO, and MKSI via the sub-advised mutual.)

This is likely the first of many acquisitions to be announced in the upcoming weeks, now that many top-quality stocks are trading at bargain prices, with historically low price/earnings ratios. Companies often postpone their dividend increases, stock buy-backs, and acquisition announcements until their quarterly earnings are released; so, as this earnings season winds down, I expect to see more positive news!

November Calendar Image

I for one am certainly happy that October is over, since it was the worst month since February 2009 for most stock market indices. Fortunately, November is a seasonally strong month. The Dow Industrials have risen an average of 1.35% and 1.87% in the past 50 and 20 years, respectively, according to Bespoke Investment Group, making November the third best month in both time frames. An early “January Effect,” boosting small capitalization stocks, typically commences in November, usually around Thanksgiving,

I also expect to see the stock market celebrate the fact that the mid-term elections will mercifully be over tonight. No matter the outcome, this day removes much of the uncertainty that has been distracting many investors. I live in two swing states, Florida and Nevada, and I have been shocked by the long lines for early voting. Since there appears to be record turnout, we may see some surprising results tonight! 

In This Issue

Bryan Perry sees a rise in yields being the biggest impediment to a market rise in the next two months, while Jason Bodner sees the trade resolution as the market’s main concern and biggest key to recovery. Ivan Martchev agrees, with a dollar breakout giving the trade impasse a new urgency. Gary Alexander just returned from New Orleans, where the bears roared once again, but he brings some historical parallels which could offer an election boost. Then I’ll close with some market trading insights and economic data.

Income Mail:
Bond Yields Rise with a Spike in New Hires
by Bryan Perry
Rising Yields Pose the Biggest Threat to a Year-end Rally

Growth Mail:
The New Orleans Bears Growl Again
by Gary Alexander
The Yin and Yang of Gold and Stocks in the Elections of 2016 & 2018

Global Mail:
The U.S. Dollar Index Breaks Out
by Ivan Martchev
The Trade-Weighted Dollar Is Much Stronger

Sector Spotlight:
Market Lows Seem Lower than Market Highs Seem High
by Jason Bodner
Trade Resolution Now the Market’s Main Concern

A Look Ahead:
Arbitrage Traders are Targeting Tech Stocks
by Louis Navellier
Economic Indicators Turn Positive Just Before Election Week

Income Mail:

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

Bond Yields Rise with a Spike in New Hires

by Bryan Perry

For most of last week, earnings from high-profile companies dominated the attention of the financial media and investors alike with a tremendous amount of debate as to whether the third quarter represented an earnings peak for the current economic cycle. This topic also dominated the first and second quarters as well, yet the economy continues to pleasantly surprise investors and frustrate the naysayers.

For many big-name stocks, selling on the earnings news has been the order of the day, especially if results failed to produce a huge upside surprise for revenues and sales. Before the market reversed itself last Wednesday, about the only sectors getting any love from investors were utilities, real estate, and a few consumer staples, as the appetite for safety and yield ruled sentiment. Roughly 90% of all stocks are now trading well off their late September highs, with some high-P/E growth stocks down as much as 40-50%.

The sell-off caused heavy technical damage and took a big toll on investor sentiment as forced selling by ETFs and computer-program selling implied a market devoid of stability. What was a smooth ride for most of 2018 is no longer the case. How the market reacts to the midterm election results, the upcoming G20 meeting and, most importantly, the new highs in bond yields, comprise our next challenges.

The oversold rally this past week was inspired by the S&P 500 finding key support at the 2,600 level, coupled with some strong earnings reports and hints of some fresh dialogue between the U.S. and China. A couple of Fed presidents also spoke out about how fiscal policy wasn’t a lock to raise rates if economic data softened over the next few weeks. Fear of rising rates boosted the dollar back to its 2018 highs.

