Season Begins Strongly

Earnings Season Begins Strongly, as the S&P 500 Nears Record Highs

by Louis Navellier

July 24, 2018

As of last Friday, 75 of the S&P 500 companies have reported earnings and 71 of them (95%) beat analyst consensus forecasts. As a result, the S&P 500 stayed above the 2,800 level for nearly all of last week.

Big Screen Smart Television Image

Netflix (NFLX) provided us with a good test for the overall stock market last week. Although Netflix beat on earnings, it missed its own forecast for new subscribers. The stock was hit at the market opening on Tuesday, but then it quickly rallied back impressively on persistent institutional buying and bargain hunting. The fact of the matter is that there is an “undercurrent” that is supporting strong stocks on any pullbacks. I expect that we’ll see more institutional bargain hunting like this in the upcoming weeks.

(Please note: Louie Navellier does currently hold a position in Netflix. Navellier & Associates does currently own a position in Netflix for client portfolios).

In This Issue

Bryan Perry sees long-term growth ahead but some market volatility returning after earnings season ends, giving us time to trim a little portfolio fat during the summer. Gary Alexander analyzes the initial second-quarter GDP number coming out this Friday: Will Trump’s team be closer (about 4%) or will the Fed (2.8%) be right? Ivan Martchev then examines three cases for the trade war resolution – the best case, the base case, or the thin case for “mutual suicide.” Jason Bodner’s summer view from the Hamptons is a relaxing look at the winning “dynasty” in the Technology and Consumer Discretionary sectors. Then I’ll look at Friday’s GDP announcement in light of the latest retail sales and industrial production statistics.

Income Mail:
Market Volatility is Likely to Return After Q2 Earnings Season Ends
by Bryan Perry
Consider Taking Some Profits Before Labor Day

Growth Mail:
Who’s Right on Growth – Trump’s Team or the Downbeat Fed?
by Gary Alexander
Is This Bull Market About to Become the Longest in History?

Global Mail:
The Eye of the Trade War Storm
by Ivan Martchev
The Base Case is For Trade Talks to Heat Up

Sector Spotlight:
You Can’t Always Get What You Want, But…
by Jason Bodner
Info-Tech and Consumer Discretionary Defy “Trade War” Warnings

A Look Ahead:
Look for “3%, Maybe 4%” GDP Growth in Mid-2018
by Louis Navellier
Strong Retail Sales & Industrial Production Should Boost 2nd Quarter GDP

Income Mail:

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

Market Volatility is Likely to Return After Q2 Earnings Season Ends

by Bryan Perry

Investors are doing their level best to focus on record second-quarter earnings while letting the war on trade play itself out in the financial media. And to their credit, the Nasdaq and Russell 2000 have posted new all-time highs in the past two weeks. There is a general feeling of broad support for bringing China and other nations in line to fairer trade relationships, but it is becoming clear that this situation could play out over several months, whereas the market and many investors much prefer a quicker fix.

Apparently, China’s President Xi Jinping has no interest in talking about fair trade with the U.S. anytime soon. As per the latest reports on the tit-for-tat tariff dispute, U.S. and China trade officials have taken a pause on further negotiations, having hit an impasse. The Chinese central bank is being charged with manipulating the yuan lower to dampen the effects of tariffs and to fatten profits for exporting companies while the U.S. dollar reached a new 52-week high against the yuan and other major currencies last week.

United States Dollar versus Chinese Yuan Chart

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

Fed Chairman Jerome Powell gave a pretty upbeat report on the economy to Congress last week. That is also contributing to the dollar’s strength while pressuring crude oil, copper, gold, and other commodities. At the same time, Powell did not really weigh in publicly on the tariff war. White House Chief Economic Advisor Larry Kudlow stated in an interview at last week’s Delivering Alpha Conference that while some low-ranking Chinese officials were prepared to reach a deal, President Xi was refusing to compromise.

Specifically, Kudlow said: “I don’t think President Xi at the moment has any intention of following through on the discussion we made, and I think the president is so dissatisfied with China on these so-called ‘talks’ that he is keeping the pressure on — and I support that.”

President Trump has recently threatened to impose a new round of charges on $200 billion of Chinese products unless the People’s Republic agrees to change its intellectual property practices and high-tech industrial subsidy plans. The list comes after warnings by Trump that he may implement tariffs on at least $500 billion, which is very close to every Chinese-made imported good sent to the U.S.

