Sectors May Shift

The Sectors May Shift a Bit, but the Market Keeps Rising

by Louis Navellier

December 5, 2017

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

Bitten Apple Logo Image

The S&P 500 gained 2.8% in November and 1.5% last week, reaching a new high on Thursday; but on Wednesday and Friday, there was some profit-taking in the tech sector. Rumblings about slower-than-expected orders for Apple’s new iPhone X caused some analysts to fear a tech wreck. Ironically, I do not personally own Apple, but I do own a lot of iPhone suppliers, which gives me a good feel for Apple’s business. The good news is that fundamentally superior stocks should bounce back, like fresh tennis balls, fairly soon. (Please note: Louis Navellier does not currently, personally hold a position in Apple. Navellier & Associates does currently own a position in Apple for client portfolios).

During sector-based corrections like this, money does not leave the market but merely moves around. To get a feeling for how the deck is being re-shuffled, our friends at Bespoke Investment Group published a “decile analysis” of stocks in the S&P 500 – ranking those in the top 10%, bottom 10%, and every 10% (decile) in between in various categories. In measuring last week’s “End of Month Rotation” (through November 29), they found that the best performers were stocks with the worst YTD change through 11/24 (+4.09%), the smallest market cap (+3.74%), those with the highest short interest (+3.68%), and the two lowest P/E deciles (+3.27% and +3.78%). The worst-performing segments were stocks that performed the best (YTD) through 11/24 (-2.05%) and those with the most percent of international revenues (-1.53%).

Continuing last week’s trend, I expect that the impending corporate tax cut will help boost many beaten-down, predominantly domestic companies that have been lagging the S&P 500 so far this year.

In This Issue

In Income Mail, Bryan Perry makes a strong case for a rising market and flat inflation for years to come. Gary Alexander and Jason Bodner both offer headlines questioning two sides of the “Flat Earth” argument, one based on slow growth assumptions from 2016, the other based on sector rotations. In between those two Flat-Earth stories, Ivan Martchev looks at four risks facing equities in 2018. Then, to close, I examine the likely outcome of the tax bill, the latest Fed policies, and the future role of bitcoins.

Income Mail:
Tax Reform Pulls Capital Off Sidelines
by Bryan Perry
Dividend Aristocrats Outperformed the S&P 500 (especially since 2008)
Where, Oh Where, is the Threat of Inflation?

Growth Mail:
This World Refuses to Stay “Flat” for Long
by Gary Alexander
The Amazing Contrarian Value of Magazine Cover

Global Mail:
Risks Facing Equities in 2018
by Ivan Martchev
Four Wild Cards for 2018

Sector Spotlight:
The Earth is (Kind of) Flat
by Jason Bodner
Sector Rotations: Imperfect yet Elegant and Predictable

A Look Ahead:
The New Tax Bill Should Deliver a Year-End Rally
by Louis Navellier
Is U.S. Growth Getting “Out of Hand”?
Bitcoins Enter the Big Times

Income Mail:

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

Tax Reform Pulls Capital Off Sidelines

by Bryan Perry

The notion of a tax package becoming reality sparked a fresh rally for stocks that saw the energy, financial, industrial, and transportation sectors lead the market higher. The Dow enjoyed its best day of the year last Thursday, rising 1.4% and clearing 24,000 for the first time. Other bullish developments included OPEC and non-OPEC members agreeing to extend their production cuts until the end of 2018.

Seeing bond yields tick higher showed for the first time in a while what I view as “normalized” behavior, meaning that “when stock prices rise, bond prices fall” in reaction to perceived economic growth.

Most of the recent economic data points are showing a clear expansion of the U.S. economy. Just in the past two weeks, New Home Sales (685K vs. 629k consensus), Q3 GDP Second Estimate (3.3% vs. 3.2% consensus), Pending Home Sales (3.5% vs. 0.6% consensus), Personal Income (0.4% vs. 0.3% consensus), Chicago PMI (63.9 vs. 63.0 consensus), Construction Spending (1.4% vs. 0.5% consensus), Leading Indicators (1.2% vs. 0.8% consensus), and Michigan Sentiment (98.5 vs. 97.9 consensus) have all beaten estimates, supporting the bullish thesis of strong earnings expectations for the fourth quarter of 2017 and the first quarter of 2018 (source: Briefing.com Economic Calendar, November 2017).

