“Peak Earnings Momentum”

“Peak Earnings Momentum” Delivered a Flat Market in April

by Louis Navellier

May 1, 2018

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First-quarter earnings announcements are coming in even better than anticipated, up over 20%. That is the good news. The bad news is that because first-quarter results represent what many call “peak earnings momentum” for many stocks – due to more difficult year-over-year comparisons in upcoming quarters – some good companies that beat analyst estimates and were guided higher were hit with profit-taking. 

Bespoke Investment Group said that with more than half of the S&P 500 reporting results so far, 77% of reporting companies had beaten the consensus earnings estimates, which is the highest positive earnings surprise rate since 1999. Furthermore, the companies that are beating analyst consensus earnings estimates have risen by an average of 1.26%, while the stocks that missed have declined by an average of 2.79%, for a whopping 4.05% performance differential, so clearly positive earnings reports still matter!

In This Issue

In my closing column, I’ll examine why stocks are flat while earnings are soaring, but first Bryan Perry shows why inflation is pushing the Fed into an activist role and why the utility sector is not the best place to be in such a situation. Gary Alexander says ancient history is no guide to market timing – in particular, “Sell in May” has been bad advice the last five years. He also has some encouraging words about GDP. In Global Mail, Ivan Martchev hails the return of the U.S. dollar and the possible retreat of the Chinese yuan, while Jason Bodner looks at the latest worries plaguing this market, as reflected in the defensive sectors.

Income Mail:
Hints of Inflation Put the Fed in a Tricky Position
by Bryan Perry
What’s up with the utility sector?

Growth Mail:
I Repeat: Don’t Sell in May (or Go Away)
by Gary Alexander
First-Quarter GDP Was Seen as Weak – But Was It?

Global Mail:
The U.S. Dollar Strikes Back
by Ivan Martchev
The Mainland China “Dollar Wild Card”

Sector Spotlight:
The Worry Warts Will Always Be With Us
by Jason Bodner
Last Week’s Winners (Once Again) Were Defensive Sectors

A Look Ahead:
Stocks are Still “The Best Game in Town”
by Louis Navellier
What the Fed’s Economic “Dashboard” is Telling Them Now

Income Mail:

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

Hints of Inflation Put the Fed in a Tricky Position

by Bryan Perry

This week’s Federal Open Market Committee meeting (FOMC) is taking on more significance than many prior meetings for a number of reasons. First of all, some inflation data points are creeping higher, namely oil prices, home prices, and raw material prices that will be passed on in the form of higher prices for finished goods. Secondly, the latest GDP report showed the economy growing at a 2.3% annual pace, well above the 2.0% forecast. Thirdly, business investment is running at its highest pace since 2011. Fourthly, consumer confidence of 128.7 for April is just 1% below its all-time high of 130, set back in February. 

Bear in mind that this upbeat data comes at the end of a long winter for the Northeast, after which we can expect the current quarter to show similar or stronger numbers, which are already being registered in the bond market. The yield on the 10-year Treasury made a decisive move from 2.8% to 3.0% in one week, from April 18 to April 25. The seeds of this move were planted earlier in April, with the release of the March CPI report, and watered by the spike in oil prices that coincided with the U.S. led attack on Syria.

The details of the Consumer Price Index (CPI) release bear repeating here:

The all items index rose 2.4 percent for the 12 months ending March, the largest 12-month increase since the period ending March 2017 and higher than the 1.6-percent average annual rate over the past 10 years. The index for all items less food and energy rose 2.1 percent, its largest 12-month increase since the period ending February 2017. The energy index increased 7.0 percent over the past 12 months, and the food index advanced 1.3 percent.” – From the Bureau of Labor Statistics release of the Consumer Price Index Summary, dated April 11, 2018.

The 10-year Treasury breached the psychological 3.0% level last week, largely on what I view as a response to the first-quarter employment cost index, which increased 0.8% versus 0.6% in the fourth quarter. Wages and salaries, which comprise about 70% of compensation costs, increased 0.9%, while benefit costs jumped 0.7%. The key takeaway from the report is that wages, salaries, and benefits are trending higher. This inflationary trend will incline the Federal Reserve to stay on its rate-hiking path.