Standard and Poor's 500 Large Cap Index Chart

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

For the market to be “out of the woods,” the S&P 500 has to clear 2,765 (its 200-day moving average), and then 2,800 on expanding volume. A favorable outcome in the midterm elections and any sort of framework for constructive talks between Presidents Trump and Xi at the G20 will lay the groundwork for an attempt by the bulls to retake the high ground – as long as the bond market cooperates.

Rising Yields Pose the Biggest Threat to a Year-end Rally

After President Trump berated Fed President Jerome Powell for tightening too fast, the economic calendar delivered a stunning employment report that put the zipper on the President’s concerns and the Fed’s most outspoken critics. The influential Employment Situation report for October showed nonfarm payrolls increasing 250,000, higher than the consensus of just 188,000. Average hourly earnings increased 0.2%, and the unemployment rate remained at a 49-year low of 3.7%.

In short, the strong jobs report validated the labor market trends that will keep the Federal Reserve on a tightening path. The CME FedWatch Tool indicated an 80.7% chance of another Fed rate hike in December, up from a 74.5% chance the previous day. Treasuries sold off along with equities on Friday, pushing yields notably higher across the curve. The Fed-sensitive 2-year yield and benchmark 10-year yield spiked seven basis points each to 2.91% and 3.21%, respectively, compared to 2.81% and 3.08% yields the previous week. The long (30-year) Treasury bond yield jumped to 3.45%. Also, the U.S. Dollar Index added 0.2% to 96.48. The Fed will meet this week, but no rate hike is expected in this meeting.

Thirty Year Treasury Bond Chart

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

So, as the glamour part of earnings season declines, investors will digest the midterm elections and the policy statement that will follow this week’s FOMC meeting. While little attention was given to the bond market last week, I believe it will be a major focus of interest if the Fed maintains their semi-euphoric position on the economy. If so, bond yields risk rising further. While investor sentiment is accepting the recent rate hike and new higher levels for bond yields, a further bump in yields may create headwinds.

Tax reform continues to fuel corporate and consumer spending and will in my view sustain the economy and extend the rally longer than the current consensus expects, as long as the cost to borrow and finance doesn’t push too much on the string of business and consumer budgets. The higher cost of borrowing is acceptable as long as sales and income grow at a faster pace. This is the transitional perception that will become the center of the narrative – as the economic calendar determines how that perception plays out.

Growth Mail:

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

The New Orleans Bears Growl Again

by Gary Alexander

I’ve been the MC, panel moderator, and/or speaker at the New Orleans Investment Conference for each of the past 35 years, ever since I worked for its founder, James U. Blanchard III, in the 1980s. This year, the bears were out in force, as usual. They’re right one year in 10! There’s no sense in repeating the views of some of the perma-bears, whose views never change, but I was particularly concerned that one of the frequent bulls, Dennis Gartman, turned “bearish on stock prices,” saying we were “well into a global bear market,” citing the submerging “emerging” markets and the sub-par European and Asian markets.

Bond vigilante Jim Grant believes we are in a bond bear market, too. The “great bond bull market that began in 1981 with the absurdity of 15% Treasury yields ended in 2016 with the reciprocal absurdity of $11.9 trillion of marketable debt worldwide priced to yield less than zero. We think a new bond bear market is underway.” He cited Hoisington Investment Management data back to 1870 which says average nominal Treasury long-term yields have averaged 4.66%, or 152 basis points above the current 3.14%.

Grant created the most memorable imagery of the conference, in my mind, saying that the investment landscape today is like the busy investor flying all day, rejecting airline food, waiting for a hotel meal only to find that all restaurants are closed, room service is not available, and the only food at hand is the mini-bar with a $7 tin of Pringle potato chips. In other words, stocks, bonds, and currencies are of little value but are expensive, so what are you going to buy? At times like this, I am glad I edit Louis Navellier!