Even though a trade war that could culminate in new tariffs that exceed $700 billion or more in total on a global basis, it pales in comparison to the $80 trillion global economy. It’s not even 1% of total global commerce but it could cause ripples and disruptions within the global supply chain, which is the larger risk to the stock market. News of regional manufacturing slowdowns could dampen investor sentiment.

Against this backdrop of a loud bark of trade rhetoric versus a small bite out of global growth, it shouldn’t have much of an impact on GDP, but the noise level could get to a place where market volatility spikes in August leading up to the September deadline, when the $200 billion in additional tariffs on China would begin. Looking at the CBOE Volatility Index (VIX), the most widely followed measure of short-term market volatility, the five-year chart of the VIX (below) shows the index soaring from 10 to 50 in the first week of February, 2018, fueled by none other than widespread fear of a sudden slowdown in China.

CBOE Volatility Index Chart

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

Since then, the VIX has tested the 12 level twice. The risk/reward proposition for getting prepared for a bout of market volatility heading into August is, in my view, notable. Once the FAANG stocks and other market favorites report their second-quarter results over the next week or two, the economic calendar will have to deliver market catalysts to offset a rising noise level of a trade war, further Fed tightening rumors, and the approaching mid-term elections, all fueled by a hyper-ventilating political and financial media.

Consider Taking Some Profits Before Labor Day

Investors will be contending with the implementation of the next round of tariffs in the first week of September, followed by the FOMC meeting scheduled for September 25-26, in which bond traders are predicting an 86.1% probability that the Fed will raise the Fed Funds Rate to 2.00% to 2.25% (see chart below). I find this level of conviction about a September rate hike interesting given the very soft housing data released this past week, when the Commerce Department announced that housing starts plunged 12.3% in June. This was the biggest percentage monthly drop in housing starts since November 2016.

Fed Fund Target Rate Probabilities Bar Chart

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

Housing starts are now running at the lowest level in nine months and building permits have declined for three straight months. Since the housing market is such a key driver to domestic economic growth, this latest reading on housing might give the Fed reason to pause on a September rate hike. Home prices and higher mortgage rates are far outpacing wage increases and the July data will be ever more telling.

With consumer price inflation near 2.4%, I do not see Personal Consumption Expenditures inflation, the Fed’s preferred gauge, sailing far above 2%, but the risk of investor anxiety rising on inflation is there after years of deflation fears. However, the pickup in U.S. inflation is not high or sticky enough to reverse monetary easing in the eurozone and Japan, which will keep downward pressure on long-term rates.

The other factor that investors have to consider is seasonality. The months of August and September are notoriously unpredictable for equity markets. While a spike in volatility might not repeat the scale of what took place in February, there is the possibility of China announcing other non-tariff-related measures to retaliate against U.S. tariffs, like slapping regulatory red tape on American companies doing business in China, or restricting further American business investment in China. A widening of the U.S.-China trade struggle outside of tariffs brings new uncertainty to the markets, and that could invite more volatility.

So, while I expect the current low-volatility landscape to persist over time, I see potential for episodic spikes amid confusion and uncertainty, as opposed to fundamental risks of economic growth slowing. In sum, stock selection will be at more of a premium during the August-September timeframe, while the market sorts out China’s economy, the Fed, European credit, oil prices, and currency manipulation.

While confidence is high and the Nasdaq and Russell 2000 trade at new highs and lead the current rally, that doesn’t mean the historical pattern won’t re-emerge. Over time, August and September have been the worst two months for equity market returns. The “Stock Trader's Almanac” reports that, on average, September is the month when the stock market's three leading indexes usually perform the poorest, so it’s a good time to consider selling stocks that have underperformed in what has been a bullish investing landscape of late. Trimming the fat from one’s portfolio is usually a good idea.

Growth Mail:

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

Who’s Right on Growth – Trump’s Team or the Downbeat Fed?

by Gary Alexander

President Trump told an interviewer last week that he is “not happy” about the Fed raising rates. The Fed is probably “not happy” about the President raising tariffs, either, but most Fed governors talk in a veiled language called “Fedspeak,” so we’re not likely to see any escalating war of words between Gentleman Jay Powell and our outspoken President. However, we’ll soon see a showdown on their GDP projections.

After the Tax Cuts and Jobs Act passed last December, the White House Council of Economic Advisers projected that annual GDP growth would average above 3% per year over the next decade. The Federal Reserve’s Summary of Economic Projections (SEP) is not so optimistic. In their June SEP, the Fed’s median projections for real GDP growth in 2018, 2019, and 2020 are 2.8%, 2.4%, and 2.0% on a full-year (Q4 to Q4) basis, respectively. Beyond that, the Fed sees a dismal run of 1.8% growth in the early 2020s.