That said, this week’s FOMC meeting will be more about talk than action. There is currently a 93.8% probability the Fed will stand pat – keeping the Fed Funds rate at 1.5%-1.75% – but the post-meeting Fed policy statement will carry a lot of weight to market watchers. Based on the most recent reading, there is a similar 93.8% chance the Fed will raise Fed Funds 0.25% to 1.75%-2.00% at the June 13 FOMC meeting, followed by a 68.8% chance of a third hike taking Fed Funds to 2.00%-2.25% and then a 39.1% chance of a fourth hike in December to 2.25%-2.50%. Since these are very fluid numbers, investors should keep a close eye on them, but it is clear the Fed intends to raise at least three and maybe four times in 2108.

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

So, while much of the focus of recent market volatility has been centered on a potential trade war with China and other geopolitical outliers involving the upcoming summit with North Korea, further military action in Syria, and the potential of undoing the Iranian nuclear deal, the dominant headwind that I see for stocks is that of Treasury yields bumping higher if the Fed comes out with a hawkish statement this week.

The market is in a fairly well-defined trading range with technical support for the S&P 500 at 2,600 and overhead resistance at 2,700. Given that most of the high-profile companies will have reported their Q1 numbers as of last Friday, the market will be hard pressed to find a series of catalysts sufficient to break the S&P out of its trading range. As such, it is prudent to see how the market reacts to tomorrow’s FOMC statement. The current market landscape is highly fickle, leaving little room for disappointment.

What’s up with the utility sector?

For some investors, the high level of volatility is just too stressful to sleep well at night and yet they need something better than 1.0% money market rates or 2.2% returns for one-year CDs to satisfy the need for income. What seems to be luring some of this nervous money this past week is utility stocks that have, for lack of better terminology, been crushed with the recent spike in short-term interest rates.

It’s a counter-intuitive move considering that the Fed is very likely to raise interest rates on June 13 and again in September and possibly again at the end of the year, but from the one-year chart of the Utilities Select SPDR ETF (XLU), the rally off the low of $47.37 to its current $51.66 represents a gain of 9.05%.

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

Shares of XLU previously fell from $57.23 to $47.37 (or -17.2%), so a 9% recovery only gets XLU stock back to the flatline year-to-date. With a current yield of 2.98% to sweeten the pot, that’s an impressive bounce and it’s getting a lot of chatter from those who monitor sector rotation. Conversely, Navellier & Associates has two dividend portfolios that are loaded with growth-oriented sectors – the industrials, consumer discretionary, biopharmaceutical, energy refining, aerospace and defense, financials, chemicals, business services, and other sub-sectors leveraged to the economy’s rising tide of GDP growth.

Both the Power Dividend portfolio that sports a current dividend yield of 3.11% and the Concentrated High Dividend portfolio that boasts a current dividend yield of 3.94% are in lockstep with a tightening Fed. Our dividend growth stocks, which are those that double their dividends every six to seven years, are faring the best. This is truly the sweet spot for income-oriented investors. They reflect how the Navellier Private Client Group clients are positioned for yield and lower volatility.

I am personally not ready to jump into the pool of utility stocks just yet, as the motto of “Don’t fight the Fed” comes to mind, and I’m fairly certain that the Fed is going to hike rates at least two more times this year, along with their stated objective of raising rates further in 2019. In my view, the path of least resistance for interest rates is higher, and until the economy puts up data showing deterioration as defined by two consecutive quarters of contraction in GDP, I’m a utility spectator.

Some stock sectors will buck the trend for reasons that aren’t fundamentally clear, and in this case, I chalk up the recent bump in utility stocks to market volatility. When the Fed does get closer to its dot plot tightening cycle goal for short-term interest rates, I’ll be a utility bull. But as for right now, I think it’s still early and a retest of the lower prices seen in early February is highly probable, in my view.

Growth Mail:

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

I Repeat: Don’t Sell in May (or Go Away)

by Gary Alexander

Looked at from 37,000 feet, this market is the essence of flatness – like Central Kansas in “fly-over” America. Last week, the S&P 500 fell by (hold your breath) 0.23 points. That’s less than 0.01%. Year-to-date (through Friday), the S&P is down 3.7 points, or 0.14%. For the month of April, the S&P is up 1.1%, which sounds like a gargantuan number compared to last week, but it’s still frustratingly small.

After March’s 2.7% decline and April’s tepid 1.1% gain, should we now compound our pain and “Sell in May and go away”?  After all, “Sell in May” was a winning formula, historically, from 1950 to 2012.

WARNING: The following chart could be misleading. It is for historical informational purposes only!

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

Past performance really does not indicate future performance. In fact, this chart is somewhat misleading.