Mainstream analysts like Guy Adami of CNBC’s “Fast Money” and Peter Boockvar of the Bleakley Advisory Group and editor of the Boock Report were equally dismal. Adami’s talk, “Forewarned is Forearmed,” warned of the Fed’s unwinding of its bloated balance sheet. Boockvar’s talk, titled “Buckle Up,” added that the Fed is unwinding QT at the same time the European Central Bank (ECB) is ending its quantitative easing (QE) and the Bank of Japan (BOJ) is cutting its QE in half. A decade after the 2008 crisis, when the Fed quintupled its balance sheet and the BOJ bloated its balance sheet to nearly 100% of Japan’s GDP, they are just now beginning to unwind their “cure” to a decade-old crisis. After each of three rounds of QE at the Fed ended, Boockvar showed, there was a 10% or greater correction, and we’ve seen such a correction again in October. (Yes, I wanted to add, but the market recovered every time!)

With all this background, we entered the Sunday political panels, of which I was the moderator.

The Yin and Yang of Gold and Stocks in the Elections of 2016 & 2018

Since I cover both stocks and gold for Navellier & Associates, I was able to notice something that may have escaped many analysts at this conference, so I brought it up on my political panel. Back in October 2016, the S&P 500 fell 4.2% in the five weeks leading up to the election, on the presumption that Hillary Clinton would win. In a mirror image, gold rose in October 2016 from $1,254 to $1,303 on November 4, but when Trump won, gold fell sharply to $1,125 in mid-December and stocks took off like a rocket.

The same thing happened this year. Gold rose 3.4% since September 30 and the S&P fell 6.6% for a 10% gold/stock spread, based on the assumption that the Democrats will take over the House after Tuesday’s election. But what if the unexpected happens once again – the Republicans retain the House?  Then we could see a stock market rally and a decline in gold, just like what happened in November 2016.

However, in the greater likelihood that the Democrats win control of the House, gold should continue to rise and stocks could test their recent lows before rising again, before it sinks in that “gridlock” can also be a winning formula for stocks, as shown in recent decades – when Republican Ronald Reagan worked with a Democratic Congress and Democratic president Bill Clinton worked with a Republican Congress.

The odds calculated by “538.com” predict an 85% likelihood of the Democrats taking over the House. Since World War II, the first mid-term elections after a new President has been elected have found the Party opposing the new President gaining an average 26 seats in the House of Representatives. If the President had a popularity rating under 50% (as Trump has) the average since 1945 is a gain of 37 seats.

Back in 1994, there was a “Republican Revolution” in the first mid-term election of the Clinton era, after Hillary Clinton’s flirtation with “socialized healthcare” had angered many voters. Republicans, led by Newt Gingrich and his “Contract with America,” stormed to victory with a 54-seat swing, taking control of the House for the first time in 40 years (since 1954), by a healthy margin of 230 seats to 204, thereby throttling the Clintons’ most aggressive liberal programs and leading toward greater prosperity, capital gains tax cuts, “the end of welfare as we know it,” and balanced federal budgets by the end of the decade.

This pattern has also occurred in the President’s second term. In 2006, after the Republicans had control of the House, Senate, and White House for six years, the Democrats took back 31 seats of the House in the 2006 mid-term elections to gain a 233-202 advantage to make George W. Bush a “lame-duck” President in his last two years, during a time leading into the deepest financial crisis since the 1930s, in 2008-2009.

After Barack Obama won in 2008, his record trillion-dollar deficits, Obamacare, huge stimulus spending packages, including “cash for clunkers” and “shovel ready” pork-barrel spending, led to what Charles Krauthammer called a “restraining order” at the voting booth in 2010, as Republican voters, led by a Tea Party movement, created a record 63-seat swing in the House to give the Republicans a 242-193 majority. (In the 2014 mid-term elections, Republicans gained 13 more seats to throttle Obama’s final two years.)

