May Test February Lows

We May Test the February Lows, Then Recover Strongly

by Louis Navellier

March 6, 2018

The S&P 500 fell 2% last week but it is still up slightly (+0.66%) for the year.  On my Thursday podcast, I explained that the recent market rebound was concentrated in predominantly large technology stocks and lacked breadth as well as international participation.  Furthermore, during the last 90 minutes of trading on Wednesday, which was the last trading day in February, the “tail was wagging the dog” as futures and options bets apparently suddenly undermined the S&P 500.  As a result, it appears that the S&P 500 is now in the process of getting ready to retest its February 8th intraday market lows.  I expect that this “retest” will happen in the first two weeks of March and then the stock market will subsequently recover in the wake of what I anticipate will be a dovish Federal Open Market Committee (FOMC) statement.

Steel Structure Image

The Wall Street Journal and other financial news media blamed Thursday’s 420-point drop in the Dow Industrials on President Trump’s comments that he intends to slap tariffs on imported steel and aluminum products.  That was a gross overreaction.  As I will show later, U.S. exports are already recovering nicely.

Looking forward, March is a historically strong month and April is one of the strongest.  As Bespoke Investment Group showed in their “March Seasonality” report (February 28, 2018), the March-April calendar period is the strongest combination of two consecutive months over the last 50 years.  In particular, I expect the last two weeks of March to be especially strong, since they typically benefit from quarter-end window dressing as well as the 90-day realignment for most smart-Beta ETFs.  At the end of the quarter, fundamentally superior stocks typically benefit from persistent institutional buying pressure.

In This Issue

After several months of rising markets (through January 26), we’ve seen near-record volatility since then, and last week was no exception, but Bryan Perry has found a super-hot sector for generating income in a choppy market. Meanwhile, Gary Alexander presents half a dozen big stories that got lost in all the recent market noise. Turning overseas, Ivan Martchev sees a peak in the euro/dollar rate and signs of European weakness in Deutsche Bank stock.  As usual, Jason Bodner chooses to look at the best sectors and the best stocks in those sectors rather than following every stock and each news flash. In the end, I question the President’s desire to fuel a trade war when U.S. exports and manufacturing are rising so strongly now.

Income Mail:
Markets Cool Off as Trump Turns Up the Heat
by Bryan Perry
Selling Covered Calls in a Super-Hot Sector for Income in a Choppy Market

Growth Mail:
Some Big Stories You May Have Missed (Given All the Noise)
by Gary Alexander
These “Big Stories” Should Push Earnings (and Stocks) Higher

Global Mail:
Is the Euro Top Already in Place?
by Ivan Martchev
What Does the Breakdown in Deutsche Bank Stock Mean?

Sector Spotlight:
In a Complex Market, Focus on the Details
by Jason Bodner
A Return of “Red” to the Sector Scorecard

A Look Ahead:
The Fed Will Likely Raise Rates – Despite Moderate PCE Inflation
by Louis Navellier
No Need for a Trade War – U.S. Manufacturing and Exports are Rising

Income Mail:

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

Markets Cool Off as Trump Turns Up the Heat

by Bryan Perry

A little over two weeks ago, the S&P 500 was at 2,715 and, as of last Friday, March 2, the index traded at 2,732. The big two-day 75-point rally in the S&P that occurred on February 23 and 26 had investors feeling that the correction had run its course. It was “clear sailing ahead” and February would close out on a positive note. But such was not the case. The major averages became caught up in a technical tug-of-war last week, trying to regain bullish momentum only to have every rally attempt cut short. The market is squarely in the crosshairs now, being jerked to-and-fro between one bold set of headlines and another.

First, in last Tuesday’s maiden voyage talking before Congress, Fed Chairman Jerome Powell said, “My personal outlook for the economy has strengthened since December. I wouldn't want to prejudge that new set of projections, but we'll be taking into account everything that's happened since December.” Those comments, about 40 minutes into the Congressional Finance Committee hearing, caused the yield on 10-year Treasury bonds to jump and major stock indexes to begin dropping as investors anticipated a fourth rate hike this year, which would be designed to slow growth to keep the economy from overheating.

