Thanksgiving Launches a Strong Rally

Thanksgiving Usually Launches a Strong Year-End Rally

by Louis Navellier

November 21, 2017

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

Statistically and historically, this is the best time to invest, since traditionally the stock market takes off just before Thanksgiving when we gather for friends, family, football, and food. The holidays are a happy time of year and that positive sentiment typically launches a healthy year-end rally in the stock market.

Standard and Poor's 500 Pre-and-Post Thanksgiving Performance Bar Chart

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

We can all hope for another 2%+ gain before 2018 arrives. Happy Thanksgiving to all our readers!

Happy Thanksgiving Image

In This Issue

First off, Bryan Perry flags a divide in the bond market, with junk bonds sagging and investment-grade bonds rising. Then, Gary Alexander delivers the good news the mainstream press seems determined not to deliver. Ivan Martchev updates two of his favorite German indicators, the Bunds and the DB/bond tango. Then Jason Bodner counsels against channel surfing in favor of deep-diving into focused research. Then I’ll close with a new look into crude oil, inflation, and the latest readings from the U.S. retail sector.

Income Mail:
Bond Markets Send Mixed Message
by Bryan Perry
“Easy, Seabiscuit” – The markets aren’t going to spin out of control

Growth Mail:
Reasons for Thanksgiving You Won’t Read in the Mainstream Press
by Gary Alexander
Bulls vs. Bears: The Musical

Global Mail:
German Bunds: Not Quite the ‘Short of the Century’
by Ivan Martchev
Update on That Treasuries-Deutsche Bank Correlation

Sector Spotlight:
Tune Out the Channel-Surfing Noise
by Jason Bodner
The Single Best Screen – The Sector Scorecard

A Look Ahead:
A Cautionary Outlook for Crude Oil and Inflation
by Louis Navellier
Retail Sales Begin Picking Up for the Holidays

Income Mail:

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

Bond Markets Send Mixed Message

by Bryan Perry

During the last week of October, high-yield (so-called “junk”) bonds might have put in a sector top after being on a historical tear that rivals even the record-busting stock markets of years past. In what may be a blow-off-top-like display of sector exhaustion, the yield on the Merrill Lynch global high-yield bond index fell below 5.0% for the first time ever. The European index yielded barely 2.0%. To put that into context, European junk bonds yielded less than the 10-year U.S. Treasuries, trading around 2.35%.

“What do you consider the biggest tail risk?” was the title of a recent survey conducted by Bank of America/Merrill Lynch, targeting the greatest inherent risks to the global stock market rally.

Bank of America Fund Manager Survey - November 2017 Bar Chart

This survey of fund managers showed that concerns over central banks being behind the curve on interest rate policies led all other concerns about what might be the greatest risk to the global stock rally. Not surprisingly, a blow-off in the global bond market was a close second, given the high correlation factor.

The law of financial physics declares that bond prices fall when yields rise, and some key global bond yields have climbed to multi-year highs in the last week. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG), the most widely-traded junk bond ETF, was trading near its lowest close since March.

iShares iBoxx High Yield Corporate Bond ETF Chart

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

The International Monetary Fund (IMF) member countries reported on October 14th that they welcomed the global upswing in economic activity but warned that the recovery was not complete, given such low inflation. Specifically, the IMF steering body concluded that, “The outlook is strengthening, with a notable pickup in investment, trade, and industrial production, together with rising confidence.”

Much has been written of late about how technological advances within the industrial, manufacturing, and service sector are stifling wage growth, arguably the largest component to the rate of core inflation. This could be why central banks might be in a bit of a quandary as to near-term fiscal policy. They, more than anyone else, are acutely aware of how the market would react if investor sentiment shifted in the direction that suggested the Fed and the ECB might “get it wrong.”

For instance, let’s say tax reform passes and U.S. fourth-quarter GDP grows by 4% or more. It is widely understood that a Fed rate hike in December is fully priced into the market, but the notion of one or two more hikes in the first quarter of 2018 to ‘catch up’ with the economic growth rate is not being priced in.

“Easy, Seabiscuit” – The markets aren’t going to spin out of control

This crack in the armor of the decade-long corporate bond market rally is to be expected when the U.S. and global economies are picking up speed. It’s the natural course of events that interest rates rise along with a pickup in economic growth, and the selling of bonds is what occurs as a byproduct. The question market pundits are asking is whether the selling in bonds will be orderly. Newly-appointed Fed Chairman Jerome Powell will face an early challenge in his tenure when having to address an economy that is heating up without the historical pattern of a corresponding rise in core inflation.

Blue-chip companies have sold more than $1 trillion of bonds in 2017, passing that milestone for the sixth consecutive year, as Federal Reserve rate hikes spur companies to borrow while it’s still cheap. Demand from corporate bond investors has been insatiable, especially from overseas money managers fleeing negative or near-zero rates. So, the world is awash in corporate debt just as it appears the tide for bond prices is about to turn. The lure may be another law of financial physics – that “you won’t lose money in bonds (Treasury or investment grade) if you hold them to maturity.”