The Fed’s downbeat projections may be related to rising federal deficits, rising in conjunction with their projection of the median federal funds rate, which they see rising to 3.1% in 2019 and 3.4% in 2020. With annual deficits projected to rise to $1 trillion in 2020, that implies $700 billion or more in interest costs to service the $22 trillion in federal debt by the year 2020, if federal spending is not contracted before then.

So far, the White House is right. The preliminary second-quarter GDP figures come out this Friday, but we have the Atlanta Fed’s “GDPNow” econometric model to go on between now and then. Their latest estimate (as of July 18) is for a robust 4.5% annualized growth rate in the quarter that ended June 30.

Fed GDPNow Gross Domestic Product Estimate for 2018 Chart

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

Some of the latest second-quarter growth-related statistics are coming in at very high single-digit rates. Retail sales were up 6.6% in June over the same period in 2017 and 5.4% excluding gasoline sales. Even more impressive, May’s business sales (released at the same time) were up 8.5%, year over year, the largest yearly gain since November. 2011. Ed Yardeni reminds us (in “Happy Sales,” July 17, 2018) that “this series is highly correlated with aggregate S&P 500 revenues,” so this augurs well for Q2 revenues.

Despite all the dire warnings of trade war slowing global growth, the global picture is actually improving. According to Yardeni (in “Happy World Revenues,” July 18, 2018), the forward revenues of nearly all of our major trading partners are going up “at record highs, providing an upbeat assessment of the current global economic outlook.”  Since the start of 2017, Japan’s forward revenues are up 6.8% and the UK series is up 6.9% since the start of 2016, defying all the doomsday prophecies of the anti-Brexit crowd.

Trading Partners Forward Revenues per Share Chart

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

Is This Bull Market About to Become the Longest in History?

Last Friday in Monaco, Beatrice Chepkoech of Kenya knocked more than eight seconds off the world record for the women’s 3,000-meter steeplechase during a Diamond League race of world-class runners.

Records are made to be broken, including stock market records.

In less than a month, this bull market could become the longest in history. The previous record ran for 3,452 days (almost 9.5 years) from October 11, 1990 to March 24, 2000, when the S&P 500 rose from 295.46 to 1527.46, a huge 417% gain. According to most pundits, the current bull market began March 9, 2009. It will turn 3,453 days old on August 22, 2018, but there are two problems with this calculation:

#1: The S&P 500 may have already peaked on January 26, 2018 at 2,872.87. If we don’t exceed that number sometime after August 22, then the bull market ended in January, at less than nine years’ length. Granted, the S&P closed within 2% of that all-time high last Wednesday, but “close” is no all-time high.

#2: We have already seen two 15% corrections in the last nine years, so this bull market has already been slain, twice. According to Ned Davis Research, there have been two bear markets since 2009:

Bear Markets since 2009 Table

Although the S&P 500 “only” fell 15% in 2015-16, shares of small companies fell over 26% in that time span, as measured by the Value Line Geometric Index. This is why Ned Davis Research called the 2015-16 decline a “bear market.”  According to Davis, the current bull market dates from February 11, 2016 so, according to this reckoning, the current bull market is just a toddler – three years and five months old.

Even if you want to be a stickler and insist on a 20% S&P correction, this bull is under seven years old – not within shouting distance of the 1990s record. Neither is it as robust. This bull market, at its January peak, was up 330%, which is still far short of the 417% gain amassed during the Roaring 1990s. And don’t forget, the recent decade’s gain was preceded by a “lost decade” of net losses from 2000 to 2009.

Even after considering all of these historical comparisons, all records are made to be broken. The 1990s recovery broke the previous record, and this bull market could break that record, if you want to stretch the numbers to ignore the two downdrafts in 2011 and 2015-16. Either way, bull markets do not die of old age, but of deteriorating fundamentals, and we do not see any deterioration in U.S. corporate earnings yet.

Global Mail:

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

The Eye of the Trade War Storm

by Ivan Martchev

While I have never been in a real hurricane – I’ve only gotten hit by the remains of several as they moved up the East Coast – they say that the very middle (the “eye”) of the storm is remarkably calm. Those that have been unfortunate enough to get a direct hit actually get a reprieve in the very middle of the storm, as the weather calms down until the back end of the hurricane wall repeats the devastation that the front end just caused. The eye of the storm provides a false sense of security that “it will all work out somehow.”

