Monday Delivered Test

Monday Delivered the Long-Awaited Test of the October Lows

by Louis Navellier

November 13, 2018

Monday was a holiday throughout much of the land, and Wall Street had relatively low volume, but the market finally tested its October lows Monday, with the Dow falling 602 points. The good news is that we didn’t have the kind of machine selling we had in October. This selloff was much simpler. An Apple supplier issued lower guidance, so sellers shot Apple, but big tech stocks will continue to have strong sales and earnings. Basically, everyone is over-reacting. Many energy and retail stocks were up, after being hit on previous days, because good stocks bounce. We’re still in a “washing machine” cycle.  Some of the decline is related to lingering election uncertainty in several recounts, but I believe NVIDIA’s earnings announcement Thursday could boost the tech sector, along with announcements of more share buybacks.

Normally, as earnings announcement season winds down, the last few S&P 500 sales and earnings reports tend to show sub-par results. However, the last few corporate third-quarter sales and earnings announcements have gotten stronger. Amazingly, with over 85% of the S&P 500's earnings announced, average sales growth has accelerated to 10.3% and average earnings growth is now running at a stunning +28.9%!  Many companies are lowering their sales guidance, but I suspect they are really just trying to lower analyst expectations so that they can surprise us again during the next announcement season.

Naturally, the big news last week was Tuesday's mid-term elections and, for once, the pollsters were correct. The GOP picked up some seats in the Senate (two of which are being contested in recounts), while the Democrats gained 35 to 40 seats in the House of Representatives and some Governorships.

Capitol Building Image

I'll have more to say about the election later, but other than infrastructure spending and maybe more drug pricing reforms, I don't expect a lot of meaningful progress out of Congress over the next year or two.

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

In This Issue

The bond market is telling us there is no recession in sight, says Bryan Perry, while the oil price says inflation is no threat, either. Gary Alexander hails “gridlock” returning to Washington, along with free trade after the fall of the Berlin Wall, promoting global growth since 1989. Ivan Martchev sees China’s slow growth as the catalyst in oil’s recent price dip, as Beijing is running out of policy tools to prevent a steep recession there. Jason Bodner sees new sectors leading the emergence from October’s market turbulence, while I will expand on the subjects of political gridlock and the long-term outlook for lower inflation.

Income Mail:
A Downbeat Bond Market is Heeding Upbeat Fed Rhetoric
by Bryan Perry
Low Oil Prices Might be the Inflation Hedge the Bull Market Needs

Growth Mail:
The Stock Market Endorses a Return to “Gridlock” in Washington DC
by Gary Alexander
The Wall to End All Walls Fell on November 10, 1989

Global Mail:
Oil Breaking $60 Is Likely Due to China
by Ivan Martchev
Is This China’s Tipping Point?

Sector Spotlight:
Rebirth Follows Devastation: Always Has, Always Will
by Jason Bodner
Some New Sector Leaders Begin to Emerge

A Look Ahead:
Markets Like Mid-Term Elections and “Gridlock”!
by Louis Navellier
Inflation Statistics Wax and Wane but the Trend is Flat

Income Mail:

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

A Downbeat Bond Market is Heeding Upbeat Fed Rhetoric

by Bryan Perry

Following the sharp three-day rebound that preceded the midterm election and accelerated the day after, the markets consolidated those gains in what I would view as a very constructive week. The major averages are all playing tug-of-war with their 200-day moving averages, and that will play itself out to some extent this week, along with some key economic data points that the market must digest.

Friday’s session saw the S&P 500 struggling with a loss of 1%, as investors continue to digest Thursday’s policy directive from the Fed, which showed that the central bank remains on a path of gradual tightening. The dollar index rallied on the Fed’s policy statement, while bond yields actually ticked lower, with the 2-year Treasury at 2.93% and the 10-year Treasury at 3.19%.

What is getting almost no attention is the fact that the 30-year Treasury is on the verge of breaking above its 20-year downtrend line, which runs counter to the current narrative – that a recession will materialize within a couple of years. If this were the case, long-term yields wouldn’t be pushing higher now, so we’re getting some mixed signals. This is yet another reason why an overhang of uncertainty is still prevalent.

Thirty Year Treasury Bond Chart

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

On the economic data front, the Producer Price Index for October, released Friday, showed a higher-than-expected increase of 0.6% (consensus +0.2%). The core reading, excluding volatile energy and oil, also came in above consensus (+0.5% actual vs +0.2% consensus). The headline pressures will stoke concerns about pass-through inflation to consumers, and, in turn, strengthen the Fed's case for additional rate hikes.

