October was a Spooky Month

October was a Spooky Month, with weak stocks leading the way

by Louis Navellier

November 3, 2015

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

October was a surprisingly good month for the overall stock market, but as I said on CNBC last Tuesday, October has been a “weird” month, largely because what has been down has rallied the most.  Bespoke reported last Thursday that the bottom decile of stock performers between May 21 and September 28 has rallied 13.7% since September 28, while the top decile during that period rallied only 7.9%.  Even more shocking, the top decile of companies with the most international revenues, fighting negative sales growth due to a strong U.S. dollar, rose 15.3% since September 28, while the bottom decile is up just 6.2%.

In retrospect, October started with a big short-covering rally. At month’s end, multinational companies with negative sales and earnings growth were leading the way. In short, October was a very weird month.

However, if the U.S. dollar continues to rally and commodity prices remain soft, it is inevitable that multinational and commodity-related stocks will continue to struggle and some may have to cut their dividends in 2016.  The first big company that cuts its dividend could spark panic selling in many of the beaten-up deep-value stocks that are now rallying.  For example, Chevron stopped buying back its shares several months ago and since then other energy-related stocks have also curtailed their stock buy-backs.  (Typically, companies curtail their stock buy-back activity before they announce a dividend cut.)

As a result, now more than ever, we believe our best defense is a strong offense of what we consider fundamentally superior stocks, with positive sales and earnings growth.  Additionally, stock buy-backs and a nice dividend yield also help; but it is imperative that stocks have strong sales and earnings first, and high yield second.  The short-covering rally and bargain hunting in beaten-up value stocks will not last much longer, in my view. I expect a major leadership change in November to companies that posted positive sales and earnings, especially if the S&P 500 continues to be characterized by negative sales growth and lackluster earnings.

In This Issue

In Income Mail, Ivan Martchev takes a close look at the bond market and the latest earnings reports, while Gary Alexander reports on the market storm warnings from the New Orleans Investment Conference.  Jason Bodner’s Sector Spotlight expands on my comments about the laggards becoming the leaders, while my closing column features the downbeat news that could keep the Fed from raising rates this year.

Income Mail:
More Confusion in the Bond Market
by Ivan Martchev
Have You Seen the 3Q Earnings?

Growth Mail:
Storm Warnings in New Orleans
by Gary Alexander
The “Lonely Bulls” Respond

Market History:
Welcome, November!
by Gary Alexander
November 3 in Market History

Sector Spotlight:
Spooky Extremophiles: October’s Funhouse
by Jason Bodner
Last Week’s Sector Scorecard

Stat of the Week:
Third-Quarter GDP Growth Slows to +1.5%
by Louis Navellier
FOMC Continues to Postpone Rate Increases

Income Mail:

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

More Confusion in the Bond Market

by Ivan Martchev

In mid-September, we got a dovish FOMC statement explaining how “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term”. Yet, in late October we got a “hawkish hint” (or, if you wish, a “less dovish” statement) about rate increases. After that, the Treasury market sold off, the dollar rallied, and the fed funds and euro-dollar futures tried to price in a December rate hike.  (see Reuters, October 29 “Fed puts December rate hike firmly on the agenda”).

One could conclude that the Fed doesn’t like being a forgone conclusion. Still, no central bank in its right mind should be hiking interest rates in a deflationary situation.

Consumer Price Index Chart

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

Inflation has declined precipitously in the past year with the decline in commodity prices and overall weakness in global aggregate demand. Inflation stands at ZERO at present as painfully obvious from the chart shown above, provided by the St. Louis Fed. While inflation in the U.S. involves quite a bit more than commodity prices – since we are a service economy – weakness in global aggregate demand does matter as an increasing percentage of profits and sales for major U.S. corporations come from abroad. Such a weak global economy affects the situation in the U.S. You could say that as the global economic situation is getting weaker, the U.S. situation is getting more uncertain.