Five years ago, I wrote the following headline in MarketMail (for April 29, 2013): “This Bull Market Has Legs: Don’t ‘Sell in May & Go Away.’” I guess I got lucky, since that the “Sell in May” formula stopped working that year forward. In the last five years, the S&P has gained an average 5.55% from May 1 to October 31 (the historically “bad” months), while it averaged only 5.15% from November 1 to April 30:

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The “Sell in May” theory has another major flaw. If you sell, when do you plan to re-enter the market? July is the #2 month in the last 100 years (and August is #5), according to Bespoke Investment Group’s Seasonality studies. Do you really want to exit stocks for just two months? And here’s a shocker: October is suddenly the #1 best month over the last 20 years – since 1998 – up an average 2.5%!

This year, the “Sell in May” crowd has a new argument to muster, the “May Day” fear of the steel and aluminum tariffs taking effect in Europe and elsewhere (See Reuters: “Mayday on May Day: Trump Steel Tariff Deadline Looms”). The tariff exemptions for Europe and other allies run out today, May 1 – the traditional “worker’s holiday,” still observed in 100 nations. At press time, all sorts of concessions and trade-offs are being discussed. This is typical Trumpism – brinksmanship, followed by last-second deals.

The Federal Open Market Committee (FOMC) is also meeting May 1-2, which gives the bears some more reason to worry, but this is not one of those meetings followed by a press conference. The FOMC tends to save its rate-raising decisions for meetings followed by a press conference. The next such event is in June.

irst-Quarter GDP Was Seen as Weak – But Was It?

The page 1 headline in the weekend Wall Street Journal said that first-quarter GDP came in at a “reduced pace” of 2.3% as “Consumers Cool U.S. Growth, but Business Thrives.” That was a pleasantly balanced headline, since earnings are up precisely 10 times faster than GDP growth in the first quarter. According to FactSet, with 53% of the S&P 500 companies having reported, the blended growth rate for Q1 EPS stands at +23.2%, more than double the 11.3% rate expected at the start of the quarter and the 17.1% growth expected as late as March 31. Almost 80% have reported positive earnings surprises – the highest number since FactSet began tracking this metric in 2008 – and 74% reported positive sales surprises.

How can this be – earnings at +23.2% vs. GDP at +2.3% in the same quarter? Part of it has to do with how GDP is reported. As pundits constantly remind us, the consumer represents about 70% of GDP, but the consumer does not represent 70% of the real economy, since GDP over-weights consumer activity.

In last Tuesday’s Wall Street Journal (“If GDP Lags, Watch the Economy GO”), economist Mark Skousen brought our attention once again to the fact that business-to-business activity is not reported adequately in GDP accounting. “Gross output,” or GO, he says, “reflects the full value of the supply chain—the business-to-business spending that moves all goods and services toward the final retail market. Based on my work and research by David Ranson, chief economist at HCWE & Co., changes in the supply chain are a strong leading indicator of the next quarter’s GDP. The supply chain, which the BEA calls ‘intermediate inputs,’ took off in the fourth quarter of 2017, growing at a 7.5% annualized rate. That’s more than double the rate of real GDP growth and the fastest pace since before the Great Recession. Real GO, which includes both GDP and the supply chain, rose at a 4.7% rate.”

This boom in intermediate activity, he says, “should translate into higher economic growth soon, barring international instability, trade wars, or tighter-than-expected monetary policy.” That’s because business activities dominate the 10 “leading economic indicators,” which tend to anticipate economic growth.

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

The latest uptick in “GO” (blue line) implies a rising GDP to follow; Source: MSkousen.com, April 19, 2018

Since last week’s GDP report was the first preliminary reading, a positive “GO” signals that future 1Q revisions and later quarters this year might escalate upward from 2.3%, perhaps reaching 3% and above.

Yes, consumption is 69% of GDP but it’s just 39% of GO. Business spending is only 17% of GDP but it’s 52% of GO. Obviously, GDP over-weights consumers, so it runs hot and cold on indicators like retail sales. When consumers make and save more money, GDP turns down, but that money does not disappear. It will be invested or spent later on, pushing up either the stock market (if invested) or GDP (if spent).

Larry Kudlow, the new director of the National Economic Council, once wrote: “It is business, not consumers, that is the heart of the economy. When businesses produce profitably, they create income-producing jobs and thus consumers spend. Capital formation is the key to worker productivity and consumer prosperity.” He was right then (2006), and he would be wise to whisper this into Trump’s ear.