The next day, Wednesday, brought the sudden resignation of White House Communications Director Hope Hicks following a nine-hour grilling in a Congressional closed-door hearing about her role and what she knows about the ongoing Russian election influence scandal. It was construed that her resignation following her interrogation would unleash some damaging evidence against President Trump and his campaign staff, so the Dow plunged over 400 points in the last hour of trading.

On Thursday, President Trump announced a 25% tariff on steel and a 10% tariff on aluminum, sending stocks lower again out of fears of a global trade war. And yet, after a very negative opening for Friday’s session, with the Dow down 425 points, buyers showed up, bidding the S&P and Nasdaq to close solidly in the green with the Dow off only 70 points. The CBOE Volatility Index (VIX) swung 62% over the course of the week, highlighting what could only be described for investors as “Mr. Toad’s Wild Ride.”

Where the United States Gets its Steel Bar Chart

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

Fed Chair Powell made his second appearance on Capitol Hill to the Senate Banking Committee, where he dialed back his hawkish language, stating that there is “no strong evidence of a decisive move up in wages.” Powell also testified that he sees some slack in labor markets and believes this can happen without moving up wages. After this non-event, investors let out a sigh of relief and stocks initially traded out of the red – only to get clobbered by President Trump’s talk of tough tariffs later that day.

The Federal Reserve lays out its interest rate forecast in what is called the Fed Dot Plot, essentially a dot-graph on the direction of short-term interest rates. The median Federal Open Market Committee (FOMC) member is represented by the darker dots. According to the Fed Watch Tool put out by the CME Group, there is a 98.5% probability the Fed will raise the Fed Funds Rate by 0.25% at the the March 21 meeting.

Federal Interest Rate Probability Dot Plot

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

With the Personal Consumption Expenditure (PCE), the most closely-watched inflation indicator, running well below the Fed’s 2.0% preferred target, with crude oil production now at a multi-year high capping upward price momentum, with the dollar getting its mojo back after being talked down by Treasury Secretary Mnuchin, and the strong bid-to-cover ratio seen at the most recent Treasury auctions, the bond market sell-off has been curtailed with the 10-year Treasury closing out the week with a yield of 2.86%.

Selling Covered Calls in a Super-Hot Sector for Income in a Choppy Market

The threat of the 10-year yield breaching 3% may come back into play after the February payroll report on Friday. Until then, however, the economic calendar will rule short-term sentiment. In this scenario, higher levels of volatility create a superior landscape for income investors to sell covered calls on leading aerospace/defense, information technology, and digital/electronics payments stocks. The market has excellent leadership in blue-chip stocks within these sectors, which are also showing strong relative strength during this period of broad consolidation – as wider option spreads drive higher call premiums.

Looking at the global payments markets, there is an oligarchy of stocks that control the space. They include Visa, Mastercard, American Express, Discover Financial, PayPal, Global Payments, Fiserv, Total Systems, and WorldPay. The growth driver for these companies is widening use of mobile e-commerce. (Please note: Bryan Perrv does not currently hold a position in Mastercard, American Express, Discover Financial, PayPal, Global Payments, Total Systems, and WorldPay. Navellier & Associates does currently own a position in Visa, Mastercard, American Express, Discover Financial, PayPal, Global Payments, Fiserv, Total Systems, and WorldPay for client portfolios but does not hold a position in Fiserv,and Visa.)

Statistics show that the worldwide mobile payment revenue in 2015 was $450 billion and is expected to surpass $1 trillion in 2019.

Worldwide Mobile Payment Revenue Bar Chart

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

Current research shows the mobile payments market was valued at $601 billion in 2016, and is projected to reach $4,574 billion by 2023, growing at a CAGR of 33.8% from 2017 to 2023. The Asia-Pacific mobile payment industry segment is anticipated to grow at the highest rate during the forecast period.