Something like that may happen this year, according to the pundits at “538.com,” the Website that takes its name from the number of electors in the Electoral College. They follow each of the 435 House districts and 100 Senate races in granular detail and add up the details in real time. Their latest totals show an 85% chance that the House will go Democrat, with a median 40-seat gain for the Democrats. More comforting to Republicans, “538.com” sees an 82% chance for the Republicans maintaining control of the Senate.

Most polls see about an 80% chance of the Democrats winning the House. Here’s what Crosstabs says:

United States House Election Forecast Chart

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

But it’s encouraging to Republicans that in their last poll on November 8, 2016, “538.com” predicted a 71.4% chance that Hillary Clinton would defeat Donald Trump for President, so the polls can be flawed.

Global Mail:

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

The U.S. Dollar Index Breaks Out

by Ivan Martchev

With the algos gone berserk in the stock market of late, not many investors noticed that we are now trading at a fresh 52-week high on the old U.S. Dollar Index. All indications are that the dollar is headed higher, with better economic performance, a shrinking trade deficit, and higher interest rates, based on the latest indications from the Federal Reserve.

United States Dollar Index Chart

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

As I have often noted in this column, a lot has changed in global trade since the non-trade-weighted U.S. Dollar Index was formulated. That index still carries the euro as its largest component at 57.6%.

Even though the euro has been around in cash form for less than 20 years, its exchange rate can be extrapolated back in time using the formula under which Deutsche marks and French francs (and the other European currencies) got folded into the euro. Under such a historical exercise, the range of the euro over the past 50 years is $0.69 to $1.87. Its purchasing power parity, which is a nebulous concept due to the various standards of living for all countries that are part of the eurozone, is around $1.15.

Still, currencies are famous for swinging from wildly undervalued to wildly overvalued and not respecting such theoretical concepts as “purchasing power parity.” With existential frictions within the EU and eurozone, due to Brexit and Italy and the wave of populism that was catalyzed by the refugee crisis, the euro has some very serious issues. Economic performance of eurozone countries has notably decelerated in 2018, which is also evident in underperforming eurozone stock benchmark indexes like Euro Stoxx 50 (similar to the Dow Jones Industrial index) and Euro Stoxx 600 (similar to the S&P 500).

Euro Stoxx 50 Stock Market Index Chart

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

The Euro Stoxx 50 Index appears to have double-topped and failed even to take out its 2007 highs, while the Dow Jones Industrial Average has for all intents and purposes doubled in the same time frame. With more economic momentum in the U.S. and expanding interest rate differentials, it appears that the euro is headed lower. On a daily euro chart, there is a clearly definable head-and-shoulders top, which is a trading pattern that points to an exchange rate of 1-to-1, or “parity” to the dollar. Such a euro bear market is likely to continue to unfold in 2019 after having started earlier this year from above $1.25.

EuroDollarRatio.png

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

The cyclical bull market that took the euro from under $1.04 on the first trading day in 2017 to its early 2018 highs was driven by pro-EU election victories. Exactly the opposite political environment is present, with the populist government in Italy butting heads with Brussels, and Brexit frictions intensifying.

The Trade-Weighted Dollar Is Much Stronger

The all-time high in the Broad Trade-Weighted Dollar Index, set in early 2002, is 130.21. We reached 127.55 last week. While the Broad Trade Weighted Dollar index was hitting its all-time high in 2002, the old (non-trade-weighted) U.S. Dollar Index was near 120. It closed on Friday at 96.51. It is pretty clear that on a trade-weighted basis the dollar is much stronger and close to fresh all-time highs, which are coming soon as the Trump administration keeps tackling trade issues and the Fed keeps hiking interest rates.

Broad Trade-Weighted Dollar Index Chart

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

Clearly, the trade friction with China is on stock investors’ minds as the stock market sees notable waves of buying on any seemingly positive developments from the present standoff and then sells off when other more negative news headlines nip the hopes for a trade deal in the bud. The President asked his staff last week to draft a trade deal to present to Xi at the G-20 summit in Argentina later this month.