The preliminary University of Michigan Index of Consumer Sentiment for November (also released last Friday) held steady, edging down to 98.3 (consensus 98.0) from the final reading of 98.6 for October. The key takeaway is that the stock market sell-off in October had no real impact on consumer sentiment, which is rooted in favorable views about income expectations and job growth, key drivers of consumer spending. Preliminary indications for the holiday shopping season have estimates running as high as a record $1 trillion in spending, which bodes well for the retail sector and for year-end stock market momentum.

Even with last week’s snap-back rally, investors have taken a defensive approach, as defensive-oriented sectors outperformed growth sectors. Big pharma, consumer discretionary, and utilities have been on the receiving end of constant fund flows during these volatile times, with a few consumer staples thrown into the defensive mix. It’s as if the Fed’s optimistic tone is falling on deaf ears.

A few good names in these sectors – namely Johnson & Johnson, Merck, Ely Lilly, Proctor & Gamble, McDonalds, Pfizer, McCormick, and Costco and Wal-Mart are showing excellent relative strength. It seems a bit ironic that the Fed is consumed with fighting inflation while the market doesn’t want to reward those sectors that tend to be inflation-friendly, like financials and industrials.

Navellier & Associates does not hold Johnson & Johnson, Merck, Ely Lilly, Proctor & Gamble, McDonalds, Pfizer, McCormick, and Costco and Wal-Mart in managed accounts or a sub-advised mutual fund.  Bryan Perry does not own Johnson & Johnson, Merck, Ely Lilly, Proctor & Gamble, McDonalds, Pfizer, McCormick, Costco and Wal-Mart.

Low Oil Prices Might be the Inflation Hedge the Bull Market Needs

Separately, WTI crude oil has continued to extend its steep losses from its October 3 high of $76.90 per barrel. Crude recently dipped below $60 and is testing a key technical and psychological support level. The best exposure to the energy sector is through ownership in the refining stocks, as refiners are virtually printing money with gasoline and jet fuel in strong demand against cheaper crude inputs.

United States Oil Fund Chart

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

The sell-off in crude will greatly temper forward inflation data, even though food and energy are typically stripped out of the core readings. However, the bond market digests everything – empirical, anecdotal, and perceived – and that is probably why bond yields didn’t rise further last week against falling oil. prices.

Heading into this week, the market will be pretty much devoid of any new catalysts to drive stocks dramatically higher or lower into the following Thanksgiving holiday weekend. Typically, Black Friday, the day after Thanksgiving, is when the market should begin to show the first signs of a year-end rally. By then we should already have an idea of whether there is a trade deal with China in the works.

With early evidence of upward pricing pressure attributed to tariffs, any failure to make headway in the trade war will only give bond bears more fodder. In the meantime, we should all be cheering lower energy prices and our oil refining stocks. It’s hard enough fighting the Fed, but if inflation can remain tame, the market will sense we are closer to the end of the rate-tightening cycle, and that can’t come soon enough.

Growth Mail:

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

The Stock Market Endorses a Return to “Gridlock” in Washington DC

by Gary Alexander

The stock market reacted positively to the election results last Wednesday, with the S&P 500 rising over 2% Wednesday. There was a bit of buyer’s remorse late in the week, but long-term results after mid-term elections have been Gangbusters. According to Yardeni Research, the S&P 500 has been up in the 12 months following every midterm election since 1952, starting with +33.2% in the year after the 1954 mid-terms – even gaining 1.1% in the 12 months after the 1986 mid-term elections, including the 1987 crash!

The shorter-term post-midterm-election gains have been even more impressive. According to Yardeni’s research, the average three-month gain after the 16 mid-term elections since 1954 have been +7.9%. The only exception was a 7.8% downdraft in late 2002, at the tail end of a bear market. The average six-month gain after a mid-term election since 1954 has been +14.8%, with no downdrafts at all, even in 2002-03.