It’s my view that as tax reform gets passed, the organic strength of the broad economy will get another fiscal jolt from tax cuts, and we’ll see more record highs for the indexes as a result of a further and faster pick up in business conditions, labor conditions, and consumer sentiment. The fact that no major piece of legislation has passed in 2017 and yet year-to-date the S&P 500 is higher by 18% as of last Friday tells me to expect a sustaining of the current bull trend. We could see earnings for the S&P 500 get an additional 14% boost next year to $150 according to Goldman Sachs (source: Bloomberg – “Goldman Raises S&P Targets Seeing Tax Cuts Lifting Profits,” 11/21, 2017). If so, the current forward PE of 18x for the S&P looks justified and investors should buckle up for a strong year-end Santa Claus rally.

Goldman Turns Bullish Chart

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

The news of tax reform is particularly good for future dividend growth as companies will have more free cash flow to reward shareholders with widespread increases in dividend payouts to be expected in 2018 and beyond. The number of companies that have been able to double their dividend payouts inside seven years is a short list. It’s been some time since companies have been able to richly reward shareholders in large numbers as cost cutting and financial engineering have defined the post-recession era.

The S&P 500 Dividend Aristocrats is an index that focuses exclusively on a select group of high-quality companies within the S&P 500—those that have grown their dividends for at least 25 consecutive years. The Dividend Aristocrats currently includes 50 well-known companies, over half of which have grown their dividends for an impressive 40 years or more. Since its inception in May 2005, the S&P Dividend Aristocrats Index has outperformed the broader S&P 500 with lower volatility.

Dividend Aristocrats Outperformed the S&P 500 (especially since 2008)

Total Return of $10,000 Investment Chart

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

Assuming tax reform goes into effect on January 1, 2018, I expect the same list of Dividend Aristocrats to continue to out-shine the S&P given the presumption of higher net earnings growth and corporations being flush with more cash at a time when there is synchronized growth in the global economy. With the Fed set to raise rates three or four more times next year, investors should look to companies with pricing power that have a history of robust dividend policies as a plan to outperform the major averages. Sectors that have such pricing power include industrials, technology, agriculture, financials, and energy.

Where, Oh Where, is the Threat of Inflation?

The jury is still out on whether core inflation will return to levels associated with 3%-4% GDP growth since certain long-term forces are embedded in the economy; namely demographics, spending patterns, cheaper energy, advances in technology, and rising competition for consumer dollars. And though the Fed will attempt to normalize short-term interest rates, the long end of the yield curve may rise only slightly in reaction, as it discounts the lack of future inflation. So, we might be living with a flat yield curve for years, which is actually great news for dividend stocks leveraged to a strong economy.

The new nominee for Federal Reserve Chairman, Jerome Powell, is perceived as being similar to Janet Yellen in thought, word, and deed, and one thing he said at a recent confirmation hearing reinforced that view. He stated that it was a mystery why inflation has not increased, but from my vantage point there are a number of clear factors behind the lack of inflation and why low inflation will persist for years.

More temperate weather conditions in global growing regions are producing bumper crops, driving down prices for food around the world. Additionally, the fracking revolution has kept oil prices down, and that technology will continue to improve and drive energy prices even lower into the future as well as cleaner, greener, safer, more environmentally friendly natural gas becomes a more dominant feedstock for powering utilities that supply the commercial, residential, and the electric vehicle markets.

And then there is the demographic situation. The United States, Europe, and especially Japan, are moving towards an older population, and older populations tend to spend much less than the younger generations. Because they are spending less, the lack of demand causes prices to remain fairly level rather than rise.

As a father of two millennials, I can vouch for their penchant to spend more on experiential things rather than material things. Destination weddings, adventure weekends, exotic vacations, three-day music festivals, craft breweries, wineries, and eclectic restaurants are high on the millennial spending list. Materially, less is more. Good jobs mean being able to relocate quickly with minimal hassle (aka: stuff).