Widening Trade Gap with China Chart

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

President Trump also said recently that if there is no trade deal at the G-20 Summit, he will slap China with more tariffs, which does not qualify as a thinly-veiled threat when it comes on the rating scale of threats. The thing with the Chinese is that they do not respond very well to threats and they always try to save “face”; the present U.S. trade strategy is as far from face-saving for the Chinese as it is likely to get.

Still, the abrasive approach preferred by President Trump has produced results with Mexico, Canada, and South Korea, so he is hoping it will produce the same results with China and Japan. I have my doubts.

Sector Spotlight:

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

Market Lows Seem Lower than Market Highs Seem High

by Jason Bodner

The deepest place on earth is Challenger’s Deep, about 36,000 feet below sea level – so deep that if you put the base of Mount Everest in it, the peak would still be 1.2 miles below sea level.

Deepest Spot in the Ocean Image

Likewise, market bottoms can seem deeper than market highs seem high. The latest psychological bottom was likely put in on October 25. One main reason I feel this way is that we received an ultra-rare “oversold” signal the following Friday morning, October 26. In short, a ratio of unusual buying to selling I follow plunged below 25% for only the fourth time in the last 6.5 years. This means that under 25% of all unusual trading activity was buying. More than 75% of such activity was selling, and that is an unsustainable level. The prior times this happened, the forward returns of the market 2-8 weeks out were positive 100% of the time, and the average return of the Russell 2000 was roughly +8% after eight weeks.

Russell 2000 Index Chart

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

We have seen a big rally in the market in the last few days, up 4.5% from Monday’s lows. Each day I run my model looking for unusual institutional trading – starting with the volume and volatility components that comprise the initial screen. Each day in this slide, we have seen nearly 1,200 stocks out of 5,500 tripping our model. Our daily number of institutionally-tradable stocks is roughly 1,400 out of 5,500.

The number of stocks that violate the volume and volatility thresholds and also breach interim highs and lows is what gives us our UI signals. That has been around 85 a day – down from anywhere between 200 and 800 in the height of the selling. What this means is that out of 1,400 stocks, about 1,200, or 85% of them per day, have shown unusual volume characteristics. This means 85% of the institutionally-tradable universe of stocks is exchanging hands in big volume on the way up from the bottom in late October, and only a handful are making new highs or lows on that unusual volume.

This is very bullish and constructive to me. After a market establishes a floor, the liquidity needs to moderate and constructive price action needs to begin. That's where I think we are.

Add to that the recent sales and earnings reports: About 62% of the S&P 500 have reported, with an average of 8.25% sales growth and 24% earnings growth. Those numbers sound pretty fantastic to me.

What about “peak earnings momentum”?  If this really does become the peak quarter (as was the concern in each of the prior three quarters), we are looking at a market only slightly less healthy. That is not a catalyst for a crash. It just calls for sector rotation and new leadership, which is where my focus will be.

Standard and Poor's 500 Sector Indices Changes Tables

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

Trade Resolution Now the Market’s Main Concern

As far as company guidance is concerned, as companies keep beating sales and earnings estimates, the overwhelming concern has become “tariffs and trade disputes causing us to be cautious on guidance.”

Many companies fear that trade problems will dilute their bottom lines in the future.

I have been saying for a long time now that I believe Trump will come out with a “magic bullet” to rescue the China trade talks before the mid-term elections. Right on cue, the positive language from his tweets asserts that he and Xi had “very productive talks and they all want a deal.” Trump can't afford to see a floundering stock market and a damaging trade dispute going into the elections, giving the potential to threaten his chances for Congressional obstruction going forward. I believe the trade issue will resolve itself soon. When it does, these companies warning on guidance will likely restate their guidance higher.