What about inflation expectations? They appear to be headed lower and are at present right about where they were at the time of the end of the Great Recession. Inflation expectations are simply extrapolated from the yield of the 10-year nominal Treasury, which is the best market-driven estimate for inflation over the next 10 years, plus a real rate of interest. We can then subtract the 10-year TIPs rate, which is the best market-driven guesstimate for the level of real interest rates over the next 10 years. The market expects inflation to average about 1.5% at the moment, but those expectations are notably weakening.

Ten Year Breakeven Inflation Rate Chart

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

The fact that this is what the market expects right now certainly does not mean that this is what we are going to get over the next 10 years. In the depths of the Great Recession in late 2008, the market expected zero inflation for 10 years, yet the market did not get that with gargantuan Federal Reserve balance sheet operations, multiple QEs, and trillion-dollar deficits from the federal government. Still, when inflation was as low in 2009 as it is today the Federal Reserve was pedal-to-the-metal loosening monetary policy.

I think the inflation outlook will get worse in 2016. I think it is entirely possible that the CRB Commodity Index will take out a 40-year area of support in the 180-200 range courtesy of the Chinese economic unraveling, which may cause the world to go into deflation. In that scenario, interest rate hikes by the Fed should be viewed as ludicrous. Not that they cannot happen – they can – but they are likely to be reversed just like the ECB hiked rates in 2011 and is now trying to move them deeper into negative territory.

Commodities Research Bureau Index Chart

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

It is no fun to be a bond trader or a currency trader with so many crosscurrents, but so far what one could surmise is that the Fed is (at least) trying to tighten monetary policy, or be less accommodative, as they prefer to put it. The other thing that one could expect is that the ECB is likely to keep pressing on with its belated QE, which will most likely weaken the euro and thereby strengthen the dollar.

Euro Versus United States Dollar - Weekly OHLC Chart

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

If the red hockey stick drawn on the EURUSD chart above is indeed a “bear flag,” I believe one has to add another 35 euro cents decline from the tip of the flag, which is at 1.15. That puts the euro at 80 cents or so, which is below its all-time low of 83 cents from 2001 when it already existed as a paper currency.

Before existing in paper format, the euro existed as an electronic basket or a fixed exchange rate system of its constituent European currencies at the time. The exchange rate of that fixed electronic basket has been as low as 69 cents against the dollar in February 1985, as reported by Trading Economic using OTC inter-bank sources.

In reality, we don't know in advance how much lower the euro will go, but it can go quite a bit lower from here. A target in the 69-83-cent range, while extreme, would not be outlandish simply because EURUSD has been there before. That would be quite the bear market, but it would be consistent with accelerating QE in Europe and a bad recession in China in 2016, which is my base-case scenario at the moment.

Have You Seen the 3Q Earnings?

If you have taken a close look at 3Q earnings, you would understand why I wonder what the Federal Reserve is doing talking about interest rate hikes at all. With 340 companies in the S&P 500 having reported as of Friday, according to FactSet’s Earnings Insight paper published on October 30, 2015 we are on track for the second back-to-back consensus EPS decline since 2009 and the third consecutive sales decline for the S&P 500, with the latest such decline running at -2.9%.

A deflationary environment affects sales and earnings. Deflation affects EPS less than sales as there are things companies can do to “manufacture” EPS – like investing in IT or firing people (an option the Fed really does not like) and/or moving operations abroad. But sales is a more difficult number to “massage” from an accounting standpoint. There, too, one could play games as to when one recognizes sales, but in the end the accounting games are far less easy to engineer than those available with EPS reporting.

Trailing Twelve Month Net Margin - Ten Year Chart

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

Be that as it may, it appears that corporate margins have peaked. If indeed deflationary pressures, courtesy of the unraveling in China, are about to get worse in 2016, where is any overall earnings growth going to come from? I think that there will be companies that grow earnings in 2016, but what I am referring to is the overall macro environment. It appears to me that the stock market is likely to become even more narrow than it is today and index investing is likely to suffer at the expense of stock-picking strategies.