In the mid-term situations that most resemble the current situation – i.e., the first mid-term election of a newly-elected President – the 6-12-month post-election market gains have been phenomenal:

  • In 1954, after the Democrats took control of the House from the Republicans, following the first two years of Republican control under the Republican President Dwight Eisenhower, the S&P 500 gained 19.7% in the six months after the election and 33.2% after the first 12 months.
  • In 1974, the Democrats made their greatest-ever mid-term gains in the House, picking up 49 seats after President Nixon’s resignation. The S&P 500 rose 19.9% in six months and 18.7% in a year.
  • In 1982, the Democrats gained 26 seats in the House, in protest against new Republican President Ronald Reagan’s policies. The S&P 500 gained 17.9% within six months and 19.9% in a year.
  • In 1994, in response to overreach by the Democrats under Bill and Hillary Clinton in their first two years, the Republicans gained 54 seats to take control of the House for the first time in 40 years. The response? The S&P 500 gained 12.5% in the next six months and 27.1% in a year.

Gridlock is also good for stocks. In the 1950s, 1980s, and 1990s, stocks had great decades under split control of power in DC, with a Republican President and Democratic Congress (1950s and 1980s) or the reverse (1990s). That is the situation once again, with a Republican President and a Democratic House.

With gridlock returning to Washington DC, we return to a focus on business. In the next six weeks, we should see a rise in holiday spending. Personal consumption expenditures rose 5% (y/y) in September. Prices at the pump are down. Wages are up 3.6% (annual rate) now and 3.1% over the last 12 months, a 10-year high. The jobless rate is 3.7%, a 49-year low, with seven million jobs going begging. The stock market has recovered from an October spasm. All this adds up to a happier consumer in the holiday season.

The October Consumer Optimism Index (which is economist Ed Yardeni’s average of the Consumer Sentiment Index and the Consumer Confidence Index) is at its highest level since November of 2000:

Consumer Optimism Index Charts

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

The National Retail Federation (NRF) sees holiday retail sales rising 4.3% to 4.8% over last year, excluding sales of autos, gas, and restaurants (but including on-line sales), on top of a 5.3% increase last year. Craig Johnson, president of Customer Growth Partners, goes one step higher, predicting a 5.1% rise in in-store and online spending this season. Many retailers have stocked up early to avoid paying higher prices for imported products, due to higher tariffs. So overall, we should have a jolly holiday season.

The Wall to End All Walls Fell on November 10, 1989

Last Sunday marked the centennial of Armistice Day, the 100th anniversary of the end of “the war to end all wars” on the 11th hour of the 11th day of the 11th month in 1918. World War I cost approximately 10 million lives in a little over four years, but roughly twice that number died of a global influenza epidemic in barely over one year at war’s end, 1918-19. What’s worse, the Allies bungled the Peace deliberations at Versailles, which led directly to a replay of that war in an expanded nightmare known as World War II.

Almost immediately following that war, the Soviet Union erected what Winston Churchill called an “Iron Curtain,” soon erected literally in the form of the Berlin Wall in 1961. Then, quite suddenly on the night of November 9-10, 1989, that Wall came tumbling down, marking the end of 75 years of conflict (1914-89) and over 40 years of a Cold War which often boiled hot (in Korea and Vietnam) and sometimes came close to Armageddon. The Soviet Union hung on briefly but officially disbanded on December 26, 1991.

Invisible trade walls were far higher than the rock-and-concrete barrier in Berlin. The fall of the Berlin Wall 29 years ago ushered in the greatest era of global prosperity in human history. Nations that once hated each other began to shake hands and make trade deals. As Walter Russell Mead wrote in The Wall Street Journal on October 30 (“Geopolitics Trumps the Markets”), the fall of the Wall created a miracle:

“Between 1990 and 2017, world-wide gross domestic product rose from $23.4 trillion to $80.1 trillion, the value of world trade grew even faster, more than a billion people escaped poverty and infant mortality rates decreased by more than 50%. The number of people with telephone service grew roughly 10-fold.”

Potential Trade Agreements Chart

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

As we enter the 30th year of the post-Berlin Wall world, we need to beware of setting up new walls – both physical and economic. America currently needs more workers. We have over seven million job openings in America with fewer than six million jobless Americans looking for work. Where will we find qualified workers unless we open the borders to those qualified workers? A billion people want to live in America, so we have the luxury of deciding who enters. A few million should enter, and enter fairly soon, I’d say.

When it comes to trade, President Trump may have a master plan to reduce tariffs to zero or near-zero in exchange for property rights protection in China and elsewhere. So far, he has made great strides in North America and Europe, but China seems intransigent. Let’s hope China’s “Year of the Pig” brings progress, but if not let us keep the trade channels open with the rest of the world – to keep global growth humming.