According to the research, increased penetration of smartphones, growth in m-commerce industry, change in lifestyles, and the need for quick and easy transactions are the major factors that drive the growth of the mobile payment market. My two millennial sons (ages 28 and 26) swear by PayPal’s Venmo as the go-to platform for splitting the tab with friends at restaurants. By segment, mobile payments using mobile wallets/bank cards are anticipated to witness the highest growth rate (source: “Mobile Payment Market by Mode of Transaction, Type of Mobile Payment, and Application: Global Opportunity Analysis and Industry Forecast, 2017-2023”).

While there are some high-profile and popular investment themes getting lots of attention – like cannabis, cryptocurrency, green energy, and virtual reality gaming – these sectors make for great conversation but are also fraught with high risk due to their young stages of development. These sectors will endure radical change along the way and the clear winners are yet to be determined. In contrast, the global electronics payments industry touches almost every business and every person on the planet and has a definite glide path of stellar growth prospects in front of it. What a fantastic long-term, high-growth investment theme and a super way of capturing market volatility by garnering a strong stream of call option related income.

Growth Mail:

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

Some Big Stories You May Have Missed (Given All the Noise)

by Gary Alexander

“We’re fortunate to be living in the most peaceful, most prosperous, most progressive era in human history … We’re wealthier and healthier and better educated, with a global economy that has lifted up more than a billion people from extreme poverty.”

– President Barack Obama, April 2016 in Germany

When President Obama spoke those words in a foreign land, voters in America were being told the U.S. “loses in everything” and our economy “is always bad, down, down, down” (Donald Trump) or “only the 1% get rich” and “the middle class is disappearing” (Bernie Sanders). But President Obama was right.

If the news cycle were annual instead of hourly, here’s what some of the headlines might look like:

  • “America has now gone nine full years without a fatal accident on a U.S. commercial airline.” It’s darn near impossible to die in an airliner these days! The last fatal crash was a local carrier (Colgan Air Flight 3407 from Newark to Buffalo, February 12, 2009, on a Bombardier Dash-8 Q-400), and it was blamed on pilot error. However, it’s boring to print headlines like “100,000 airplanes didn’t crash yesterday.”
  •  “The number of people living in extreme poverty fell by 137,000 yesterday and every other yesterday of the last 25 years.” That’s 1.25 billion people escaping extreme poverty since the end of the Cold War.  And now, 456,300 are graduating into the middle class every day, creating a huge new global market for exported goods. Yet we’ll never see a headline, “456,300 more people entered the middle class today.

Global Middle Class will Reach a Historic Milestone Image

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

  • “In the last century, Americans are 92% less likely to perish in a fire and 95% less likely to die on the job.” We almost doubled our life expectancy from 40 in 1918 to 79 today. Violent crime has declined by 50% since 1992. Annual murders in New York City are down 85%. Where are the headlines about that?

These are just a few of the facts from “Enlightenment Now: The Case for Reason, Science, Humanism and Progress,” by Steven Pinker, just released (February 13), a natural follow-up to his 2011 book, “The Better Angels of Our Nature,” about the decline in war deaths over time. Pinker is not alone. I am reading two other books which carry the same message, largely ignored in today’s newspapers, about long-term improvement of global conditions – which is the underlying driving force behind the rising stock market.

The Wizard and the Prophet: Two Remarkable Scientists and Their Dueling Visions to Shape Tomorrow’s World,” by Charles Mann (published January 23, 2018) tells the story of the doomsday “prophet” William Vogt, who invented “apocalyptic environmentalism – the belief that unless humankind drastically reduces consumption its growing numbers and appetite will overwhelm the planet’s ecosystems.” In contrast, the Wizard, Dr. Norman Borlaug, developed the “Green Revolution, the combination of high-yielding crop varieties and agronomic techniques that raised grain harvests around the world, helping to avert tens of millions of deaths from hunger.” In the end, he saved billions of lives.

