Record Share Buy-backs

Record Share Buy-backs Shrink (and Supercharge) the Market

by Louis Navellier

September 5, 2018

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There are a variety of reasons being offered up for the stock market’s “melt up” in late August. The announcement of the Mexico trade deal, near record consumer confidence, an upward revision to second-quarter GDP, remarkably stable 10-year Treasury bond yields, and Trump’s influence on the Florida governor race, which bodes well for the Republicans in the mid-term elections, are sample reasons.

I could go on and on, but the answer must also include record stock buy-backs. Essentially, at the end of each earnings announcement season, companies tend to announce expanded stock buy-back programs and dividend increases. These stock buy-back programs and dividend increases boosted many of my favorite stocks in late May at the end of the first-quarter earnings announcement season, and they have now done the same thing in late August, at the end of the second-quarter earnings announcement season.

The stock market is actually physically shrinking due to this year’s record stock buy-back activity, which may approach a whopping $1 trillion in buy-backs this year for the S&P 500. The full story is available in my management company’s new white paper called “Honey, I Shrunk the Stock Market” (click this link).

According to Ed Yardeni, the number of S&P 500 shares has shrunk by 7.7% since the start of 2011. This tends to increase the earnings per remaining share and the dividends available per remaining share.

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

In This Issue

Bryan Perry covers the added bullish component of new overseas buying in the U.S. stock market. He further argues that any inevitable economic slowdown should push investors back into dividend growth stocks. In Growth Mail, Gary Alexander covers several new Democratic Party devices to define GDP growth downward in advance of the mid-term elections. Ivan Martchev covers the latest emerging market currency to collapse in Argentina, while the U.S. dollar continues to beat its rivals, especially in the Broad Trade-Weighted Index. Jason Bodner goes into space (as he often does) to share more of his processes for seeking positive outliers in the stock market and S&P sectors, while I cover the latest threats and dangers facing us in the market’s notoriously dangerous month of September, starting after this Labor Day break. 

Income Mail:
Global Liquidity Pours into U.S. Equity Markets
by Bryan Perry
The Pendulum Swings in Favor of Dividend Growth in 2019

Growth Mail:
Growth is Great – So Democrats Seek to Define Growth Down
by Gary Alexander
America’s Savings Rate Has Mysteriously Doubled!

Global Mail:
Argentina is the Latest Emerging Markets Shoe to Drop
by Ivan Martchev
The U.S. Broad Trade-Weighted Dollar Index is Headed for All-Time Highs

Sector Spotlight:
Searching for the Market’s Positive Outliers
by Jason Bodner
Growth Sectors Closed August Strongly

A Look Ahead:
Could There be Another September Crash – or Just a Shift in Leadership?
by Louis Navellier
Consumer Confidence Soars, Reflecting a Healthy Economy

Income Mail:

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

Global Liquidity Pours into U.S. Equity Markets

by Bryan Perry

Most investors are well aware that the stock market is a forward-discounting mechanism that trades more on forward guidance than on current financial performance. A company can put up huge quarterly numbers and blow out all the Wall Street estimates, but if it guides down sales and/or earnings for the upcoming quarter or full year, its stock gets crushed. That’s just the way it is, and we all have been on the receiving end of this good news/bad news quarterly release whipsaw. Investing is subject to the dynamic psychology of perception versus reality, and much of the time perception wins out.

As of the end of August, investors’ perceptions of forward market conditions are nothing short of ebullient. Capital flows into U.S. equities seem unquenchable with the heavyweight favorite (tech stocks) charging to new all-time highs. Euphoria is running high for the U.S. stock market, now considered the only game in town relative to global investing. All the right things to keep the rally in an uninterrupted run are falling into place. That has caught many fund managers underinvested and aggressively upping their equity weightings so as to at least keep pace with the major averages.

When bullish perception and bullish reality converge, as they have in the present investing landscape, the animal spirits can be unleashed. Third-quarter GDP is set to top 4% again, core inflation is holding at the Fed’s 2% target rate, the yield on the 10-year Treasury is camped out below 3%, and the dollar has pulled back on a narrative that further Fed tightening may cease in 2019 and quite possibly after the September 26 FOMC meeting. Translated, we should expect a year-end rally – which may already be under way.