Global Mail:

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

Oil Breaking $60 Is Likely Due to China

by Ivan Martchev

Most market participants are having a hard time explaining why the price of crude oil dropped like a rock during a time when the United States began to enforce sanctions on Iranian exports on November 4 – sanctions centered on the extraordinary demand that the world stop buying Iranian oil (with generous exemptions). I’d say that a 20% decline in the price of oil in about a month falls into the category of rare events and may not have anything to do with supply, but rather that other driver of prices called demand.

CrudeOil.png

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

Which country is the largest importer of oil, and therefore the largest driver of crude oil prices on global markets? China. In 2017, China overtook the U.S. as the largest importer of oil, so economic developments in China should be closely monitored by oil traders, as the Chinese economy is likely headed into a massive recession, and not due to the present trade frictions with the Trump administration.

CrudeOilImports.png

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

The previous time we had such a sharp drop was in 2014-15, and that was clearly due to Chinese economic deceleration coupled with surging U.S. shale production. In 2018, we again have surging U.S. shale production, which surged past 11 million barrels per day, and we also have a decelerating Chinese economy driven by the belated actions of the Chinese government to deleverage their financial system.

It is true that in prior years we have had bigger declines that were not primarily driven by China, the most notable of which was 2008, but China was not the dominant force in the crude oil market then. Today it is.

LME-VersusCrudeOil.png

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

The way to know if this move in crude oil is a demand-side issue is to look at the prices of industrial metals, which are also very economically sensitive. There has been a heavy correlation between the London Metals Exchange Index and the price of crude oil over the years, and, albeit not perfect, it has held up pretty well over time. Sometimes the LME Index leads, and sometimes it’s the price of oil, but over time both industrial metals and energy prices correspond very well to major economic shifts (above).

CommodityIndexVersusDollar.png

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

During the most recent weakening in the price of oil, the metals led the decline. The LME Index has been weak since June, while the price of crude oil weakened dramatically during October. It was the price of crude oil that caused this fascinating divergence over the past six months of a surging dollar and an overall firm commodity index, when one looks at either the CRB or the S&P GSCI Commodity Index. That bizarre positive correlation between a strong dollar and strong commodity indexes is now over.

Is This China’s Tipping Point?

Last week the Chinese government made history by specifying exactly how much new lending should be directed at the private sector. Previously, Chinese authorities had been more concerned with the overall level of new loans, not necessarily whether they go to private or to state-owned enterprises (for more, see November 8 Bloomberg story “China Banks Fall on Concern Loan Targets Are a Step Too Far”). Chinese banks sold off on the news as many investors, rightfully so, interpreted this as a move of desperation.

I have stated on multiple occasions in this column over the past couple of years that China is in the midst of a credit bubble, the deflation of which is likely to cause a bad recession. Many investors erroneously assume that China’s trade friction with the United States, which is frankly overdue, is the cause of the declining Chinese stock market. It is not, in my view. It is the deflating Chinese credit bubble.

SocialFinancingVersusGrowthRate.png

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

One way to know that China is in a credit bubble is by looking at the surging credit aggregates and the slowing economy. The Chinese “economic miracle” is built on a mountain of debt. As Chinese GDP grew over 12-fold in 20 years to $12.24 trillion at the end of 2017, credit in the Chinese financial system grew over 40-fold, taking the debt-to-GDP ratio from 100% to 400%, if one counts the shadow banking system.

The Chinese government finally decided to reign in unregulated lending over the past couple of years, since it had grown disproportionately high relative to the regulated financial system that the Chinese authorities have firm control over. The trouble is that clamping down on such unregulated lending activities may push an overly-indebted economy over the edge.

Many observers have tried to call a recession in China since 2010. The reason for their failure is precisely this forced lending business. Every time the economy weakens, the Chinese authorities jack up the lending quotas in the banking system they control.

TotalCreditMarketDebt.png

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

My point is simple: The fact that such centralized macroeconomic management has worked for 25 years does not mean that it will keep working forever. I do not believe the Chinese can eliminate the economic cycle. Instead, the credit bubble that they have engineered will cause the coming recession to be a lot worse than it otherwise would have been, drawing parallels to the 1930s Great Depression in the U.S.

The U.S. has had two major tops in credit growth in the past 100 years, one in 1929 and one in 2008. The first created the Great Depression and the second created the Great Recession. I think that what we will see in China, soon, will be the equivalent of what we saw in 2008. The final outcome will depend entirely on the policy response of the Chinese authorities. The American authorities made a lot of mistakes in 1929 and following years, resulting in the Great Depression. In 2008, the authorities did not repeat those mistakes. I think we will find out soon enough what outcome the Chinese authorities will end up creating.