It’s Better Than It Looks: Reasons for Optimism in an Age of Fear” by Gregg Easterbrook (published February 20, 2018) begins by comparing the dismal visions of two 70-year old politicians – Donald Trump and Bernie Sanders – with the facts. He dissects Trump’s doomsday Inaugural speech with the facts of how well the U.S. economy was doing as Trump spoke. Then, he shows how well the 99% of Americans were doing, in contradiction to the oft-repeated Sanders canard that only the 1% prospered.

Here are three more big stories you may have missed:

  • Land use: In his first chapter, Easterbrook writes, “Today the U.S. has 21% less land under cultivation than in 1880, yet that smaller acreage produces six times as much food and fiber.” The press calls this the “food over-production crisis.” (How’s that again?) A page later, he says: “Today the Appalachian forest covers the most acreage since Europeans first saw North America, despite the huge boom in population on the American East Coast, because so much land has been withdrawn from farming and returned to nature.” The press dubs this “the crisis of the vanishing farms,” because bad news sells so much better!
  • Our environment is far cleaner today than any time in the last 100 years. When I attended college in Pasadena, California in the 1960s, we could only see Mount Wilson about one day a month due to the smog. At our 50th college reunion, we saw the mountains clearly. Smog in Los Angeles fell from 200 “Stage 1” alerts per year in the 1960s to zero today, even though the population of LA County is up 75%.
  • Violence in America has declined. The headlines are filled with the tragic story of the school shooting in Florida, and that is indeed tragic, but why are there no offsetting stories about the dramatic decline in murder rates? In 1990, there were 2,245 murders in New York City. In 2016, there were 334.

Murders per Year in New York City Bar Chart

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

These “Big Stories” Should Push Earnings (and Stocks) Higher

These big stories are important since the market needs global prosperity and security as a background for growth, but I’ll close with market news, which reflects this story of untold progress in terms of earnings.

In 2017, S&P 500 revenues rose 9.4% (the fastest rate since 2011) to a record-high $329.41 per share, and S&P 500 operating earnings per share rose 15.3% in Q4’17 (year-over-year), according to Thomson Reuters. According to Yardeni Research, the analysts’ consensus earnings estimate for S&P earnings this year is $157.92, a 19.2% y/y gain, up from just 11.4% growth estimates before the Tax Act passed, and S&P 500 corporate operating profit margins rose to a record-high 11%, according to Thomson Reuters.

Earnings revisions are in record territory. Analysts keep tearing up old estimates and revising them much higher due to the new tax law and rising global growth rates. The S&P 500 Net Earnings Revisions Index (NERI) shot up to 21% in February, the highest positive reading since this data series began in 1985:

StandardAndStandard and Poor's 500 Net Earnings Revisions Chart

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

On CNBC February 23, Ed Yardeni said,I’ve been listening to all these conference calls for the fourth-quarter earnings season, and corporate managements are absolutely giddy with all the cash they are getting” from the tax act. “I think they all went on holiday during Christmas, and they came back in January and opened up their packages, and said, ‘Wow, where did we get all this cash from? What are we going to do with it?’ On their earnings conference calls, they seemed to be saying, ‘Hey, we are going to do everything with it. We are going to buy back shares, pay dividends, pay workers some more.’”

Last week, Jason Bodner referred to noise cancellation technology when it comes to silencing aircraft noise while flying – or shutting out market noise. I suggest that the three books I’ve recommended in this column are an effective way of shutting out the day-to-day onslaught of the “bad news first” daily news.

Global Mail:

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

Is the Euro Top Already in Place?

by Ivan Martchev

I think we have already seen the best levels in the euro for 2018 and it’s all downhill from here.

As I have opined previously, the surge in the euro in 2017 was politically driven. The unwinding of the eurozone disintegration trade due to a wave of political victories in the Netherlands, France, and now Germany (with Merkel’s fourth government just formed) caused the euro to surge last year. This eurozone disintegration trade was primarily evident in currency and bond markets, and the share prices of some European financials, which still are trading at or below their 2008 financial crisis lows.