What’s most notable about this millennial spending profile is that much of what they desire is experiencing commoditization. The U.S. and other developed economies are in the midst of a technology and machine-learning boom, and Moore’s Law is causing technology to become much more efficient and a lot cheaper very quickly. As it would be, the "sharing economy” with services like Uber and Airbnb are becoming very effective at reducing the cost of transportation and travel in general.

Finally, when it comes to going out to dine or work out, competition is fierce among bars, coffee shops, restaurants, salons, and fitness clubs. Prices of all these and other service industries are kept in check by the overpopulation of such businesses throughout every metropolitan area of the U.S.

In essence, these are the reasons why inflation is not showing up in the data. It shouldn’t be that difficult for incoming Fed Chairman Powell to come to grips with that. He is 64, has three children, and lives on the edge of Washington D.C. A couple of nights out with the kids on the town and he’ll figure this out.

Growth Mail:

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

This World Refuses to Stay “Flat” for Long

by Gary Alexander

In these columns, I often go back 25, 50, or 100 years to show how much better markets and our life are now than then, but my time horizon is much shorter this week. Less than two years ago, one of the most prestigious magazines in the world, Foreign Affairs, published a special issue about the chronic slow growth plaguing our planet. The issue was entitled: “The World Is Flat: Surviving Slow Growth.”

Foreign Affairs Magazine Cover - The World is Flat - Surviving Slow Growth Image

Foreign Affairs’ managing editor Jonathan Tepperman assembled eight of the finest minds to examine the repercussions of the coming era of slow-growth that we were liable to endure from 2016 onward.

In his opening essay, “How to Survive Slow Growth,” Tepperman set the scene in these dismal tones:

“Today, with China slumping, energy prices collapsing, and nervous consumers sitting on their hands, growth has ground to a halt almost everywhere, and economists, investors, and ordinary citizens are starting to confront a grim new reality: The world is stuck in the slow lane and nobody seems to know what to do about it.” – Foreign Affairs, March/April, 2016.

Need I point out that every one of those statements now seems laughably wrong: China is soaring again, energy prices are rising, consumers are spending strongly, and growth is rising around the world.

At the time, however, the world looked as dismal as Tepperman described it. Oil was down to just $26. From the start of 2016 to February 11, the Dow Jones index had lost 1,765 points in just six weeks. In a CNN/Money posting dated February 11, 2016, Anthony Valeri, investment strategist at LPL Financial, said, “There’s a broad-based lack of confidence. Everything suggests this market is heading lower in the short term. Psychology is too frail.” The same CNN post reported that “a global stock market benchmark known as the MSCI all-country equity index officially fell into a bear market on Thursday [February 11]. It’s now down more than 20% from its record high….”  The Investors Intelligence Bull/Bear Ratio fell to 0.63, the lowest since March 2009, and bearish sentiment rose to 39.2% (highest since October 2011).

My headline in Growth Mail the following week was “Market Sentiment is in the Dumpster (That’s Good News).” But fast forward 21 months and we are witnessing an entirely different (and rounder) world:

In his Morning Briefing last Wednesday, economist Ed Yardeni led with these nine stunning headlines:

“(1) Full throttle, pedal to the metal, and escape velocity. (2) Truck tonnage index at record high. (3) Intramodal railcar loadings at record high. (4) Home shopping may be boosting truck traffic. (5) Animal spirits remain highly spirited. (6) Consumer optimism survey suggests jobless rate could soon fall below 4.0%! (7) Regional business surveys are upbeat. (8) Outlook for new orders looking good. (9) German business index hits a new high, which is bullish for German stocks.”

-- Yardeni Morning Briefing, “Barreling Along,” November 29, 2017.

Under the first heading, Yardeni wrote, “The US economy is exceeding the speed limit. That limit was around 2% y/y growth in real GDP from the second half of 2010 through Q3 of this. However, on a q/q-saar basis, real GDP growth rose from 1.2% during Q1 to 3.1% during Q2, and 3.0% during Q3. The Atlanta Fed’s GDP Now is currently tracking real GDP growth at an annualized rate of 3.4% during Q4.”