Sector Spotlight:

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

Rebirth Follows Devastation: Always Has, Always Will

by Jason Bodner

As the California forest fires raged out of control, my teenage son said, “Yeah! I heard like four celebrities had to be evacuated from their homes!”

“Noah,” I quickly responded, “thousands of regular people also had to evacuate!”

In a similar scenario, a “fire” recently ripped through the stock market, yet the names catching all the attention were celebrity stocks represented by the initials FAANG, but the destruction affected ALL stocks. Yet, just like after a forest fire, rebirth follows devastation. For instance, there is a species of beetle that thrives on fires. The Melanophila uses infrared-heat-sensing to find trees to lay eggs in. The burned trees lack defense mechanisms like sap, so the beetle can burrow freely and flourish.

Beetle.jpg

The big story last week was the healthy snapback rally. The metrics I follow called the action perfectly, giving us a possible roadmap for what to expect next. First, on October 10, a report came out warning of lower prices ahead for stocks, based on unusual institutional trading activity. That report said to expect a decline of about -5.29% for 13 days until the local market trough. Precisely 13 days later, the S&P 500 bottomed out, down -5.18%. That level of accuracy is too much to expect most times, but past experience also said that the returns for S&P 500 and Russell 2000 Indexes were positive in all cases 2-8 weeks after the oversold indicator flashed on October 26th. The bounce was exactly what this report expected. That MAP-IT ratio just emerged from oversold, which means I expect a steady climb in the coming weeks.

Russell2000.png

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

Now that I have “called the bottom,” why did the market tank on Friday? There was the usual flurry of headlines and whispers that got investors’ attention. Here’s a sampling of those headlines.

  • Gold down 1.3% and WTI down 1.1%, on pace for its record tenth straight decline.
  • Earnings growth rates remain elevated, but margin pressure seen as a “risk to 2019 consensus.”
  • Fiscal stimulus continues to drive U.S. economic performance, but will it start to fade next year?
  • China getting more aggressive with policy fine tuning, but not enough to counter slowdown.
  • Fed tightening gradual, but broader QE to QT shift driving liquidity worries.
  • October PPI came in hotter than expected.
  • Italy and Brussels continue to bicker over budget.
  • Some higher-profile earnings disappointments in U.S. and Europe also weighing on risk sentiment.
  • WSJ reported Trump involved in hush payments as candidate.
  • Trump also reportedly wants Commerce Secretary Wilbur Ross out by year-end.

All these are possible concerns, but the media always needs a reason. After all, readers look for reasons, so you better have a reason if you’re a news reader!  But I think these are just aftershocks from the recent correction.

Some New Sector Leaders Begin to Emerge

What I am seeing is an expected sector rotation. Crowded tech trades, such as FAANG stocks, still suffer. On Friday, semiconductors and Chinese stocks were getting wrecked. While we saw sloppy action on Friday, last week was very positive for U.S. stocks. Ten of 11 sectors were up for the week:

StandardAndPoors500SectorIndices.png

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

Health Care led the market out of the depths last week, rising 4%. Notable potential new leaders being bought in Health Care were RGEN, GMED, INVA, BEAT, HMSY, VNDA, ZTS, and HCA.

pg13.png

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

After the top three sectors on this table, what stands out is Retail. I see unusual big institutional buying in stocks like ULTA, CROX, DECK, ROST, TJX, WMT, SBUX, and DG, just to name a few.

(Navellier & Associates holds a position in BEAT, ZTS, GMED, ROST and AMZN in managed accounts and a sub-advised mutual fund but does not own the other stocks mentioned above.  Jason Bodner owns SBUX in his personal account.)

pg14.png

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

Retail and Consumers are coming alive. Remember how a year or so ago Amazon was going to put all other retailers out of business? The space was a bloodbath, but interestingly now it seems reversed. That proved to be a great opportunity for investing in prior leadership, getting punished at the time. I suspect the semis and FAANG stocks are a current buying opportunity and will rebound in months to come. These companies have great sales and earnings in phenomenal businesses – they are not going away.

The volatility we are seeing is “ripples” from the splash. This usually happens for a few weeks as the market finds its footing. Part of the volatility comes from a drop-off in liquidity. After a corrective price action, sometimes it’s a “V-shaped” recovery with liquidity rushing right in. Other times, like now, it takes a while for confidence to flow back into stocks.