What is most impressive is that the rally is broad-based, evidenced by strong weekly rotation from sector to sector with technology and consumer discretionary stocks outperforming the other nine market sectors. The current market rally is grounded on solid earnings growth. According to the latest FactSet Earnings Insight (August 31, 2018), 99% of the companies in the S&P 500 have reported results for the second quarter, with 80% reporting a positive EPS surprise and 72% a positive sales surprise.

Sure, tax reform can juice up earnings, but there is no substitute for strong top-line revenue growth. The year-over-year revenue growth rate for Q2 2018 was 9.9%, marking the highest growth rate reported since Q3 2011 (12.5%). Business investment and consumer spending are stoking investor confidence.

The second-quarter numbers were historic. For Q2, the blended earnings growth rate for the S&P 500 was 25%, marking the second highest earnings growth since Q3 2010 (34.1%). Spending by businesses on technology and automation led the way. For Q3, analysts currently expect earnings to grow 20.3% and revenues 7.7%. That will likely prove conservative, as have both the first- and second-quarter estimates.

The chart below tells a bullish story for the S&P 500 in that while the market is trading at all-time highs, earnings are robust enough to maintain a forward P/E for the market of around 16.5 times earnings, which is slightly above fair value but not overvalued relative to double-digit earnings growth. Stocks are moving higher in tandem with earnings growth and with the analysts currently expecting earnings to grow near 20% for the rest of 2018, the prospect of the S&P 500 trading to 3,000 by year-end is quite good.

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

Aside from positive economic fundamentals, there is a huge volume of global liquidity seeking total return from both growth and dividend income in a place where the underlying currency is stable, interest rates are leveling off, with tame inflation, a proactive tax policy, and full employment, in a place known for its robust consumer spending – which accounts for 70% of GDP growth. That place is the USA!

The Pendulum Swings in Favor of Dividend Growth in 2019

According to FactSet, the same universe of analysts that are forecasting torrid third- and fourth-quarter earnings and sales growth for the S&P are also predicting a decidedly lower rate of earnings growth and a gradually slower rate of top-line growth for the first two quarters of 2019. The lower EPS figures noted below suggest that 2019 year-over-year comparisons simply aren’t going to be anywhere near what they are for 2018, when tax reform boosted EPS well above the previous year’s slower economic expansion.

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(Source: FactSet Earnings Insight)

Granted, these are forward-looking predictions, but assuming growth slows to a sustainable 3%+ rate for GDP in 2019, that is still a golden backdrop for equities, as it implies a stable dollar, low inflation, low interest rates, and full employment. However, the numbers also foretell of a grand shift from market-leading pure growth stocks to blue-chip dividend growth stocks in 2019.

FactSet isn’t alone. The latest data from the Atlanta Fed shows another downtick in their GDPNow model estimate for real GDP growth in the third quarter of 2018. They now see 4.1% growth, down from 4.6% on August 24. I’ve noted recently a softening in housing and auto data. The lower figure is attributed to a decline in exports and real gross private domestic investment growth, declining from 16.1% to 15.5%.

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

GDPNow is not an official forecast. Rather, it is best viewed as a running estimate of real GDP growth based on available data for the current quarter. There are no subjective adjustments with GDPNow. The estimate is based solely on its components, and while these data points show a tapering of stellar growth, the data also support sustained economic expansion and a compelling case for dividend-paying stocks.

Last week, I highlighted some softer data in the housing and auto markets, and now we’re seeing some adjustments to GDP and S&P sales and earnings. Bear in mind, these are all positive developments. A tempering of growth keeps current market conditions in place and is feeding the bullishness narrative.

The point I want to make is that a mild downshift in growth usually invites a massive shift into dividend growth stocks. Timing the market’s rotation from pure growth to dividend growth stocks will be the subject of a lot of chatter in the weeks ahead, but I would argue that it is already starting to happen. 

Growth Mail:

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

Growth is Great – So Democrats Seek to Define Growth Down

by Gary Alexander

The first readjustment of second-quarter GDP came out Thursday at 4.2%, up a notch from the initial estimate of 4.1%, so naturally Congressmen of both Parties are celebrating this good news, right?

Wrong!  Several prominent Democrats are actually trying to redefine the GDP number down – officially. They’re getting desperate. The mid-term elections will come November 8, just two weeks after the initial third-quarter GDP estimate emerges from the Bureau of Economic Analysis (BEA). Knowing that most elections are based on “the economy, stupid,” several Democratic politicians and their lapdog economists are bending over backward to redefine growth statistics down to the dismal world they hope to sell to us.