We survived imploding volatility in February and we have now made all-time highs in the Russell 2000 and the Nasdaq 100 indexes. The stock market is now remarkably calm as President Trump is cattle-prodding the Chinese with his intentional 7-8-week delays on announced tariff packages in order to make a deal. His approach has not worked yet, so we have to consider the scenarios, of which there are three.

Chinese Yuan Chart

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

The best-case scenario is for the Chinese, and others in a similar situation, to make a deal before the majority of the announced tariffs go into effect. This scenario seems unlikely, based on the present trajectory of trade negotiations and the move of the Chinese yuan, which is experiencing its steepest decline in many years (seen as a move higher on the inverted chart, above). The Chinese are taking away the gift they gave the Trump administration in 2017 by guiding the yuan to appreciate (the move lower on the chart). At this rate of depreciation, the USDCNY exchange rate could reach 7 by the end of July.

While it is overly simplistic to think that the Chinese are devaluing to simply counter a 25% tariff with a 25% devaluation, this sharp reversal is an indication that the yuan is a major weapon in their arsenal to be used in the present trade negotiation. I still think that even with a tit-for-tat devaluation of the yuan for the size of the tariffs, we will have a disruption in Chinese (and perhaps U.S.) economic activity, as it will be problematic for the investment cycles in both economies as the level of uncertainty remains high.

Trade Deficit as Percentage of Gross Domestic Product Chart

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

I know that a $375 billion bilateral trade deficit with China seems like a big number but it is not that large compared to the trade deficit that the U.S. had with the rest of the world as a percentage of GDP 10 years ago, when President George W. Bush had a current account deficit as high as 6% of GDP (the biggest component of which was crude oil imports). Mr. Trump's current account deficit is just 2.4% of GDP.

As to another one of Mr. Trump’s claims – that a lot of U.S. factories closed and “the jobs went to China” – the volume of U.S. GDP from manufacturing has never been as high as it is today. The problem is that due to globalization and the need to compete, U.S. businesses invested more heavily in manufacturing capacity in China and the service side of the U.S. economy grew faster, while the manufacturing side of the U.S. economy grew at a slower pace. This is Capitalism 101, and someone needs to show Mr. Trump those statistics, as some things he said on the campaign trail (and still says today) are demonstrably false.

Gross Domestic Product Source Percentages Chart

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

I agree that the Chinese have taken advantage of the U.S. in bilateral trade and that if they want they can cut the trade deficit between the two countries in half very easily. The Chinese have long used trade as a tool to exert political influence and therefore they purposefully buy more from their neighbors and key partners than they do from the U.S. This type of clever self-serving behavior needs to stop. Still, the present confrontational course of the trade negotiations is worrisome.

The Base Case is For Trade Talks to Heat Up

Leaving aside the improbable best-case scenario, the base-case scenario is that the cattle-prod delay in tariff implementations will not work, as the Chinese simply will not bow down to this kind of pressure and they will make a deal after global markets begin to roil in August and September (dare I say October) as more and more tariffs actually go into effect and the yuan gets weaker and weaker as they show the world they are fighting the good fight. That way the Chinese save face, which is how they like to operate. That type of scenario allows the Chinese to continue to exert their influence on their friends and partners.

Finally, as in any sword fight, there is a small possibility that both parties are impaled simultaneously by going into a full-scale trade war before coming to a resolution. That would not be very smart of either the Chinese or Mr. Trump, but it is a small possibility we need to consider. In that case, the Chinese yuan gets devalued dramatically, the Fed stops its quantitative tightening, and the 10-year Treasury yield drops to 1% or lower due to the serious deflationary impact of a full-scale trade war and a Chinese devaluation.

Sector Spotlight:

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

You Can’t Always Get What You Want, But…

by Jason Bodner

Working on Wall Street, I was fortunate enough to spend many summers in the Hamptons. Eastern Long Island is renowned for its wallet-busting lifestyle and captivating mansions, but for me that wasn’t the appeal at all. The idyllic northeastern trees and those beaches offered a great escape from the ceaseless noise and bustle of the Big City. The Hamptons boast some of the most beautiful beaches in America.

The Hamptons Beach Image

Then there’s which Hampton to stay in? Each town has its own stigma and association. Unfortunately, it costs an arm and a leg to stay there. For many, it’s an infuriating game of keeping up with the Joneses. Houses can cost tens (or hundreds) of thousands of dollars per month to rent, or millions to buy.