Sentiment out there is still very bearish. That’s yet another reason why I am bullish. I recite these same reasons here most weeks: The sales and earnings beats, low taxes, high cash-repatriation, and huge stock buy-backs. It’s still a great setup for stocks. Mid-term elections are out of the way. The China trade will resolve itself at some point, and stocks will find some ballast and most likely move north from here.

Also, when people like Warren Buffett get bullish, that’s a great sign! He’s buying back a slug of Berkshire Hathaway stock. Meanwhile, when everyone is bearish, and many are nursing wounds from crowded trades and wrong-way positioning, stocks continue to beat earnings estimates. I think it’s a great time to grab quality names on sale. Emotion will subside, liquidity will return, and stocks will once again be rewarded for their stellar reports.

I don’t know exactly when it will happen, but I have a clue: The 2-8 week returns for the S&P 500 and Russell 2000 Indexes are positive in all cases after that MAP-IT Ratio goes oversold, and that ratio just emerged from oversold, so I would expect a steady climb in the coming few weeks, i.e., by year-end.

I just came across an anonymous quote that sums this all up quite nicely:

“Things end because something else is ready to begin.”

A Look Ahead

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

Markets Like Mid-Term Elections and “Gridlock”!

by Louis Navellier

President Trump and the person widely anticipated to be the new House Majority Leader, Nancy Pelosi, have pledged to work together. Naturally, this bipartisan cooperation will not last forever, but the stock market tends to celebrate a potentially less toxic political atmosphere for at least six months after the mid-term elections. In fact, according to Bespoke Investment Group, during the post-World War II years, the S&P 500 has risen by an average of 8% (7.7% median) and 13.9% (17% median) during the three months and six months, respectively, following the mid-term elections. Furthermore, according to Bespoke, the S&P 500 has been higher 94.4% of the time during the six months after the mid-term elections.

“Gridlock” is now virtually guaranteed in Congress, which Wall Street is celebrating, as it has in the past.

I should add that the Federal Open Market Committee (FOMC) met last week and Fed Chairman Jerome Powell did not hold an official press conference after the meeting. This lack of a press conference is a clear sign that Fed Chairman Powell does not want to comment on the FOMC’s widely-anticipated Fed funds rate hike at its December FOMC meeting – just to be criticized again by President Trump! – but the FOMC statement acknowledged a “deteriorating business climate” due to a slowdown in business spending. Oddly, this comment was not apparently deemed to be dovish, since Treasury yields rose.

Interestingly, I was carefully watching the Treasury auctions last week and am happy to report that the bid-to-cover ratios improved a bit to over 2.5, which means that Treasury yields are less likely to rise much in the upcoming weeks. I should add that with the 2-year Treasury yield at 2.94% and the 10-year Treasury yield at 3.19%, the yield curve is very flat, so a December FOMC key interest rate hike is likely.

The Institute of Supply Management (ISM) announced last week that its non-manufacturing (service) sector index slipped a bit to 60.3 in October, down from a robust 61.6 in September (a 21-year high). Since any reading over 50 signals an expansion, plus readings over 60 are rare, I can confidently say that the service sector remains hotter than hot. New orders were unchanged and remain at a very healthy level. Overall, the service sector’s strength bodes very well for fourth-quarter GDP growth.

Inflation Statistics Wax and Wane but the Trend is Flat

The Labor Department announced that the Producer Price Index (PPI) rose 0.6% in October, the largest monthly increase in six years!  This shocked some observers, but it turned out that a relatively new PPI component, namely “final demand prices,” accounted for over 60% of the PPI increase. Many economists suspect that higher tariffs impacted this new PPI component. I should also add that final demand prices are a volatile component and not always a reliable inflation indicator.

When this new component, as well as food and energy are excluded, the old core PPI was unchanged in October! This tells me the PPI report was a “component” mess and it appears that tariffs significantly impacted the final number. Hopefully the November PPI, when released, will be much more transparent.

Energy prices have been falling, which should make November’s numbers more palatable. The Energy Information Administration (EIA) reported on Wednesday that U.S. crude oil inventories surged by 5.8 million barrels to 432 million barrels, the highest inventory since June and the ninth straight weekly rise. The EIA also reported that crude oil production is now running at a record pace of 11.6 million barrels per day. This record crude oil production should also help reduce the trade deficit and boost GDP growth.


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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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