Former Fed chair Janet Yellen came out last week with dovish comments, essentially warning the Fed about raising rates too fast. She was concerned that if the increases are not “moderate,” we could see inflation in 2020. So now Powell has both Trump and Yellen on his case about not being too aggressive on rates. The 10-year note is still at around 3.2 %, hardly a catalyst to dump equities and buy bonds.

The bottom line is that this selloff was caused by buying which dried up in the face of uncertainty over trade and elections. High-frequency traders (HFTs) shorted into weak bids. Technical levels triggered forced ETF selling, with hedging putting further pressure on stocks. That pressure caused forced institutional selling elsewhere. This spread to retail selling. This level of uncertainty is in the process of rolling off, and now there is a strong technical case from my perspective for a market bottom already being in.

There are many bullish catalysts from my perspective. Most of what I hear is despair and discomfort, from pain endured by the recent slide. The sentiment shifted to being almost entirely bearish, which is when I want to be bullish. China is rebounding, tech stocks are seeing some pressure from Apple's weak guidance, but the Russell 2000 is flat, as of this writing. Domestic small caps, which have borne the brunt of so much punishment, are remarkably resilient. To me, this means that global trade resolution is getting priced into the market. This is the single largest market impediment now, in my opinion.

I know I sound like a perma-bull, but until the backdrop really changes, I think this is a “noisy” period which has inflicted a lot of damage, but it is not the beginning of a bear market. It was a “backdraft” event, in which buying liquidity got sucked out of the market. The explosive force of shorting and low liquidity was amplified into forced selling, which created a massively toxic month for the market.

I believe this was a reset for many crowded trades and an opportunity to see which sectors emerge, spawning new single-stock leaders. If someone asked me which was a bigger risk now – being long or being short – I’d say I am likely going to feel bad for the shorts very soon. After last week, I already am.

Dan Rather Quote Image

As Dan Rather put it: “Once the herd starts moving in one direction, it's very hard to turn it, even slightly.”

A Look Ahead

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

Arbitrage Traders are Targeting Tech Stocks

by Louis Navellier

The arbitrage trade of selling the Nasdaq 100 (QQQ) and buying the S&P 500 (SPY) temporarily took its toll on many popular technology stocks. Despite high-volume selling pressure in recent days – which is providing plenty of evidence of capitulation and a nice rebound – Wall Street loves to retest recent lows, so we may not officially be “out of the woods” until we get another attempted retest out of the way.

In the meantime, the discounts on ETFs relative to their net asset value (NAV) remain problematic; so much so, that in our ETF portfolios, we had to wait for upticks to sell all our ETFs and are now parking those proceeds in two Treasury ETFs staggered along the yield curve. My Monday podcast discussed this.

As more technology stocks announce better-than-expected quarterly results, I hope that they will finally help to “break” this popular arbitrage that has resulted in relentless selling in technology stocks, many of which have posted stunning sales and earnings. Fortunately, in recent days, Amazon.com (AMZN) has started to recover and Nvidia (NVDA) has rebounded sharply, after being upgraded by J.P. Morgan.

Approximately 63% of the stocks in the S&P 500 have announced their third-quarter results and so far annual sales and earnings have risen by 8.2% and 25.1%, respectively. There is a lot of talk about the third quarter being “peak earnings” season, but that is what I also heard about first-and second-quarter earnings. The wild card is the amount of stock buy-backs that will occur in the upcoming weeks. So far this year, stock buy-backs are running 88% above a year ago and the S&P 500 is on track for at least $800 billion in stock buy-backs in 2018. However, due to the October correction, I expect that companies will accelerate their stock buy-back pace, so $1 trillion in stock buy-backs are now quite possible in 2018!

After the arbitrage selling in the Russell 2000 that crushed small capitalization stocks in October, most are still grossly oversold and poised to rally strongly, especially in the wake of better-than-expected third-quarter results. So far, the average small-capitalization stock is posting approximately 35% third-quarter earnings growth, versus 25% for the S&P 500. Furthermore, a strong U.S. dollar typically benefits small-cap domestic companies, so I expect a massive resurgence in small-cap stocks commencing in November.