As for items #2-4, “The ATA truck tonnage index jumped to a record high during October. It is up a whopping 9.9% y/y, the best growth rate since December … the recent strength in trucking may reflect lots of optimism on the part of retailers about the holiday selling season.”

On items #5-6, the Consumer Confidence Index (CCI) soared to the highest reading since November 2000 (see chart below). Only 16.9% of November respondents said jobs are hard to find, the lowest number since August 2001. The CCI was up for all age groups, but it “soared” among those 55 years and older.

Consumer Confidence Index Chart

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

Jumping to #9, Germany’s IFO business confidence index soared to an all-time high in November. Like the U.S., Germany has a disputed election and a gridlocked legislature, but that doesn’t stop their economy from soaring. Germany’s market is up 19% in euro terms, similar to the U.S. market gain in U.S. dollar terms. What we’re seeing is a synchronized gain in global growth and global stock markets.

Germany Business Confidence and MSCI Stock Price Index Chart

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

The Amazing Contrarian Value of Magazine Covers

In that March 2016 Foreign Affairs issue, the opening article (“The Age of Secular Stagnation”) was by Lawrence Summers, President Emeritus of Harvard and U.S. Secretary of the Treasury from 1999 to 2001, when he was on the famous “plunge protection team” that couldn’t arrest the 2000 plunge.

This got me to thinking about the contrarian nature of magazine covers. Here are two covers from 1999:

Time Magazine Covers from 1999 Image

What happened next?  From 2000 to 2009, the U.S. stock market suffered its worst decade in history – even worse than the 1930s. From the last day of 1999 to the last day of 2009, the S&P 500 lost an average of 3.3% per year, inflation-adjusted, vs. a +1.8% per year real gain in the 1930s – the decade of the Great Depression – according to historical data from North Carolina State finance professor Charles Jones.

America had suffered something like a “lost decade” between 2000 and 2009. In the Great Recession (2008 and 2009), America lost 100% of the private-sector jobs that it had created in the previous eight years. The unemployment rate reached 10% before peaking, leading to magazine covers like these:

Although the stock market has recovered since 2009, it had lost so much ground in the previous nine years that the stock market is still trailing the historical 20thcentury norms. For instance, in the 18 years from the end of 1981 to the end of 1999, the S&P 500 grew 12-fold (+1,100%), but in the 18 years from the end of 1999 to December 2017, the S&P is up only 80%, hardly a runaway bull market.

Business Week and The Econmist 2009 Magazine Covers Image

Yes, the economy and markets have recovered, but I call this a “make-up” recovery, not a manic bubble, at least to this point. The lesson to take from these covers is that they reflect mass psychology at peaks and troughs and therefore can serve as cautions or warnings (when giddy) or hopeful (when dismal).

Global Mail:

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

Risks Facing Equities in 2018

by Ivan Martchev

The noose seems to be tightening in the Mueller investigation with a guilty plea by former national security adviser Michael Flynn, which is only good if it leads to the successful prosecution of other targets in the probe (that was spelled out verbatim in the plea deal).

The market did not take that well on Friday, although there was a substantial recovery in all indexes by the end of the day on news that the GOP had enough votes to pass the tax reform bill in the Senate.

The issue is that many of the GOP senators that voted for the bill are unlikely to have carefully read the whole legislation, which runs over 400 pages long. Also, due to the numerous last-minute handwritten changes – the major reason voting extended into the early hours of Saturday – many Senators are unlikely to have considered all the pros and cons of the bill.

As the Wall Street Journal summarized the bill:

“The bill, which included about $1.4 trillion in tax cuts, would lower the corporate rate to 20% from 35%, reshape international business tax rules and temporarily lower individual taxes. It also touched other Republican goals, including opening the Arctic National Wildlife Refuge to oil drilling and repealing the mandate that individuals purchase health insurance, which would punch a sizable hole in the 2010 Affordable Care Act. But some objectives, such as repealing the alternative minimum tax, fell by the wayside in last-minute wrangling.”