Global Mail:

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

The U.S. Dollar Strikes Back

by Ivan Martchev

While January was a weak month for the U.S. dollar, the last three months have seen a basing pattern in the U.S. Dollar Index that has now broken marginally to the upside. Those are technical terms, but there is nothing technical about my annual prediction that the dollar is likely to be up this year, possibly above 100 on the U.S. Dollar Index – which closed last Friday at 91.51.

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

My reasons now are the same ones I cited in December 2017 – that interest rate differentials are moving in favor of the dollar, courtesy of the Federal Reserve, and none of the political developments that helped the euro in 2017 are expected to provide similar support in 2018. In some respects, 2017 was much more of a strong year for the euro than a weak year for the dollar, but because of the euro’s very heavy (57.6%) weighting in the U.S. Dollar Index, market observers tend to use the two terms interchangeably.

To boot, if President Trump begins to move the hopelessly out-of-balance trade picture with China and the rest of the world the dollar has much more room to rally, possibly reaching ultimately as high as 120 on the U.S. Dollar Index, which would be quite the rally to watch.

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

While the U.S. current account balance is horrific in absolute terms, in relative terms it is a lot better than during the years of the George W. Bush administration and as bad as the mid-1980s when Ronald Reagan was in power. Still, it would be quite something to see the current account imbalance (the biggest part of which is the trade deficit) begin to shrink notably. That can only be viewed as bullish for the dollar.

We are also getting close to the North Korean summit with the U.S., which should be quite something to watch. So far, we saw pictures last week of North and South Korea holding their own summit on the South Korean side of the border, so Kim has definitely given indications that he wants to play ball.

I have no doubt that Kim Jong-un does not want a German-style scenario of a unified Korea, but something similar to a dual presidency cannot be ruled out. Kim prefers Chinese-style economic reforms that solidify his leadership position. We know this given the reforms that he has made already that are helping North Korean GDP growth, which is running at the highest rate since he took over leadership.

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

The U.S.-North Korea summit is relevant for the currency markets as it may create a risk-on environment, which historically has been dollar bearish, but because of numerous cross currents from the Federal Reserve, the Mueller investigation, and other seemingly impossible to forecast developments that may happen in the meantime, it is impossible to say if the dollar will see pressure in May. The larger point is that the intermediate trend in the dollar is up, supported by the trajectory of fundamental developments.

The Mainland China “Dollar Wild Card”

I continue to believe that the wild card in the currency markets is the Chinese economy and the history of Chinese authorities using the Chinese yuan as a tool for macro-economic management. Trade can become a big problem for China and they may opt to devalue the way they did in late 1993 to the tune of 34%.

A yuan devaluation, if it comes, is decidedly dollar-bullish as well as a deflationary event for the global economy. It may not happen in 2018, but the odds are not insignificant that it happens relatively soon.

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

Case in point, the Chinese stock market (chart, above) has been very weak in 2018. While the Shanghai Composite is not as good of an indicator of the Chinese economy as the stock market in the United States for the U.S. economy, it has to be noted that it looks like we have finally completed the bear market rally that I have previously referred to as the Mother of All Dead-Cat Bounces (MOADCB).

In the 2+ years since the Shanghai Composite re-crashed in January 2016, due to malfunctioning circuit breakers on Chinese exchanges, this mainland large cap benchmark has been unable to recapture what it lost in that single month. If that is not a dead-cat bounce, then I don't know what is.

If the two years from January 2016 to January 2018 was indeed the MOADCB that I envisioned, the fact that this weak rally is unravelling fast would confirm that it indeed was a bear market rally and a lower low in the Shanghai Composite would follow, below the 2650 low seen in January 2016. I think such an unravelling will come in due course, as I believe the Chinese economy has seen a credit bubble that has now burst, so we are ultimately likely to see an outcome similar to the Asian Crisis in 1997-1998.

What I have a hard time reconciling is how the Chinese authorities managed to hold the economy together after the much bigger mainland stock market crash in mid-2015. This crash was different than prior mainland crashes, or even the serial crashes in Hong Kong throughout the years, as in 2015 there was record ownership of stocks by mainland investors. Still, Chinese authorities have much more control over the economy than in any other Asian country, so perhaps that’s what held the economy together.

Be that as it may, I think China is headed for a hard landing due to total debt to GDP leverage growing from 100% to 400% while the economy grew over 10-fold since the turn of the century. When that hard landing comes, it will be dollar-bullish, although I have to admit that I am not sure it will come in 2018.

Sector Spotlight:

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

The Worry Warts Will Always Be With Us

by Jason Bodner

“Mothers don’t sleep, they worry with their eyes closed!”