(Navellier & Associates owns NVDA, and AMZN, in managed accounts and a sub-advised mutual fund.  Louis Navellier and his family own NVDA, and AMZN via the sub-advised mutual fund and AMZN, and NVDA in individual accounts.)

Economic Indicators Turn Positive Just Before Election Week

The economic news last week was mostly positive. On Tuesday, the Conference Board announced that consumer confidence surged to 137.9 in October, up from a revised 135.3 in September. Consumer confidence remains at the highest level in 18 years (since 2000) and bodes well for a record holiday shopping season. The Conference Board’s present situation index rose to 172.8 in October, up from 169.4 in September and is also at an 18-year high. Finally, the Conference Board’s future expectations index rose to 114.6 in October, up from 112.5 in September, which is (you guessed it) at an 18-year high!

On Thursday, the Labor Department announced that productivity rose at a very healthy 2.2% annual pace in the third quarter and was revised up to a 3% annual pace in the second quarter. These big productivity gains tend to boost wages and help prosperity rise. In the past 12 months, productivity has only risen 1.3%, despite being strong in the second and third quarters, so the recent productivity surge is great news.

The only downer came Thursday when the Institute of Supply Management’s (ISM) manufacturing index slipped to 57.7 in October, down from 59.8 in September. Even though any reading above 50 signals an expansion, the ISM manufacturing index is now running at the slowest pace in six months. The new orders component slipped to 57.4 in October, down from 61.8 in September. Furthermore, the production component slowed to 59.9 in October, down from 63.9 in September. This deceleration in manufacturing is consistent with the massive inventory buildup in the third quarter, which was responsible for 2.1% of the 3.5% estimated GDP growth in the third quarter. Typically, when there is a big inventory buildup in one quarter, the next quarter inventories are depleted. As a result, GDP growth is expected to decelerate in the fourth quarter, which the October ISM manufacturing report is essentially confirming.

The big news on Friday was the Labor Department’s payroll report, which reported that 250,000 payroll jobs were created in October, substantially above economists’ consensus estimate of 188,000. The August and September revisions, when combined, were essentially unchanged. Unemployment remains at 3.7%, a 49-year low. Average hourly wages rose 5 cents to $27.30 per hour and are up 3.1% in the past 12 months. Previously, on Wednesday, ADP reported that 227,000 private payroll jobs were created in October, the highest pace in the past eight months and well above consensus expectations of 189,000.

Boeing Airliner Image

Also on Friday, the Commerce Department announced that factory orders rose 0.7% in September due to strong demand for transportation equipment, especially from Boeing (BA). August factory orders were revised higher to a 2.6% increase up from 2.3% previously reported. Factory orders have risen 8.4% in the past 12 months and are painting a positive picture of manufacturing activity.

(Navellier & Associates owns Boeing, in managed accounts and a sub-advised mutual fund.  Louis Navellier and his family own  Boeing via the sub-advised mutual fund and in individual accounts.)

Finally, the Commerce Department announced that the trade deficit rose 1.3% in September to $54 billion, but trade keeps expanding. Exports rose 1.5% to $212.6 billion and imports rose 1.5% to $266.6 billion. The trade deficit with China rose $3 billion to $37.4 billion, which is not surprising due to new iWatches and iPhones, as the demand for imported consumer goods rose by $2 billion in September.

Trade talks may happen soon. Bloomberg reported that President Trump had a positive call with Chinese President Xi on Thursday and subsequently instructed his Cabinet to draft a proposed trade deal with China. That helped to alleviate recent trade fears, which could set the stage for a strong year-end rally!


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

Past performance is no indication of future results.

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

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

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

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

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

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

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

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

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

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

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

Past performance is no indication of future results.

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

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

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

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

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