Change in Forward Twelve Month EPS versus Change in Price - Ten Years Chart

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

One peculiar thing about  October 2015 is that the stock market has had one of its best months in decades, while forward estimates for the S&P 500 Index have notably declined as reported by FactSet. Typically, over time, the index goes where earnings go. While the level of the S&P 500 Index can deviate for a while from the level of earnings in the index, either earnings for the index have to go up or the index has to come down.

It appears to me that in this narrowing stock market environment, in part due to the global deflationary situation, companies that show solid EPS and dividend growth are likely to do quite well. I have great difficulty seeing an interest rate hiking cycle in the present environment and I think that if global deflationary pressures worsen in 2016 we will start to talk more about QE than about more tightening.

Invest accordingly.

Growth Mail:

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

Storm Warnings in New Orleans

by Gary Alexander

At around 3:45 pm on Saturday, October 31, as I was winding up the closing panel of the 41st edition of the New Orleans Investment Conference, the National Weather Service issued a tornado warning, along with flash-flood warnings.  After Mexico and Texas suffered flooding, it was now Louisiana’s turn.

As I returned to my room to begin writing this Growth Mail summary of the conference, I could see the wild weather outside my 26th floor room at the Hilton, along with Weather Channel maps of extreme tornado danger in a neighboring parish (the Louisiana jurisdiction analogous to a county).  The cable TV kept losing its signal due to the electrical storm and wildly gusting winds.  (Knowing this stormy weather was coming on Halloween night, most parents took their kids out trick-or-treating on Friday, October 30.)

This gloomy weather reflected the mood of the majority of the featured speakers at the New Orleans gathering.  On Friday night, as parents were taking their kids out for treats, our evening speakers were Doug Casey, who has been predicting a “Greater Depression” for several decades now, and Marc Faber, the editor and publisher of “The Gloom, Boom & Doom Report” and a frequent contributor to Barron’s.

After hearing their spooky messages, along with others of a similar stripe, one Saturday morning speaker, Doug Kass, President of Seabreeze Partners Management and a frequent guest host on CNBC, said that he totally rewrote his speech at 1:00 to 2:00 am that morning (!) to give more ammunition to the doom-and-gloom crowd, adding 10 reasons why the market is likely to go down (he said he is short the S&P 500).

In honor of Halloween, plus the ongoing World Series and the past heroics of his cousin Sandy Koufax, Kass recast a 1910 poem by Franklin Pierce Adams (“Tinker to Evers to Chance,” about the rally-killing double-play infield trio of the Chicago Cubs from 1906 to 1910).  Kass changed the key lines to reflect the gloomy (rally-killing) words of Doug Casey, Marc Faber, and a third bearish speaker, Peter Schiff.

These are the saddest of possible words: Casey to Faber to Schiff
Words that are heavy with nothing but trouble: Casey to Faber to Schiff

However, Kass had enough sense of humor to close with a quote from the legendary Wall Street trader, Byron Wein (who is old enough to remember the real Great Depression) that “disasters have a way of not happening.”  Storms happen, of course, but rainbows and clear days usually follow the worst weather.

The “Lonely Bulls” Respond

One of the few stock market bulls to speak in New Orleans came right before Doug Kass on Halloween morning. Peter Ricchuiti is a Professor at Tulane’s Freeman School of Business. He is noted for sending his students out to interview CEOs and other top executives of companies throughout the south, digging into their books and making business forecasts. He and his students find much to be optimistic about in the development of small businesses into medium-sized businesses and perhaps into future Blue Chips.

Ricchuiti’s message, in brief, is that new highs in the stock market are being driven and justified by this:

  • The economy is adding about 200,000 new jobs each month
  • Household net worth has made a full recovery
  • Corporate balance sheets are in terrific shape
  • Earnings of the S&P 500 are at record levels [as of June 30]
  • There is an estimated $2.2 trillion sitting in corporate coffers (earning next to nothing!) with another $1.9 trillion squirreled away in overseas accounts
  • Unemployment is at an 8-year low

He concluded: “While the short run may be rocky, long-term investors should stay committed to stocks. I would much rather be an owner (stock holder) than a lender (bond holder) in this economic environment.”