With Germany finally forming a new government (in March 2018) after their hung federal election (from last September), I do not see any more political drivers for the euro to keep surging. There is the Italian election, where the euro-skeptic Five Star Movement is likely to do well but unlikely to have enough votes to form a government. Then there are the problematic Brexit talks that do not look to be all that promising at the moment. It is entirely possible that the euro sells off due to political friction and interest rate differentials in favor of the U.S. dollar while the British pound sells off even more in 2018.

Euro versus United States Dollar versus British Pound Chart

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

The ultimate euro-skeptic indicator – the German federal 2-year notes that go by the fascinating name bundesschatzanweisungen – are still deeply in negative territory, closing last week at -0.54%. Yes, that's considerably better than the record -0.95% they saw in February 2017 when it looked like the eurozone might fall apart, but it is still deep into negative territory.

Germany Two Year Schatz Yield Chart

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

Why would anyone want to pay the German government 0.54% per year to hold their money for them?

The schatz notes (as they are dubbed to avoid tongue injuries) are a liquid safe haven. Upon a theoretical dissolution of the eurozone, the schatz notes are least-likely to experience a default, which is why the market assigns such a premium on them. If the schatz notes are as deep in negative territory as they are, there must be a lot of eurozone skeptics out there.

Switzerland Ten Year Government Bond versus Euro Swiss Franc Cross Rate Chart

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

The other safe haven bond market in Europe is in Switzerland, where the local government 10-year bond closed on Friday with a glorious yield of 0.00%. The Swiss franc has also been appreciating of late, most likely driven by safe haven flows. Safe haven flows were so extreme in the eurozone crisis that they forced the pegging of the Swiss currency to the euro at 1.20, which was a peg that was abandoned by the Swiss National Bank a couple of years ago, causing extreme volatility in the EURCHF cross rate.

Key indicators of stress in European financial markets suggest that worries about the future of the eurozone still abound. Combined with interest rate differentials in favor of the U.S. dollar that should get bigger with a possible four rate hikes by the Federal Reserve as well as more quantitative tightening, I would be surprised if the U.S. Dollar Index does not rebound and the euro decline in 2018.

What Does the Breakdown in Deutsche Bank Stock Mean?

The long-standing correlation between Deutsche Bank’s stock and the 10-year U.S. Treasury yield broke down in 2018. While the U.S. 10-year Treasury yield is seeing upward pressure because of the actions of the Federal Reserve, DB stock has gone down a lot.

Deutsche Bank Stock Index Chart

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

I don't want to focus on any particular fundamental development – be it investigators probing banking services for the Trump Organization or Jared Kushner, or how LIBOR is being “fixed” by more than one bank in the City of London. Some or all such activities may be very serious, but we saw this strong correlation with the 10-year yield and Deutsche Bank when all types of company developments were happening in the past five years and now we have signs of a serious breakdown.

Needless to say, DB stock needs to be closely monitored as the largest bank in Europe.

I used to view the strong correlation between DB stock and the 10-year yield as a sign of how deflationary pressures in the global economy were affecting the two together, among other factors. Is it possible that a rise in U.S. interest rates driven by Fed policy will make global deflation worse in 2018 and 2019? It sure is possible. Combined with other indicators of stress in the European financial system, the fact that DB stock trades at 30 cents per book value dollar does not make me very bullish on Europe.

Sector Spotlight:

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

In a Complex Market, Focus on the Details

by Jason Bodner

The largest artwork in the world is Arno Coenen’s “Horn of Plenty.” It’s a mural made of 4,000 tiles that covers the inside of the indoor Market de Markthal in Rotterdam. According to the artist, it’s as large as two full-sized soccer fields. The project was so intense that the artist needed the help of Pixar, the animation company. The file Pixar used to print the 4,000 tiles was 1.47 terabytes. To give you an idea of how big that is, this article is about 250 kilobytes. For me to fill 1.47 terabytes, I’d have to write 5.88 million such articles. At one per week, I’ll be writing for the next 113,000 years to fill 1.47 terabytes.