– From a Mother’s Day card

Worry and anxiety are like pain: no one really enjoys it (except maybe Woody Allen), but it’s there for a good reason. It tells us when we are in danger. It tells us we need to focus on preparation for what might come next. Our ancestors had to prepare for winter or hunts. The relaxed “surfer-dudes” of the day did not fare as well in survival as the worry-warts. That’s the good news, for worriers. The bad news is that anxiety has ill-effects on our lives. Worry, stress, and anxiety can affect our health and even make us sick.

Worry can also make the world stink. According to a study profiled in JNeurosci , the Journal of Neuroscience, the world smells bad when you’re anxious. As anxiety increases in a person, they are more likely to label neutral smells as “bad” smells. Negative thinking literally affects the way the world smells.

Well, that stinks!

Worry runs strong in my family, so it makes sense thinking back to my childhood and hearing my mother say: “Wait, do you smell that?” I look at the stock market over the last three months and wonder about that strange odor… Sales and earnings are phenomenal, tax reform is great for U.S. business, a series of scandalous headlines are largely being written off, and things generally look great. So, what’s that smell?

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The simple explanation may just be that the stock market is like a “worried mother.” The latest round of news in the past week focused a lot on “peak earnings growth.” One dominant fear is that earnings momentum has reached its peak and cannot continue. According to FactSet, nearly 77% of companies are beating earnings estimates. Even the beleaguered FAANG stocks have so far beaten analysts’ estimates.

So, while earnings and guidance are the best they’ve been, we are seeing profit taking and mixed trading days and more volatility. For instance, the S&P 500 finished nearly flat (-0.01%) last week. But Tuesday saw a drop of -1.34% for no significant reason. The bottom line is that the underlying buying pressure that has buoyed the markets since Trump’s election has not been there for the past three months.

This past week featured some stunning earnings and guidance announcements. It also marked an historic summit between the two Koreas. Whether the summit was mere optics or in earnest, it marks significant progress. The tailwinds for a bull market lined up great, but the market is worried about the party ending.

Last Week’s Winners (Once Again) Were Defensive Sectors

Last week’s sector action also tells me the market is worried. The best performing sectors were REITs and Utilities. These are typically defensive sectors that perform well when investors feel they want “safer” returns on equity investments. By safer, I mean they want more predictable dividends on less volatile stocks. Health Care and Telecommunications were the 3rd and 4th best performing sectors for the week. Information Technology, Financials, Materials, and Industrials were the worst performers.

This is not what we normally see in confident bull markets. This is defensive action by worried investors. The rate-sensitive REITs and Utilities also hint that the May FOMC meeting might not bring a rate rise. If investors feel they cannot find better future yields in the bond market, they will seek them elsewhere.

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So, if we look back at the past three months of sector performance, what do we notice? The first thing is that there was only one winning sector: Utilities with a +2.47% performance. The “next best” or really “least-worst” sector was Real Estate. This was followed by Energy and then Information Technology.

Bull markets firing on all cylinders would typically show a different profile. For a glimpse into what that looks like, let’s look further back in time. For six months we see Consumer Discretionary, Energy, and Information Technology have led the charge. The 12-month sector performance table profiles a bull market. Growth heavy sectors dominate the top of the list while defensive sectors litter the bottom.

The real question is, “How long will this season of worry last?” Of course, the answer is … “It depends.” There are many factors, such as seasonality, the media, earnings, FOMC, and Trump tweets, just to name a few. I believe the answer lies in the data. Here is a summary of what I see:

  • I see a market with fantastic earnings and guidance momentum. The backdrop has not changed, and the economic news is strong. Even if the market has become “overheated” (which I don’t believe it has), the fundamentals are robust for continued strength of equity markets.
  • The data suggests we are in a sloshing-around phase of the bull market. Sectors wax and wane on an almost weekly basis. The most interesting recently strong sector I see is Energy. All others are taking turns knocking each other off the leader board, but I want to see two or three sectors emerge as the leaders and stay there for a while.
  • I see unusual institutional buying and selling also sloshing around. For a nice bull trend, we like to see buying outweigh selling. The measure I look at has a historical average of 2-to-1 in favor of buying. The 20-day moving average for this measure for the past 20 days has been nearly even (1-to-1) buying to selling. We want to see stocks breaking out to the upside on big buying before the market starts to trend up.

I believe we are in a period of worry about mostly nothing. The worry is mainly centered around “How long can the good times last?” Well, my answer this week comes from Corrie ten Boom, when she said, “Worry does not empty tomorrow of its sorrow. It empties today of its strength.”