I hadn’t been in the Hamptons in years, but recently my family had the opportunity to go out to the Hamptons for a few days. I had never been to Hampton Bays, a lesser-known town that doesn’t carry the same grandiose reputation as the other Hamptons, where the “A-listers” and celebrities summer.

On a quiet street lies The Drake Inn, a humble collection of guest cottages overlooking a canal which leads out to a huge bay. I sat on a lounge looking at the boats, breathing fresh air mixed with scents from woods and beach. The place was clean, modern, and lovely with a wonderful breakfast and friendly staff.

The Drake Inn Image

Originally, I wanted to be “where the scene is” in East Hampton, but as my stress melted away I realized how happy I was to be in this place, which I had never heard of before. There was much to explore; it was low key and just perfect for a summer break for my family.

The point to this story is taken from the lyrics of a Rolling Stones song: “You Can’t Always Get What You Want, But If You Try Sometimes You Just Might Find … You Get What You Need.”

I went to Hampton Bays wishing I were going further east. I was hoping to relive the days from my prior life, but once I was at The Drake Inn, I was very happy. I would definitely go back there. Sometimes we want one thing but end up getting something else that is better for us.

This is not unlike investing.

We all inherently want “the reason” for why stocks go up or down. When the market makes a material move, we invariably ask “why?” If a stock has been gathering steam and showing gains for weeks, investors want to know why? When at a cocktail party someone is bragging about a big stock win, there is always a story for why it went up. Cramer can’t get on TV and entertain millions of people with his analysis if he doesn’t have the answer to the burning question that is a natural human instinct: Why?

The funny thing about the answer to why is that once the reason is widely known, the move is usually over. It’s too late. Think about big success stories of the past like McDonalds (MCD), Home Depot (HD), or Microsoft (MSFT). They used to be wild and exciting, but they are now a bit boring. They don’t command attention the way Tesla (TSLA) does, but those stocks grew leaps and bounds over the years. Their quarterly dividend payments now eclipse their IPO share price – if a savvy investor purchased the IPO and reinvested their dividends. This happened through years of steady growth and capturing pole-position in their respective markets. Yet the “hot new stock” continues to animate cocktail conversations.

(Please note: Jason Bodner does currently hold a position in MSFT but not MCD, HD or TSLA Navellier & Associates does currently own a position in MSFT HD and MCD but does not own TSLA for client portfolios).

Smart money has the knack of knowing about great stocks before the big story breaks. It’s their business. Big hedge funds and institutions have multi-million-dollar budgets to research their investments before they are made. They quietly step into stocks, accumulating shares, trying not to tip their hand. When Jim Cramer is out there on TV, weeks or months later, that is usually when these smart investors can start monetizing their investment. They need someone to sell to. They need the public to buy into the story.

So how does the average investor win? They use cold-hard data and/or a manager who realizes how to find good stocks early. The first step to knowing the story before everyone else is sector performance.

Info-Tech and Consumer Discretionary Defy “Trade War” Warnings

Big institutions are the ones that start the snowball rolling. They start piling into stocks that lead the sectors. Those sectors then start to lead the markets. The move can stay protracted for a long time.

Case in point: Information Technology. The trade-war story started in late January and temporarily “broke” the markets. According to months of doomsday headlines, growth was over. Tech stocks would fare poorly because a tariff “tit-for-tat” would severely hamper global growth. This would supposedly also affect Consumer Discretionary stocks, since tariffs would drive consumer goods costs higher.

What have the sectors done since then?  If you look at the six-month table below, you can see that those two sectors clearly beat out all other sectors. The 12-month and three-month sectors are no different. Tech and Consumer Discretionary are the winners. These are the growth-heavy sectors! According to a prevailing theme in the media, they should have been the worst sectors, leading the market lower.

Standard and Poor's 500 Sector Indices Changes Tables

Stories are great for parties, but data is how investors find opportunity. Finding winners before they are on TV is how real money is made. To find those, begin by knowing which sectors to look in. From there, identify leadership by looking for the highest-quality stocks. Employing this method means there’s a good chance you’ll be in stocks before you hear about them on TV, when you may be contemplating selling.

My heart wanted to replicate family summers from years ago, but I let go and ended up having an idyllic experience that was a different view of the same thing. I didn’t get what I wanted, but I got what I needed.