A second bullish speaker was Mark Skousen, whose #1 rule of investing was “Wall Street exaggerates everything.” They tend to jump to extremes, which needn’t bother buy-and-hold investors. Skousen, in his economic panel, grilled some of the bears about some of their more outlandish statements, saying, “Bears make headlines, but bulls make money” and “bulls are builders, bears are destroyers” (of assets).

A third bull at the conference was Dennis Gartman, editor of The Gartman Letter and a frequent contributor to CNBC. He said the market is not in a “bubble” since the retail investor is still (for the most part) on the sidelines. Popping bubbles don’t usually happen, he says, until the public is fully on board.

Gartman, who says he is definitely “not a gold bug,” also advises owning gold in terms of the euro or yen, since he believes the dollar will continue to be super-strong, partly due to the QE policies of Europe and Japan vs. the end of QE at the Fed. He also feels that the dollar is a reflection of U.S. hegemony in global affairs, as exemplified by our 11 aircraft carriers plying the world’s oceans.  Just as the British Empire made the British pound the globe’s reserve currency, he says our military power creates a “King Dollar.”

As frequent readers of Growth Mail know, I align more with Gartman and Ricchuiti than the rally-killing trio of Casey to Faber to Schiff, but that doesn’t mean we won’t endure market storms from time to time.  That said, it was refreshing to hear both sides expressed so clearly and succinctly by most of these gurus.

Market History:

*All content in Market History is the opinion of Navellier & Associates and Gary Alexander*

Welcome, November!

by Gary Alexander

Just like clear skies follow storms, All Saints Day follows Halloween and November follows the crash-prone months of August, September, and October.  Investors implicitly fear October, based on past scars, so in recent years many investors have tried to front-run October by selling in September or August.

In the last 20 years (as this Bespoke chart shows), September has been the worst-performing month, with June and August being 2nd and 3rd worst. In the last 20 years, November is second only to April in gains.

Market Performance Chart

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

October 2015 was the best month (+8.5%) in the DJIA since another great October – 2011. This October, the S&P 500 rose 8.3%; Stoxx Europe 600 was up 8%, its largest gain since July 2009; and Japan’s Nikkei average rose 9.7%, its best month since April 2013 (all figures are from the weekend Wall Street Journal, dated October 31-November 1).

Expanding out to the next six months, November marks the beginning of the S&P 500’s best six months. Using Bespoke data, I extrapolated the gains from November 1 to April 30 over the last 20 and 50 years.

Last 20 Years:
November 1 to April 30, average gain: +7.7%
May 1 to October 31, average gain: +0.2%

Last 50 Years
November 1 to April 30, average gain: +7.3%
May 1 to October 31, average gain: +0.03%
Data Source: Bespoke, October 29, 2015, “November Seasonality”

Here are the last six years of the current bull market. In each case, the cold months beat the warm months:

 Source: Yahoo! Finance (using the S&P 500) 
  Year    November 1 to April 30   May 1 to October 31 
 2009-10  +14.5% -0.3%
 2010-11  +15.2% -8.1%
 2011-12  +11.5% +1.0%
 2012-13  +13.1% +9.9%
 2013-14  +7.3% +7.1%
 2014-15  +3.3% -0.3%
 Average:  +10.82% +1.55%

 

This is not to say I align with the “Sell in May and Go Away” crowd.  What these data mean, to me, is that October and November provide investors with an especially good time to accumulate quality stocks.

November 3 in Market History

On Monday, November 3, 1919, the Dow Jones industrial index hit a post-World War I record high of 119.62, the highest point ever reached in the 23-year history of that index, but it was the last gasp of a post-war inflationary boom.  The DJIA then fell 47% in less than 10 months, to 63.9 August 24, 1920.