Arno Coenen’s Horn of Plenty Artwork Image

The painting is made up of many smaller images of flora, fauna, and animals, but the big picture is too staggering to look at and hard to comprehend in its totality. You have to break it down to smaller chunks.

This seems a lot like the market to me. When I try to wrap my head around all the market’s many moving parts, it stretches my mind to the brink and I’m usually left reeling. Let me give you an example:

This past week, the market hit a new-found volatility pocket because of new testimony from the new Fed Chairman, Jerome Powell. Then came Mr. Trump’s remarks about tariffs on steel and aluminum, and how he said, “Trade wars are easy to win.” These few things set off violent reactions and an endless stream of news people and guests mulling it over on live TV. At my research firm, we started a dialogue like this:

Person A: “Well, if we put a tariff on these goods, all these fly-over states which used to rely on local milling and steel production would find jobs again, and prosperity. This would filter into the economy and revive entire sections of the country.”

Person B: “Yes, that’s at least partly true, but the edge of our economy and its growth will likely come in new technology and services. Odds are strong, even if steel and coal reignite in popularity, that new mills would be highly automated. Machines would end up doing much of that work, not people. Robots are cheaper, more durable, and more reliable. I see our country leading through tech, not raw materials.”

This was just one exchange of one aspect of one talk trying to address one comment from one issue on one day in one busy week. Trying to ascribe an entire market’s price action and the future value of every enterprise in the span of a few moments seems utterly ludicrous when thinking about it this way.

Puzzling Out the Market Image

I’ve always found that the macro picture of the market is more difficult and more subjective than the practice of looking at individual companies. And why is that?

Well, when looking at stocks, I found you can put the odds in your favor. You can look at sales, earnings, profit margins, debt levels, how it trades, who’s buying it when, and when something unusual happens. Macro investing has so many additional factors and inputs. I find that letting the situation tell you what’s happening is a reliable method for looking at future events. When “Taper Tantrum” happened a few years back, the “smart money” was selling off high-beta stocks; the biggest growth stories out there were getting pounded. Before Brexit, multinationals were feeling the pressure. When the threat of global recession was present, the rate-bearing stocks were getting acquired. The point here is that the big picture unfolds for you, oftentimes, in advance of what the pundits pontificate about on TV.

And if you think that it’s not possible for people to know in advance, think again. Articles on PBS and elsewhere have claimed that Carl Icahn sold steel stocks days before the tariff announcement was made.

Carl Icahn on National Public Radio Image

A Return of “Red” to the Sector Scorecard

Often, we can see the market opinion reflected best in the sector scorecards:

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

Materials may have been hit the hardest this week, but the reactionary selling ripped through every sector.  In fact, seven sectors were down more than 2% for the week. Telecom and Infotech got off relatively easily. Each had muted, sub-1% losses for the week. Naturally, in a week of knee-jerk selling, it’s tough to feel the broader trend. When we look out over three months, we see Infotech and Consumer Discretionary leading the pack. Financials and Health Care are tied for third, followed by Industrials.

The pain has clearly been in the rate-sensitive stocks. Utilities and Real Estate have been punished in the wake of anticipated higher interest rates. Staples, Energy, Telecom, and Materials fill out the remaining losers. Six of the 11 sectors are down for three months. We haven’t seen this much red in a long while.

It is my opinion that these market mood swings are opportunities to buy great stocks. This is when focusing on the details of companies is vital. Let the big picture become the background as we hone in on fine details. Companies with superior earnings and sales and strong forward guidance will offer the best opportunities. If they reside in a leading sector, that’s extra wind at your back.

When things are going well, it’s human nature to worry what will go wrong. We’re not happy unless we’re worried. It’s how we’re wired, sadly. So, while everyone gets caught up in how impressive or fearsome the big picture is, focus your energy on finding the winners in the weeds. That’s what we do.