Investment Grade Bond Issuance Bar Chart

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

This might well explain why the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has held up better against the recent hissy fit of non-investment grade corporate debt liquidation. From the one-year chart below, shares of LQD are trading considerably better than their junk bond brethren. Last week saw another record for investment-grade bond ETF inflows.

About $5.4 billion flowed into U.S.-listed ETFs during the week ending Thursday, Nov. 16, according to FactSet, pushing year-to-date inflows to $398 billion. However, the week was not without worries. There was also some angst about this month's dip in the junk bond market. The junk bond ETF (HYG) noted above had sizable outflows of $348 million. This is a clear pattern of sub-sector rotation at work.

iShares iBoxx Investment Grade Corporate Bond ETF Chart

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

So, while there might be some money coming off the table in the junk bond market, that is not the case within the investment grade debt space, at least not yet. The market is simply moving to a higher quality grade within the same asset class. And the same can (and will) be said of stocks as the market moves higher before it, too, undergoes a garden-variety correction.

Fewer stocks ride the back of the bull as it charges ahead. The current rally is still fairly broad-based and thus carries a low risk of a near-term correction. It’s my view that the passage of tax reform will only extend out the rally by several quarters as earnings estimates for the S&P 500 are boosted higher. Maybe the most valuable laws of financial physics are to “follow the money” and “don’t fight the tape.”

Bottom line, it might be high time to lighten up on high-yield bonds, given the paltry yields relative to balance sheet risk. The old Wall Street adage that “bulls and bears make money, but pigs get slaughtered,” applies just as much to the bond market as it does to the stock market.

Growth Mail:

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

Reasons for Thanksgiving You Won’t Read in the Mainstream Press

by Gary Alexander

“…markets are plunging. When might we expect them to recover? .... a first-pass answer is never.”

 – Paul Krugman, The New York Times, November 9, 2016

At 12:42 am on Wednesday morning, November 9, 2016, the Nobel-Prize winning economist Paul Krugman filed an article for the New York Times titled, “The Economic Fallout,” which began like this:

“It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear. Still, I guess people want an answer. If the question is when markets will recover, a first-pass answer is never.”

Well, how did that prediction fare, Dr. Smarty Pants? One year after Krugman lost his ability to “care much,” the Dow was up 28.5%, the best first year after a first election ever. But let’s be fair. That was measured from the midnight low in the Dow futures. Instead, let’s use the election day close in the S&P 500 – before the election results came in. Measured from the close on November 8, 2016, when Hillary Clinton was widely expected to win, the S&P 500 rose 21.3% in the next 12 months. That trails JFK’s first year after his election (+27%) and it ties George Bush Sr. (Bush 41), who also gained 21.3% his first year. More importantly, Trump’s first year (after the election day close) is far better than his predecessors. President Obama’s first year was a ho-hum +4%, despite enjoying the first year of a bull market, while President George W. Bush suffered a horrendous first year, with the S&P 500 down a dismal 24%.

Turning to the economy, the name of this column is Growth Mail, so let me point out that GDP growth in the last two quarters – the middle quarters of 2017, the first two full quarters of Trump’s presidency – are better than any of the last seven quarters of the Obama presidency. Each delivered 3% annual growth:

Percent Change of Real Gross Domestic Product from Preceding Quarter Bar Chart

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

In addition, the Eurozone is growing at a 2.5% annual rate – exceptional by European standards. Last Tuesday, the German Federal Statistics Office reported that Germany’s GDP grew at a 3.3% annual pace in the third quarter, up from 2.6% in the second quarter and well above economists’ consensus of a 2.4% annual pace. Germany leads the euro-zone and is a major exporter, so a 3.3% reading is very bullish for global growth. The latest quarterly IMF growth report (October 2017) estimates 3.6% global growth for 2017 and 3.7% for 2018. China is back to a 7% growth rate. The Economist shows that 41 of the 42 largest economies in the world are all now in growth mode – all but socialist/communist Venezuela.

That’s only the beginning. According to Conrad Black (In “Trump is already the most successful U.S. president since Ronald Reagan,” National Post, November 17, 2017), Trump “has more than doubled the economic growth rate, reduced illegal immigration by about 80 per cent, withdrawn from the insane Paris Climate accord, helped add trillions to U.S. stock market values, created nearly two million new jobs, led the rout of ISIL, and gained full Chinese adherence to the unacceptability of North Korean nuclear military capability. He will probably pass the greatest tax cuts and reforms since Reagan…by Christmas.”

Part of the reason for GDP growth and stock market gains has been the quiet unwinding of oppressive regulations. The big Trump plans haven’t passed yet but many of the smaller, quieter plans have passed. I can’t say that was his plan. It may be dumb luck, but while the press focusses on Russia and tweets and his personal affronts, maybe some good work is being done. It’s the first law of magic: Misdirection.