On Wednesday November 3, 1982, the DJIA gained 43.41 points (+4.2%), to set a new record high of 1,065.49.  The good news of the day: The U.S. unemployment rate for October was announced at 7.4%, down a third from its recessionary peak of over 11% the previous November.  The recession was over.

On Tuesday, November 3, 1987, after five consecutive gains following the 1987 market crash, the bears once again terrified Wall Street, with the DJIA falling over 2.5% (-50.56 points), falling below 2000.

November 3, 1996 was a Sunday before elections. Over the next two weeks, the DJIA rose 10 straight days – including eight consecutive all-time highs – starting on Monday, November 4. The DJIA rose 8.2% for the full month.  President Clinton was re-elected and the Republicans retained their hold in the House.  The subsequent balancing of the federal budget by 1999, along with the strongest five-year bull market in the postwar era (1995-99) came about after the President and Congress cooperated in cutting costs and adding new revenue – a lesson for today’s politicians. In the 20 trading days of November 1996, the DJIA set 12 all-time high marks, rising 492 points (8.2%).  Then, in early December, Fed Chairman Alan Greenspan warned of “irrational exuberance,” but the bull market still had three more strong years.

For instance, Monday, November 3, 1997 was the third largest point gain in history, to that date.  The DJIA rose 231 points (+3.1%), a sign of recovery from the Asian currency crisis of the previous week.

Sector Spotlight:

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

Spooky Extremophiles: October’s Funhouse

by Jason Bodner

Extremophiles is the scientific name given to life that exists in extreme and possibly toxic environments that would be impossible for normal life. For example, in February 2013, scientists reported bacteria were found living in a lake buried a half-mile under the ice in Antarctica. Microbes have been found to thrive inside rocks almost 2000 feet below the sea floor, which itself is already under 8500 feet of ocean.

Tardigrades, aside from looking like a scary Halloween costume, have the ability to survive in space and withstand long periods of suspended animation. When dehydrated, these animals coat themselves in a glass-like substance that has the molecular structure of liquid, yet is a solid. Scientific researchers are using these findings to hopefully enhance modern computer processing and LED technology immensely.

Tardigrade Image

Halloween is that time of year when normally sweet and innocent children can dress up to look sinister and ghoulish. On the flipside, the kids who look sweet and innocent may be the ones who are normally banshees at home! October has historically been a “spooky” month in the markets. According to the S&P Dow Jones Indices website, the S&P 500 Index posted a positive 8.3% performance this October. This eye-popping gain may cause much cheer as opposed to the horror-show we saw in late August, but the cause of the best month for stocks in four years has been more unsettling than we would like.

High-quality stocks are being crushed.  Companies with positive earnings and sales are being sold aggressively. If a growth company misses earnings in this market, watch out! It has not been uncommon to witness -10%, -20%, or even -30% reactionary selling to stories that embody the glum assumption of slowing global growth.  Positive gap-up price reactions to earnings reports have been rarer and have been characterized mostly by previously beaten-down stocks.

This sort of action in the market evokes visions of a haunted house or hall of mirrors more than the serene feel-good of, say, Thanksgiving. The good news is that this could be stabilization that we are witnessing as a base is building.  New 52-week highs have outnumbered lows on a regular basis for the past few weeks now and volatility, although still rampant, has eased somewhat from previously nauseating levels.

I was travelling this week and had the opportunity to speak with many professional portfolio managers at hedge funds and “plain-vanilla” mutual funds. In speaking with them, there were a few common themes that I took away. There seems to be a continuing misconception about volume and how high-frequency-trading (HFT) affects it. Now, just to be clear, whenever there is a trade consummated in a listed equity, whether it takes place in a dark-pool, or it is done by an HFT firm, the volume must, by law, be reported to the tape. The concern seems to be more concentrated in whether “black-box” trading algorithms are truly taking over and driving these exaggerated moves, and if anything will ever be done about it.