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A Look Ahead:

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

Stocks are Still “The Best Game in Town”

by Louis Navellier

Earnings are soaring, but stocks are flat. What gives? There is no doubt that some of the recent selling pressure has been coming from the ETF industry and the mindless RoboAdvsiors that I have thoroughly criticized in a recent white paper. I have had some interesting conversations with folks recently when they ask me if they should sell their ETFs on big down days. I explain that the ETF discounts to net asset value typically widen on big down days, so I want them to be aware of the hidden costs of selling ETFs.

Despite the well-documented Stanford and UCLA academic study that showed that ETFs are more expensive to buy and sell than stocks, plus our multiple white papers on ETF sharks (i.e., ETF specialists), I have to continue to explain to folks that selling ETFs on big down days is not ideal due to widening ETF spreads, so let me remind you once again that you can be “fleeced” by up to 35% margins intraday, as some investors were back on August 24, 2015, so it is best to wait for upticks to sell many ETFs.

The truth of the matter is that some big-name, big-cap stocks remain under siege and a lot of money is being reshuffled on Wall Street. This is a healthy sign, since money is not leaving the stock market, but is merely being reshuffled. Interestingly, many of our dividend growth stocks – which we define as those that double their dividends every six to seven years – are faring the best. Since the 10-year Treasury bond yield finally crossed above the 3% level for the first time in nearly five years, bond investors are naturally nervous, as bond prices erode in a rising interest rate environment, offsetting the lure of higher income.

Even though the S&P 500 yields just under 2%, dividends are taxed at much lower maximum rates than bond income. Since our dividend growth stocks yield over 3.2%, many tax-savvy investors have decided that 3%+ in lower-taxed dividend growth stocks is better than 3% on higher-taxed Treasury bonds. When you look at all the available asset classes out there, I’d say that stocks are still the “best game in town.”

What the Fed’s Economic “Dashboard” is Telling Them Now

As the Federal Reserve’s Open Market Committee meets today and tomorrow, they will be looking at an array of positive economic indicators. They are not likely to raise rates tomorrow, but they will likely issue positive indication of a rate increase in June, since the economic news last week was very positive.

  • First, the National Association of Realtors announced that existing home sales rose 1.1% in March to an annual rate of 5.6 million. At the current annual sales pace, there is only an ultra-tight 3.6-month supply of existing homes for sale. Overall, existing home sales will likely continue to be restrained by a lack of inventory. Median home prices have risen 5.8% in the past 12 months to $250,400.
  • Higher home prices tend to boost consumer confidence. On Tuesday, the Conference Board announced that its consumer confidence index rose to 128.7 in April, up from a revised 127 in March and down slightly from a 17-year high of 130 back in February. Naturally, improving consumer confidence bodes well for strong retail sales, which naturally tend to pick up as the weather improves. This means second-quarter GDP growth is off to a good start!
  • The surprising news of the week was that the Commerce Department reported that the trade deficit in March declined by 10.3% to $68 billion – the first decline in seven months and substantially below economists’ consensus estimate of $73.4 billion. In March, imports declined 2.1% to $208.1 billion, while exports rose 2.4% to $140.1 billion. This is good news for first-quarter GDP growth.
  • Speaking of GDP growth, the Commerce Department on Friday announced that its preliminary estimate for first-quarter GDP was an annual pace of 2.3%, above economists’ consensus estimate of 2%. Consumer spending expanded by only 1.1% in the first quarter, but business spending expanded at a robust pace as spending on equipment rose 6.1% and structures soared 12.3%! 
  • The Commerce Department also reported that the Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index rose 1.8% in the past 12 months, so the Fed is now more likely to raise rates at its June FOMC meeting, and perhaps twice later in the year if inflation persists.

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A final interesting development is that the U.S. dollar has finally gotten its mojo back in the past few days. A stronger U.S. dollar should help lower commodity prices, since most commodities are priced in U.S. dollars. Additionally, foreign investors are now more likely to buy Treasury securities in a stronger U.S. dollar environment due to the pathetic yields elsewhere around the world, so I will be carefully watching the “bid to cover” ratio on the upcoming Treasury auctions. So overall, a stronger U.S. dollar should help to suppress commodity inflation and help put a lid on market interest rates a bit.

I will be watching tomorrow’s FOMC statement closely, and it will certainly impact both bond and stock markets. I should add that there are some outspoken doves on the FOMC who have been quiet lately (as is required before FOMC meetings), so Wall Street is clearly anticipating what they will say this week.


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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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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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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