The bill still needs to be reconciled with the House version before we can make any conclusions as to how it will affect the economy. While on the surface tax reform looks positive for 2018, I do think that we have several wild cards next year that are difficult to quantify and could go either way.

Here are four wild cards that I think have the potential to rock the markets next year.

Four Wild Cards for 2018

First, the Mueller investigation seems to be gathering momentum. We don't know how high it will ultimately reach, but suffice to say it is right now reaching ever higher. It looks like there will be more shoes to drop, so a political scandal similar to the impeachment of President Bill Clinton cannot be ruled out. The issue with Clinton is that he was impeached and tried in the Senate, but ultimately acquitted. This is why the Alabama Senatorial election on December 12 is so important to the White House and explains how President Trump would back the highly-questionable GOP candidate Roy Moore, even though the Senate Majority leader has considered expelling him from the Senate should he win.

Second, we have Kim Jong Un testing ever more powerful ICBMs. This situation seems to be going towards a military confrontation, should Kim’s tests follow their accelerating frequency in 2018. If it does end up in a military confrontation, I think that Kim will lose badly, but before he does we are likely headed towards a sharp sell-off in global markets similar to what we saw in August-September 1998 that marked the end of the Asian Crisis and the Russian sovereign bond default. Kim is likely to retaliate as Seoul is within his artillery firing range.

United States Central Bank Balance Sheet Chart

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

Third, the top three people at the Federal Reserve are leaving, more or less at the same time. Janet Yellen’s term ends in early February 2018 and the person taking over, Jerome Powell, is a very accomplished lawyer and a financial services industry executive but that also means he has no Ph.D. in economics. The Vice Chairman of the Federal Reserve Stanley Fisher resigned in September 2017 for personal reasons, in my opinion because it became clear he was out of consideration for the position of Chairman. This is probably the same reason why the CEO of the Federal Reserve Bank of New York, Bill Dudley, is retiring in 2018. With the top three people at the Fed leaving, who is going to unwind the Federal Reserve balance sheet, which at last count stands at $4.42 trillion? Somehow Jerome Powell’s financial services industry experience and legal expertise do not reassure me as much as the resumes of the top three leaders leaving the Fed.

United States Ten Year Government Bond Chart

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

Unwinding the Fed’s balance sheet can create a long-term interest spike that becomes a problem for the economy. Right now, the monthly runoff rate for bonds maturing from the Fed’s balance sheet (and not getting reinvested) is $10 billion. What is going to happen to the 10-year Treasury yield if that runoff rate rises to $50 billion in 2018? I would feel a lot better if Stanley Fisher (Ben Bernanke’s graduate thesis coordinator at MIT) or Bill Dudley (Goldman Sachs former Chief U.S. Economist) oversaw that process.

Chinese Yuan versus China Foreign Exchange Reserves Chart

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

The last wild card is China, which managed to stabilize the outflows of foreign exchange reserves in 2017, after losing $1 trillion in two years. I think that the Chinese economy is over the hill of an epic credit bubble that took the total leverage in the economy from 100% at the turn of the century to 400% at present, if one counts the infamous shadow banking leverage. As the Chinese economy grew 12-fold in that period, total debt in the economy grew more than 40-fold.

What we are witnessing in China today is similar to a credit bubble that led to a period of fast economic growth in the U.S. called The Roaring Twenties, which ended with The Great Depression. I am not necessarily advocating for a Chinese Great Depression because in the case of the United States there were some very serious monetary and fiscal policy mistakes that turned a recession into a depression.

Still, I have no doubt that the Chinese are headed for a hard landing given their spectacular credit bubble, which I think will have a similar outcome to the Asian Crisis in 1997-1998 with the caveat that the Chinese economy today is much bigger than the total GDP of all countries involved in the Asian Crisis.

Given the wild cards facing equity investors, 2018 promises to be more eventful than 2017.

Sector Spotlight:

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

The Earth is (Kind of) Flat

by Jason Bodner

You know I love a good fact. Here’s one for you: The earth really is flat! No, really! I’m thinking it’s likely that by now you have heard of the small but noteworthy “Flat Earth Society.” This is a group which believes that despite the overwhelming preponderance of information to the contrary, the earth is flat. I’m going to go ahead and give one to the flat-earthers: The earth really is flat. Well, kinda-of, a little.