There was also almost unanimous concern among professionals I met over the lack of quality leading this rally. There was also some cheer that there is some stability appearing and that there are positive earnings and recovery stories. Traders who trade the volatility of a single equity or an index itself as an asset class are enjoying the elevated volatility environment. One such trader remarked at how the new norm is to be unsurprised when one day we come in to find the market up 2% after a previous down 2% day. Everyone has come to expect volatility every day. And typically, when everyone is expecting the same thing, it can be highly correlated to a pivot point in the market.

Sector Scorecard Table

On the sector side, we see this volatility continuing. Healthcare was our biggest winner of the week – not unexpected, given its punishment of late. Utilities and Consumer Staples were the laggard sectors.

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

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

As rate increase speculation is still in full-force, we see continued inflows into Financials. Regional banks are continuing to perform nicely. Public storage REITs have seen notable inflows since the summer and continue to lead the REIT group in general. As investors reposition and clamor for yield, REITs have clearly looked attractive as they have performed very well since September. The S&P Real Estate Investment Trusts Index has rallied over 11% since September lows!

Standard and Poor's 500 Real Estate Investment Trusts - Daily OHLC Chart

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

Technology continues to perform well, although the inflows of capital moving into tech have benefited the larger-cap companies. This has largely been due to solid earnings and sales reports by some of the giants. The S&P 500 Information Technology Sector Index has rallied almost 14% since September lows!

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

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

As Newton stated in his third law of physics, every action has an equal but opposite reaction. Our winning sectors have been balanced by our lagging groups. Healthcare continues to face significant pressure overall. This sector encompassing Biotech, Healthcare Services, and Pharmaceuticals, has been fighting what seems to be an uphill struggle. Headwinds to “specialty pharma” include vows to put an end to overpricing and endless price hikes. The reality remains that for campaign platforming to become policy and to then become law is a lengthy bureaucratic process, not to mention candidates who support these policies have to be elected first! And let’s face it; unfortunately people won’t stop getting sick or buying drugs. Either way the damage is being done now to what was the strongest sector for years.

Standard and Poor's 500 Health Care Sector - Daily OHLC Chart

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

Energy continues to be a conundrum. Last year the sector was leading the market lower and accounted for most of the pain and destruction. But the recent rally has been sparked by energy, as news and short covering sparked a squeeze higher. The fact remains that until commodity prices rally significantly – which I would add is difficult in the face of over-supply, waning global demand, and a strong dollar – there remains little fundamental reason for a sustained rally in energy. Even if the physical commodities rallied, it would be a while before sales, earnings, and margins improved dramatically enough to undo the damage we have seen. The chart of the S&P Energy Index (below) may be hovering around 500 for the foreseeable future, however the bear case seems stronger than the bull case given the inputs here.

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

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

As I said in the opening, life exists in extremely harsh conditions on earth. What is ideal for one creature may be hostile to support human life. Water is our lifeblood but it could be toxic to forms of life outside our planet, should they exist at all. When we see life in the markets – like the sign of life the financial media has recently been excited about – it is important to recognize what characterizes it. Our short-covering rally of weak stocks on poor fundamentals is the spark of the latest signs of life.

In an environment which has seemed inhospitable for energy, energy has flourished. When it seemed the case for growth was dead, technology came screaming back. Conditions for life have seemed harsh in the market lately, yet October has delivered a great evolutionary step forward. As stability in the market seems near, new leadership is emerging as rotation continues each week. Keep an eye on Financials and Tech as they seek to strengthen while Health and Retail continue to weaken.

What is harsh for one may be life for another…

Stat of the Week:

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

Third-Quarter GDP Growth Slows to +1.5%

by Louis Navellier

The Commerce Department announced on Thursday that its preliminary estimate of third-quarter GDP decelerated to a 1.5% annual pace, down dramatically from the 3.9% annual pace in the second quarter.

Interestingly, consumer spending grew at a 3.2% annual pace in the third quarter, which is even stronger than its annual pace in the second quarter.  However, business spending decelerated sharply as inventories plunged to only $56.8 billion in the third quarter, down from over $100 billion in the previous two quarters.