Last week, Senators Chuck Schumer (D-NY) and Martin Heinrich (D-NM) introduced a bill that would direct the BEA (which produces the GDP) to become a micro-manager and tell us who benefits from any growth. Their big beef, according to Paul Krugman, who reviewed this bill in last Thursday’s New York Times (“For Whom the Economy Grows”) is that wages are stagnant and wealth inequality is growing.

Making statistics into Play Dough for politicians cuts both ways, since raw wages don’t include benefits, and income stats don’t include government benefits, like food stamps, disability, and various tax credits.

In “The Myth of American Inequality” (Wall Street Journal, August 10), John F. Early, former assistant commissioner at the Bureau of Labor Statistics, and Phil Gramm, former chairman of the Senate Banking Committee, take apart the Organization for Economic Cooperation and Development (OECD) “Gini Coefficient” (the proportion of all income that would have to be redistributed to achieve perfect equality).

As the first chart (below) shows, the U.S. has a relatively high (bad) Gini Coefficient at 0.39. But the OECD ignores the $1.6 trillion in annual redistributions to low-income Americans (right chart) – which brings the U.S.’ Gini number to 0.32, right in the middle of the pack of the seven largest OECD nations.

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

If the Republicans maintain control of Congress, the Schumer/Heinrich bill probably won’t pass, but the Democrats have more tricks up their sleeves. The day after the GDP number came out last week, Bloomberg reported (in “Don’t Believe that GDP Number” by Justin Fox, August 30, 2018), that Jason Furman, President Obama’s last Chairman of Economic Advisors, is now questioning the validity of the GDP. No surprise there. Currently a professor at Harvard’s Kennedy School of Government, Furman advocates using Gross Domestic Income (GDI) instead of GDP. (GDI grew by just 2.1% last quarter.)

This is really a tempest in a teapot, since both GDP and GDI grow by the same amount over a long period of time, but they vary widely quarter to quarter. Picking one over the other is a short-term political game.

A third, almost laughable idea came from Sen. Elizabeth Warren (D-MA), who proposed the Accountable Capitalism Act on August 14. Under her proposed law, corporations with more than $1 billion in annual revenues would be forced to apply for a federal corporate charter, which would require the directors to consider the interests of all major corporate stakeholders in all company decisions. Stakeholders could sue if they believed directors weren’t fulfilling those obligations, and the federal government would then be free to enter the corporate tent to dictate to these businesses the composition of their boards, the details of their governance, compensation, and personnel policies, giving fodder to stakeholders to sue corporations.

Warren also proposes that business owners cede at least 40% of corporate ownership rights to employees, even though those employees already have access to company shares through their 401(k) programs.

Parts of her bill are so vague as to be meaningless, but each sentence clearly exhibits both hostility to, and ignorance of, what capitalism stands for. Her desire for government agents to define or dictate acceptable corporate goals would effectively close up capital investment like a clamshell. No sane company would take risks when any outsider could sue to steal their success. Corporations, by definition, are already very responsive to their stakeholders – their shareholders and customers first and foremost, then their suppliers, their employees, and their community. If they were not responsive to these many stakeholders, they would lose customers, suppliers, shareholders, and workers. All these stakeholders are voluntary stakeholders.

One Wall Street Journal reader accurately called Warren’s plan “Venezuela 2.0.” May it disappear soon.

America’s Savings Rate Has Mysteriously Doubled!

While the gloomy doomsday crowd wants to convince the BEA to minimize GDP growth for the average American (Schumer and Heinrich’s bill), lower the number by using a different measure (Jason Furman), or cripple future growth (Elizabeth Warren), the non-partisan bean counters at the BEA have undertaken a comprehensive long-term revision to national income and savings statistics in all the years since 2010.

According to Barron’s (“Americans are Saving More Than We Thought,” July 31), “The old data showed the savings rate collapsing to just 3% by the middle of 2017” while new figures show savings consistently holding at 7% of disposable personal income since 2010. For the latest quarter studied (1st quarter, 2018), the BEA revised the savings rate from an originally-reported 3.3% to a revised 7.2%, more than double.

Small revisions are normal, but this one is like missing the 800-pound gorilla in the room. As Barron’s put it, that’s 34% more money saved since 2010 than previously thought, or roughly $2 trillion. That much missing money is enough to buy 10 million homes at an average $200,000, or 100 million vehicles at $20,000 each. This tells me that there is room for more consumer spending in the months ahead.