Let the big picture unfold and watch and ponder what happens. This is something we should all do, but don’t let it overshadow the details. I believe this is where the opportunity lies. Focus on the sectors that lead, then on the leaders in those sectors. As Sandy Weill said, “Details create the big picture.”

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 Will Likely Raise Rates – Despite Moderate PCE Inflation

by Louis Navellier

According to the Commerce Department, the Fed’s favorite inflation indicator, the personal consumption expenditure (PCE) index, rose by 0.4% in January, the biggest monthly increase since September, but it is still up only 1.7% in the past 12 months.  Excluding food and energy, the core PCE rose only 0.2% in January and 1.5% in the past 12 months, well below the Fed’s 2% annual inflation target.

Even though inflation has not yet hit the Fed’s 2% target, the new Fed Chairman Jerome Powell told Congress last week that the Fed is raising key interest rates this month due to the anticipation of inflation moving up to the Fed’s 2% target in the upcoming months.  There seems to be some dispute, however, on whether the Fed will raise rates two to three more times this year after this month’s interest rate increase.

As I mentioned on my Thursday podcast, the Fed may not raise key interest rates as much as Wall Street anticipates, since the FOMC does not want to invert the yield curve, which would be devastating to the banking industry the Fed regulates.  Furthermore, market interest rates have moderated a bit and since the Fed does not like to fight market rates, some of these anticipated rate hikes might not be forthcoming.

One reason that inflation may be moderating is record domestic crude oil production.  The Energy Information Agency (EIA) reported last Wednesday that the U.S. produced 10.057 million barrels of crude oil per day in November, a 47-year high.  The EIA is forecasting that U.S. crude oil production will soon hit 11 million barrels per day and continue to set new records.  The shale oil boom is responsible, and it should also help to reduce the trade deficit in the upcoming months and boost overall GDP growth.

No Need for a Trade War – U.S. Manufacturing and Exports are Rising

The President’s move to raise tariffs on steel and aluminum is misguided. Overall exports are running at their strongest level since April 2011, and the Institute of Supply Management (ISM) reported last Thursday that its manufacturing index rose to 60.4 in February, up from 59.1 in January.  It is now at the highest level in 13 years (since May 2004).  The booming energy sector and continued strong vehicle production are boosting manufacturing activity.  Overall, the manufacturing sector remains remarkably strong, and it should get even stronger when the anemic housing market starts to recover.

On Wednesday, the National Association of Realtors announced that pending home sales declined 4.7% in January to the lowest reading since October 2014.  In the past 12 months, pending home sales have fallen 3.8% as higher mortgage rates and low inventories combined to curtail home sales.  The Commerce Department also reported that new home sales plunged 7.8% in January vs. December, the biggest decline since 2010.  In the past 12 months, new home sales have declined 1% to a 593,000 annual sales rate.

Commercial Aircraft Image

Durable goods orders have been erratic, month to month. On Wednesday, the Commerce Department reported that durable goods orders plunged 3.7% in January, due largely to a 28% drop in commercial plane orders.  Excluding commercial aircraft and vehicles, however, durable goods orders declined only 0.3% in January, while core durable goods declined 0.2%.  Overall, durable goods orders look lackluster.

The other economic news released last week was mostly encouraging.  On Tuesday, the Conference Board reported that consumer confidence surged to 130.8 in February, up from 124.3 in January, reaching the highest level in over 17 years (since November 2000).  The “present situation” component rose to 162.4 in February, up from 154.7 in January.  The recent tax reform seems to be boosting consumer confidence.

On Thursday, the Commerce Department reported that personal income rose 0.4% in January, while consumer spending rose 0.2%.  Adjusted for taxes and inflation, real disposable income rose 0.6% in January, the largest monthly increase in five years!  Due to high consumer confidence and disposable income, retail sales should improve in the upcoming months, despite a slowdown in recent months.


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

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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 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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