A widening trade deficit was also a drag on overall GDP growth, which may cause third-quarter GDP to be revised down further.  Overall, the pace of the U.S. economy is now in the hands of the U.S. consumer.

The bad news is that the Conference Board announced on Tuesday that consumer confidence in October plunged to 97.6, down sharply from a revised 102.6 in September.  This was a big surprise since economists were expecting October consumer confidence to be 102.1.  There is no doubt that the recent wave of layoffs announced by many big companies may be weighing down overall consumer confidence.

Speaking of the consumer, a significant proportion of confidence comes from the perception that their home prices are rising.  Fortunately, on Tuesday, the S&P/Case-Shiller 20-city index rose 0.4% in August and has risen 5.1% in the past 12 months.  That was the good news. The bad news is that the Commerce Department reported that new home sales declined 11.5% in September to an annual pace of 468,000, the lowest level in 10 months.  This was a big surprise since economists were expecting new home sales to reach an annual rate of 550,000.  Furthermore, August new home sales were revised down to an annual rate of 529,000, down from 552,000.  Much of the September new home sales decline was due to a dramatic 62% plunge in the Northeast, which is the largest monthly decline ever reported by any region.  Median home prices rose to $296,900 in September, up 13.5% from $261,500 in the past 12 months.

In the past 12 months, new home sales have risen 2% and overall home sales are running at a 6.02 million annual pace, the second highest annual pace since 2007.  So the question remains: Has housing abruptly decelerated and why did new home sales plunge so badly in the Northeast?  My hunch is that there are going to be some big revisions to the Northeast new home data in the upcoming months, as it is not evident to me that the housing market has stalled.  In the meantime, the National Association of Realtors reported on Thursday that pending home sales declined 2.3% in September for the second monthly drop in a row, so it appears that home sales have peaked near-term, possibly due to affordability reasons.

Also on Tuesday, the Commerce Department announced that durable goods orders declined 1.2% in September, while August durable goods orders were revised down to a 3% decline (down from a 2.3% decline previously estimated).  Volatile transportation orders were the culprit. While vehicle orders rose 1.8% in September, commercial aircraft orders declined 35.7%.  Excluding the volatile transportation sector, September durable goods declined a more modest 0.4% and core goods declined 0.3%.

The shipments of core capital goods rose 0.5% in September, so there is some hope that tighter inventories might spark an improvement in October durable goods orders.  However, the biggest drag on durable goods orders is that business investment declined 8% in the past 12 months and remains lackluster.  So, until business investment improves, durable goods orders are expected to remain soft.

FOMC Continues to Postpone Rate Increases

The Federal Open Market Committee (FOMC) met on Wednesday and voted 9-to-1 to maintain its 0% interest rate policy (ZIRP).  The official FOMC statement said, “In determining whether it will be appropriate to raise (interest rates) at its next meeting, the (Fed) will assess progress … both realized and expected … toward its objectives of maximum employment and 2% inflation.”  Also notable is that the FOMC statement said that it is still monitoring financial markets and developments abroad, which means that the Fed may also use the excuse of slowing global economic growth as another reason not to raise key interest rates.  Probably most significant is that the FOMC said that it wants to see “some further improvement” in the job market before hiking key interest rates, so next Friday’s payroll report will likely be a big deal as will the November payroll report before the next FOMC meeting on December 15-16.

One other factor that will likely influence the Fed will be what the ECB does in early December.  If the ECB cuts its negative interest rates further, they will effectively spark another rally in the U.S. dollar and further undermine the Fed’s ability to raise key interest rates in mid-December.  The growing gossip on Wall Street is that the European Central Bank (ECB) will further reduce its negative interest rate of -0.2% to as low as -0.4% in early December, effectively undermining the Fed’s ability to raise key interest rates.

As a result, high dividend-yielding stocks, even those with negative sales and earnings growth, will likely continue to rally as investors chase stocks with 4% or greater annual dividend yields.  This desperation of yield-oriented investors chasing stocks with falling sales and earnings has made October a weird month.


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.

Marketmail Archives Trade Summary

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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