For June and July, the U.S. savings rate was officially released at 6.7% and 6.8%. Part of that rise reflects the higher interest rates now available on bank savings after the Fed’s first rate increases, and part of it comes from the tax law which delivers more take-home pay. Americans are clearly saving about 7%.

Global Mail:

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

Argentina is the Latest Emerging Markets Shoe to Drop

by Ivan Martchev

Another week has passed, and another emerging markets currency has entered freefall, this time in Latin America, where the Argentine peso sold off to 41.47 against the dollar. I am sure that the IMF will come to some sort of rescue, as it has many times in the storied Argentine history, but this situation can be characterized as none other than macroeconomic mismanagement.

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

The situations in Turkey and Argentina are similar – both countries have rather explosive external dollar borrowing at a time when U.S. interest rates are rising – but the situation in Argentina may be worse, as the $253.7 billion in external debt is being supported by only $51.3 billion in foreign exchange reserves, while Turkey’s $466.7 billion in total gross external debt – the number is actually over $500 billion if all financing vehicles are added – is covered by $124.3 billion. Relative to Turkey, Argentina is in a worse situation, given how much it borrowed and how much money it has to support its feeble exchange rate.

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

As I have said in past columns, dollar borrowing in this context means dollar shorting as Argentina and Turkish government and corporate entities borrow dollars to use as they please. They then have to buy those dollars back in order to repay the loans as they come due. Rising U.S. interest rates via fed funds rate hikes and an accelerated Fed balance sheet runoff rate accelerate loan dollar repayments and cause the exchange value of the dollar to rise. In the case of Argentine pesos and Turkish liras, the value of the dollar is rising rather dramatically as those countries’ net short positions in dollars have risen rather dramatically in the past 10 years, as can be seen in the external debt aggregates.

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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. Broad Trade-Weighted Dollar Index is Headed for All-Time Highs

I have followed this global binge of dollar borrowing with the realization that as the Federal Reserve begins its quantitative tightening cycle we were going to get precisely this dollar short squeeze, so I was a bit perplexed when the dollar registered its highest exchange rate on the first trading day in 2017 and then pretty much went down all year. In hindsight, it was the unwinding of the eurozone disintegration trades in many local currency and bond markets which caused the fall in the dollar, not the interest rate differentials, which were improving against most members of the U.S. Dollar Index.

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

Currency aficionados may note that the exchange value of the dollar is a lot higher in trade-weighted terms (above) than according to the U.S. Dollar Index (below), which is not trade-weighted. Instead, the U.S. Dollar Index is rather extremely overweight in euros (57.6%) due to the folding of multiple European currencies into the euro – including former currency powers like the Deutsche mark and French franc.

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

I am of the opinion that the Broad Trade-Weighted Dollar Index will make an all-time high in this cycle, particularly if Mr. Trump manages to straighten out the trade imbalances with key U.S. trading partners. He does not have to completely eliminate the trade deficit in order for that to happen. All he needs to do is make progress in reducing the trade imbalances, and there is already evidence of some success with key partners like the EU and Mexico. How high the non-trade-weighted U.S. Dollar Index will go is hard to say, other than to note that it is likely headed a lot higher as political frictions in the eurozone are again intensifying with Brexit, Italy, and other issues coming to the fore. The eurozone disintegrating is not a zero-probability event and we will get a better feel of what that probability is over the next 12 months.

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

While the situations in both Argentina and Turkey have the potential to deteriorate significantly by the end of 2018 via the closure of the capital accounts in one or both countries, the biggest unknown remains China, where we are about to get into tariff retaliation and counter-retaliation after the big packages start being implemented today. The Chinese seemingly have over $3 trillion to defend the yuan, but that does not take into effect the expected losses in the Chinese banking system after their credit cycle ends.

The Chinese have managed to extend their economic expansion for 25 years due to the policy of lending quotas by controlling the major banks in the country. Every time the economy in China would weaken the People’s Bank of China (PBOC) would force-feed credit to stabilize the situation. This caused a massive credit bubble where the total leverage ratio in the economy is over 400% of GDP, counting the infamous shadow banking system, which is significantly outside of the control of the Chinese central bank.

I believe that China will have its hard landing soon, which should look similar to the Asian Crisis of 20 years ago. Such a hard landing may be accelerated if the Trump trade negotiations do not go well for the Chinese. In the meantime, it does not look like the worst is over for Turkey nor Argentina, so it looks like this emerging markets crisis is just getting started.