The Rolling Stones Quote Image

A Look Ahead:

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

Look for “3%, Maybe 4%” GDP Growth in Mid-2018

by Louis Navellier

On Wednesday, President Trump’s National Economic Advisor, Larry Kudlow, spoke at the Delivering Alpha conference in New York. In discussing next Friday’s GDP number, Kudlow said, “We are getting three (percent) and it may be four (percent) for a quarter or two.”  Kudlow also implied that more tax cuts are coming that might further boost GDP growth. Interestingly, Kudlow also said that “the Chinese government knows they’re wrong,” implying that President Trump would prevail in the current tariff spat.

Also on Wednesday, the Fed’s Beige Book survey of the 12 Fed districts was released. It basically said that the U.S. economy grew “moderately” from late April through May. The survey also said that “wage increases remained modest” and prices for goods and services rose “moderately” in most regions. Translated from Fedspeak, all those “modest” and “moderate” modifiers mean that the Fed is looking for excuses to postpone its next interest rate hike, since it does not see any significant inflationary pressure.

The best news is that the latest wave of tariffs has so far not had any significant economic impact. During Congressional testimony on Tuesday, Fed Chairman Jerome Powell said, “Overall, we see the risk of the economy unexpectedly weakening as roughly balanced with the possibility of the economy growing faster than we currently anticipate.”  Translated, Chairman Powell basically admitted that the Fed is now in “neutral” and may not need to tap on the brakes unless inflation materializes. Interestingly, the Fed Chairman only briefly mentioned the trade war between the U.S. and its global competitors, saying only that it is “difficult to predict” what the ramifications will be on the economy. So essentially, Chairman Powell admitted that the tariff spat might cause the Fed to hesitate before raising key interest rates further.

If the Fed is looking for another excuse to postpone raising key interest rates, it may be Wednesday’s shocking Commerce Department announcement that housing starts plunged 12.3% in June to a seasonally adjusted annual rate of 1.173 million, and building permits declined 2.2% to 1.273 million. This was a big surprise and the biggest percentage monthly drop in housing starts since November 2016. Economists expected housing starts and building permits to come in at an annual pace of 1.32 million and 1.33 million, respectively. Housing starts are now at their lowest level in nine months and building permits have declined for three straight months, so there is no doubt that the housing industry is cooling off.

The latest economic data tell us that the ‘Goldilocks’ environment of moderate interest rates, strong GDP growth, and modest inflation persists. The 10-year Treasury bond also remains very well behaved. Recent inflationary pressures are also moderating, so the Fed may post only one more interest rate hike in 2018.

Strong Retail Sales & Industrial Production Should Boost 2nd Quarter GDP

Outside of housing, the other economic indicators were stronger. The Commerce Department announced that retail sales rose 0.5% in June, but the real surprise was that May’s retail sales were revised up to a stunning 1.3% gain, up from 0.8% previously reported. In the past 12 months, retail sales are up 6.6%.

Due to higher prices at the pump, sales at gas stations rose 1% in June and are up a whopping 21.6% in the past 12 months. Vehicle sales rose 0.87% in June, but excluding gas stations and vehicles, retail sales still rose a very healthy 0.4% in June due to strong sales for Health & Personal Care (up 2.21%), Bars & Restaurants (up 1.5%), On-line (up 1.33%), and Building Materials (up 0.84%). Overall, the June retail sales report and the May upward revision were very positive for strong second-quarter GDP growth.

Open Pit Mining Image

On Tuesday, the Fed announced that industrial production rose 0.6% in June. Mining rose a robust 1.2% in June, but mild weather caused utility output to decline 1.5%. Excluding the volatile utility and mining sectors, core industrial production rose by an even more impressive 0.8%. In the past 12 months, industrial production is up 3.8%, but the real exciting news is that in the second quarter, industrial production surged at a 6% annual rate, which bodes especially well for second-quarter GDP growth.

Crude oil prices went on a wild ride last week, as traders expected a supply surge due to the resumption of crude oil exports from eastern Libya. Furthermore, due to sanctions being re-imposed on Iran, Russia is widely expected to boost its crude oil production, especially after the recent Trump-Putin summit.

On Wednesday, the Energy Information Administration (EIA) announced that crude oil inventories rose by 5.8 million barrels in the last week after three previous weeks of dramatic declines. In light of these developments, it appears that crude oil is in the process of stabilizing at a relatively high level, which should insure that the energy sector should continue to generate steady profits for the next few quarters.


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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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