Flat Earth Image

Now, maybe to the chagrin of The Flat Earth Society, I actually believe the cumulative scientific study performed over hundreds of years that the earth is sort-of spherical. The thing is, it’s not a perfect sphere. It’s actually an “oblate spheroid,” which simply means the earth bulges at the center and is flat at the north and south poles, so the earth’s radius is bigger around the equator than it is around the poles.

Oblate Spheroid Earth Image

So, just to be clear, I’m not a flat earther – “Not that there’s anything wrong with it,” to quote Jerry Seinfeld. The key here is that the earth flattens at the north and south poles due to its continuous rotation. The earth is a spinning spherical object that bulges out. This same rotation causes the earth to wobble like a top (known as nutation). The earth’s rotation is slowing down, however, causing a slowdown in the length of a day (250 million years ago a day was just 23 hours long) and the earth is flung around the sun not in a circle but in an ellipse. (Just as a footnote, Elon Musk once asked why there is no Flat Mars Society, to which the Flat Earth Society replied that Mars was observed to be round while Earth was not. Wow!)

Sector Rotations: Imperfect yet Elegant and Predictable

Here’s the takeaway: Earth’s movement in space is an imperfect yet elegant and predictable occurrence. To me, that sounds a lot like markets. And while we are on the subject of rotations, sector rotations are usually a major flag of an underlying change of leadership. Here’s the thing: We all observed the tech sell-off last week as FAANG stocks sagged amidst profit-taking. The supposition could be that “the tech run is over,” which would be rather unfortunate timing for me as last week I proclaimed my confidence in the sector’s continued leadership role. But let’s examine some facts to come up with a clearer picture.

The biggest sector run in the past 18 months has been tech, up more than 40% since July 2016, with a foundation built on growing earnings and sales that were consistently beating expectations. The profit margins were widening, and the demand was increasing. I don’t see these fundamentals changing right now, so this past week could be just a bump in the road, just as each prior momentary slump has been.

What is noteworthy last week is we saw a massive rotation into Financials, Industrials, and Consumer Discretionary stocks. Looking at this past week’s sector table may not actually show that, but a research metric I look at shows higher-than-average volume buying over a near term period in these three sectors.

Standard and Poor's 500 Weekly, Quarterly, and Semiannual Sector Indices Changes Tables

This supports evidence of a possible sector shift underway.

What might that look like? The market has seen a massive rise since the November 2016 election. The leading sector of Information Technology has many stocks whose prices are significantly above their 50-day moving averages. If investors are beginning to feel that Info Tech is overvalued (I pointed out that last week the Infotech P/E and the S&P 500 P/Es are pretty much in line), the undercurrent of the market is still decidedly bullish. This past week’s selling in tech could be a profit-taking excuse spurred by worries over the tax plan, and some skittishness caused by news of the Michael Flynn guilty plea.

The bottom line here is that FANG stocks – and thus the rest of tech – have risen so far, so fast, for so long that some are concerned. Health Care and Retail have not been sexy but perhaps they should be. Consumer Discretionary names have definitely seen a bump of buying recently, even if certain names are up because results “are not as bad as expected.” Value hunters should start stepping into these sectors and groups in out-on-favor areas may attract more attention. This also supports the theory of a potential continued rotation in the near term. The value play was clear for energy stocks as the sector boasts the biggest YOY earnings and revenue growth. But keep in mind, the rebound is from a pretty dire situation.

I am still bullish on the overall market. I believe in tech, but have also been pointing out that it has been overheated for a while. We may move to a scenario where it’s “move over, FANG” and “hello retail, health care, and financials.” As always, we never know until the trends reveal themselves, as tech did 18 months ago. The thing about writing about sectors is that it can get pretty boring. The good news is, we want boring! Boring means predictable trends in sectors we can profit from. Yet sometimes information can either be a blip to be ignored, or the kernel that alters the course of the market for months to come.