Sector Spotlight:

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

Searching for the Market’s Positive Outliers

by Jason Bodner

If you’re frustrated with your country or planet, I just want you know there’s an option. There is a proposed new nation to reside on a space station. It’s called Asgardia and it’s currently taking applications for citizenship. It already has 263,000 “residents.” Don’t believe me? Their Website says:

“Asgardia will be a fully-fledged, independent nation inhabited on a low Earth orbit. It began with a satellite, Asgardia-1, that was launched in 2017, to be followed by an orbital satellite constellation launch in 2019-2020, and later by other satellite constellations and Space Arks, as well as by settlements on the Moon.”

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Yes, I like weird and quirky facts. They appeal to me because outliers have relevance to our lives and the markets. When I came across this one, I knew I had to share it with you, but what relevance does it have to the markets? The first thing that came to mind is the concept of outliers. Probably 99.9% of earthlings accept the fact we are part of a governed country on earth and go about our business. Yet here’s Igor Ashurbeyli, a clear outlier. He has “out-there” lofty goals and radical ideas and he’s acting on them. His ideas are gaining a little traction, it appears. Igor is, in a peculiar sense, a clear outlier from planet earth.

Wolfram Mathworld defines an outlier as an observation that lies outside the overall pattern of a distribution, a clear deviation from the norm. There are negative outliers like Charles Manson and positive ones like Michael Jordan. Positive and negative outliers exist in the stock market, too. 

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I like to focus on the positive outliers in the stock market. I believe that leaders lead and losers lose, meaning that winners tend to keep on winning. I am not the type of investor who will go hunting in the discount bin for tomorrow’s stock treasures. I believe that we have a much better chance of finding winners near the top of the performance list, but that also means they tend to have higher prices.

There are plenty of free data sources to track positive outlier stocks. For instance, I just went to finviz.com and clicked 52-week new highs on the technical tab. The 7,455 stocks list was instantly whittled down to 261 stocks. That single filter omitted 96.5% of all stocks and left me with a handful.

One of my main screening factors is looking into sectors. Leading stocks will usually lead their respective industries and sectors higher. All we need to do is think of the FAANG stocks and their impact on the tech sector over the past few years. This is why I spend so much time each week analyzing which sectors are doing best. They have a big impact on determining the leading stocks of tomorrow.

Growth Sectors Closed August Strongly

The growth sectors had a strong week. Information Technology, Consumer Discretionary, and Health Care were our top three sectors last week. While nearly all sectors have been strong for the past three months, the big winners were Health Care and Consumer Discretionary stocks. Looking out over six months, we see Consumers, Infotech, Energy, and Health Care in the top four.

As these sectors rise, we can ask what factors are contributing to their rise. I have been harping on a positive economic backdrop for U.S. stocks. These sectors play into that scene perfectly. Record low taxes, international cash repatriation, record share buy-backs, record sales and earnings, record growth rates, and record highs in the market are the stuff bull markets are made of. These factors are especially benefitting Infotech, Health Care, and Consumer Discretionary stocks.

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

It is no surprise then that on my lists recently I have seen a lot of tech, health, and consumer stocks rising to the top. The process of focusing on outlier stocks can help reveal winners of tomorrow. This should intuitively make sense. After all, isn’t this the process sports teams use to build their roster?  They don’t look for the worst player, thinking that they are cheap and will have a turnaround. They pursue the best good player they can afford and build a team of solid performers at what they are supposed to do. That’s the plan, anyway. Shouldn’t that be the same approach when building a portfolio of stocks?  Find the best ones you can afford with the highest likelihood of great performance going forward?

This was the premise behind “Moneyball,” the great story of the Oakland Athletics’ Manager Billy Beane as told by Michael Lewis. Peter Brand, Jonah Hill’s character in the movie version, explains this well:

“People are overlooked for a variety of biased reasons and perceived flaws: Age, appearance, personality. Bill James and mathematics cuts straight through that. Billy, of the 20,000 notable players for us to consider, I believe that there's a championship team of 25 people that we can afford. Because everyone else in baseball undervalues them.”

Let me rephrase that quote with a few words substituted in bold for our investment purposes:

“Stocks are overlooked for a variety of biased reasons and perceived flaws. Statistics and mathematics cuts straight through that. Of the 20,000 notable stocks for us to consider, I believe that there's a championship portfolio of 25 stocks that we can afford. Because everyone else in the market undervalues them.”

There’s a sea of stocks out there. I believe tomorrow’s winners live in the outliers, which can become tomorrow’s big winners.

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Brad Pitt as Billy Beane and Jonah Hill as Peter Brand
In “Moneyball” (2011); Source: taxcredits

A Look Ahead

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

Could There be Another September Crash – or Just a Shift in Leadership?

by Louis Navellier

We are nearing the 10th anniversary of the September 2008 crash. September is also the market’s worst month, historically. Despite that, we are seeing the best GDP growth since 2000 and the best consumer confidence since 2000. Does this euphoria or complacency indicate a crash or market peak may be near?

I don’t think so. In 2000, 54% of the S&P 500 was in seven giant technology stocks and the 10 largest companies in the S&P 500 traded an average of 62 times trailing 12-month earnings. Interestingly, due to a “free float” adjustment to the S&P 500, this bellwether index should not get that concentrated in just a few mega cap stocks ever again. There is no doubt that the FAANG stocks continue to benefit from index investing, but it’s not like the top 10 in 2000. When the S&P 500 burst back in March of 2000, the “tail end” of the S&P 500 did better than the mega-cap stocks for several years thereafter. Likewise, today the tail end of the S&P 500, especially the smallest 100 stocks, are posting the best performance this year.

The tail end of the S&P 500 consists of mid- and small-capitalization companies that are more domestic, so they are not impeded by the strong headwind from a strong U.S. dollar. As the index and ETF industry shifts their focus from international, emerging markets, and multinational companies, the amount of index and ETF money now being dumped into the tail end of the S&P 500 (bottom 100) and the Russell 2000 stocks is causing the “melt up” we have witnessed in the past few days. What is even more promising is that there has been minimal trading volume in the past few days, so if the buying pressure picks up, then even more explosive appreciation potential is possible in the upcoming months as trading volume rises.

We could see “flash crashes” at any time, but they are temporary. Last week, I wrote about the third anniversary of the August 24, 2015 Flash Crash and how the stock market can be rigged during market hours, including how stop-loss orders may not provide sufficient protection, and how it is better to buy at the end of the day. In that regard, The Wall Street Journal published a great article last week on how Goldman Sachs now specializes in end-of-day trading for index funds, ETFs, and other passive vehicles.

End-of-day trading has soared in the past several years as passive investing has become more dominant;so I find it a bit ironic that while around-the-clock trading was promoted in the past several years, many professionals have now decided to trade predominantly at the end of the day, when liquidity is much better, when buy and sell orders can be more effectively matched. So if you see the stock market continue to “melt up” at the end of the day and then “gap up” in the aftermarket, that is a great sign that the buying pressure that we have been recently witnessing may be getting even stronger, supporting a bull market.

Consumer Confidence Soars, Reflecting a Healthy Economy

Back in 2000 and 2008, we were entering a recession after a frothy bubble in tech stocks and real estate, respectively. That is not happening today. The economy is strong, earnings are strong, and the market is not in bubble (high P/E) condition. Here is a rundown of the latest run of positive economic statistics.

The best news last week was that the Conference Board announced that consumer confidence rose to 133.4 in August, up from 127.9 in July, reaching an 18-year high, just shy of the all-time record of 135.8 from October 2000. Consumer spending is strong in all income groups, which is why low-end retailer Wal-Mart posted its strongest same-store sales in a decade and high-end Tiffany & Co. last week announced surprisingly strong 12% annual sales growth in the second quarter for its affluent client base.

The Commerce Department last week revised its second-quarter GDP estimate to a 4.2% annual pace, up from 4.1% previously estimated. One of the interesting details is that corporate profits are up 7.7% in the past 12 months, the strongest annual pace in four years. Exports surged at a 9.1% annual pace while imports declined by 0.4%, so a shrinking trade deficit has also helped to boost overall GDP growth. Overall, 2018 is now shaping up to be the strongest year for GDP growth since 2000’s 4.1% growth rate.

The outlier is the housing market. The National Association of Realtors on Wednesday announced that pending home sales declined 0.7% in July, the fourth time in the first seven months of 2018 that pending home sales declined. In the past 12 months, pending home sales have declined 2.3%, so I suspect the Fed will telegraph in its September FOMC statement that it will be slowing its future interest rate increases, since it does not want to kill the housing market or invert the yield curve.

Furthermore, after its September 26 rate hike, the Fed will likely move from “accommodative” to “neutral” and then congratulate itself for hitting its 2% inflation target based on the core PCE. 


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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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