Are we there now? As I said, I’ll never catch the exact bottom or the exact top; my whole aim is to catch most of the move with high probability. In short, we have to wait and see, but this week’s action was interesting – on the many levels highlighted above. Just last week I felt 18 months of prior history was enough to make me feel confident for continuing bullishness on tech. And boom! It’s got all of our attention. As author Hugh Prather puts it, “Just when I think I have learned the way to live, life changes.”

A Look Ahead:

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

The New Tax Bill Should Deliver a Year-End Rally

by Louis Navellier

Due to the anticipated passage of a tax reform bill, I expect a big year-end relief rally. My favorite economist, Ed Yardeni, said on CNBC last Friday that “we have had 58 panic attacks in this bull market and every one of these has been followed by a relief rally.” Yardeni added that “the global economy has never really looked better, quite honestly. It’s a synchronized global boom and we’re seeing more and more of that strength in the United States.” I entirely agree, with another rally coming later this month.

Although the corporate tax reform temporarily hit a “snag” in the Senate on Thursday, the Senate version passed early Saturday. The next step will be the reconciliation process with the House and then it will presumably be signed into law by President Trump. The anticipation of the passage of corporate tax reform has already helped to boost many beaten-up, predominantly domestic companies that have been lagging the S&P 500 this year. This should give us a good December, above and beyond the seasonal boost that comes from regular year-end buying. As Bespoke Investment Group shows, in their December Seasonality report (titled “The Most Wonderful Time of the Year”), December has been the best market month over the last 100 years, averaging 1.55%, with gains in 74 of the last 100 Decembers.

Is U.S. Growth Getting “Out of Hand”?

On Thursday, outgoing Fed Chair Janet Yellen, in her semi-annual testimony before Congress, said that the Fed is committed to raising key interest rates in a gradual manner, which is a strong signal that a December interest rate hike will be forthcoming. Interestingly, Yellen also said that the Fed is getting concerned that economic growth is getting out of hand. Specifically, Yellen said that “we don’t want to cause a boom-bust condition in the economy,” which implies that we’re moving toward “boom” times.

Yellen may have been referring to recent third-quarter GDP estimates. On Wednesday, the Commerce Department revised its calculation for third-quarter GDP growth to a 3.3% annual pace, up from 3% previously estimated. In addition, the Conference Board announced on Tuesday that consumer confidence surged to 129.5 in November, up from 125.9 in October, substantially higher than the economists’ consensus estimate of 124.8. Consumer confidence is now at its highest level in 17 years (since November 2000), which bodes well for continued strong consumer spending and GDP growth.

The Commerce Department also announced last week that new home sales rose 6.2% in October to an annual rate of 685,000, the strongest pace in 10 years. At the current sales pace, there is only a 4.9-month supply of homes, so new home prices are expected to continue to rise. The median price of new homes rose to $312,800, about 3% higher than a year ago. Overall, due to steady appreciation in median home prices, consumer confidence should continue to improve, which is great for overall GDP growth.

Bitcoins Enter the Big Times

Bitcoin Mania Image

In case you haven’t noticed, CNBC is talking a lot about bitcoins lately. There is no doubt that the chaos in places like Venezuela and Zimbabwe is helping bitcoins, since currencies in their respective countries have collapsed. I happen to have some Venezuelan clients who cannot move money into the U.S. due to Venezuela’s sanctions, so I tried to invest some of their money in euros when I was in Malta recently. The bottom line is that capital flight and chaos around the world are helping to boost bitcoin traffic.

The other thing helping bitcoins rise through $10,000 and then $11,000 (and near $12,000 as I write) is that some major players want to start trading bitcoin on official exchanges. For example, Cantor Fitzgerald announced on Wednesday that it wants to start trading bitcoin. The Wall Street Journal reported on Wednesday that NASDAQ is preparing to launch bitcoin futures in the first half of 2018. In my opinion, if Wall Street starts to trade bitcoin and other cryptocurrencies, their parabolic rise will likely stall, since there will be more liquidity available. I should also add that Yahoo Finance added bitcoin and other cryptocurrencies to its online pricing service, so virtually all quotation services will likely follow.


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.

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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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