If you don’t like Trump (and that’s a huuge majority), rest assured that he may soon be neutered. Every mid-term election since 2006 has seen a massive repudiation of the sitting President. This month’s results in Virginia and New Jersey may be a preview of coming attractions in 2018. In addition, as Bryan Perry has pointed out here, Trump has alienated his own Party and thereby blurred ancient distinctions between Democrats and Republicans, so 2018 could be a mandate on Trump’s leadership, not just his Party. This means he has 12 months left to find a way to pass his major programs or else become an Aflac lame duck.

Looking beyond politics and economics, there are far greater reasons for celebrating Thanksgiving this week. We are living far longer and healthier lives. Wars are far less frequent. We still fear terrorist events that kill a handful, but we have not seen major wars that kill tens of millions for decades. There’s no Iron Curtain, Cold War, or disco music. If we want to know a fact or hear a song from an obscure old movie, we ask our computer and it delivers. If we want a specific title or brand of shoe, soap, TV, book, or even car, we log on and it can be ours within 48 hours. Thousands of volunteers rush to help rescue strangers after hurricanes. If we go into debt, we can work our way out of it without being thrown into debtor’s prison. We can book a flight or a cruise around the world, or we can stay at home and talk face-to-face via Skype. And most blessedly, we can gather around a dinner table this Thursday afternoon with our family.

Happy Thanksgiving!

Bulls vs. Bears: The Musical

Two great American songwriters were born right before Thanksgiving – Johnny Mercer (born November 18, 1909) and Hoagy Carmichael (November 22, 1899) – so it’s ironic that the first song they wrote together was called “Thanksgiving,” published in 1932, at the depths of the Depression, when the Dow was double digits. For Thanksgiving dinner, Mercer wrote three tasty titles: Hooray for Spinach, Life’s a Piece of Pie, and Bon Appetit. Here are 48 Mercer titles staged into a classic battle of bulls vs. bears:

I’m Old Fashioned. I like to Accentuate the Positive. It’s Great to Be Alive. Money Isn’t Everything, but If I Had My Druthers, in Early Autumn, When October Goes, when Autumn Leaves fall In the Cool, Cool, Cool of the Evening, If I Had a Million Dollars (One for My Baby and Another One for the Road), I would invest Day In - Day Out, Come Rain or Come Shine. Then, my Dream, My Shining Hour would be to Take the Long Road Home, On the Atcheson, Topeka and Santa Fe with my Dearly Beloved Satin Doll, Laura, to Moon River, the Land Where Old Dreams Go, where the Skylark and Bobwhite sing. I’m Travelin Light, so Any Place I Hang My Hat is Home. Life is Too Marvelous for Words.

The bears would respond:

The Days of Wine and Roses are a Charade. Fools Rush In, seeking Out of This World riches, while Lazy Bones Hit the Road to Dreamland, Building Up for an Awful Letdown. The Smarty Pants at the Fed use That Old Black Magic while The Men Who Run the Country are Whistling Away the Dark, saying This Time the Dream’s on Me. Goody, Goody, and Hooray for Hollywood!  But How Little We Know!  It’s Always Darkest before the Dawn. Jeepers, Creepers! Something’s Gotta Give, and I Want to Be Around to Pick up the Pieces when they sing the Blues in the Night. Let That Be a Lesson to You!

As for me, my mantra in Growth Mail is a song Mercer published on December 1, 1944, when U.S. troops were storming islands in the Pacific, Germany was about to stage its last-gasp attack in the Ardennes Forest in the Battle of the Bulge, and the Dow closed at 147, less than 40% of its 1929 peak. Believe it or not, prosperity lay just ahead.

You got to accentuate the positive, eliminate the negative,
                Latch on to the affirmative, and don’t mess with Mr. In-Between.
You got to spread joy up to the maximum, bring gloom down to the minimum
                And have faith, or pandemonium is liable to walk upon the scene
.

Amen, brother!

Global Mail:

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

German Bunds: Not Quite the ‘Short of the Century’

by Ivan Martchev

Since we are in the middle of this great monetary experiment called ‘quantitative tightening’ in the U.S., I decided to take a look at the European interest rate markets, as their QE is still ongoing. With Germany at the heart of the EU and the UK trying to hammer out its divorce settlement, the most important bonds in Europe are those of the German federal government. Another important category, the European Financial Stability Facility (EFSF), has recently been flashing red flags, stubbornly stuck in negative yield territory near a record low yield of -0.51%. For comparison, 10-year German bunds closed last week at +0.36%.

European Financial Stability Facility Bond Yield versus German Ten Year Bond Yield Chart

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

By comparison, the bundesschatzanweisungen, or the German federal 2-year notes – dubbed “schatz” to avoid tongue injuries – closed last week at -0.72%. The shatz notes have been consistently in negative territory for over three years and are not that far from the record low of -0.95% hit in February 2017, when fears of EU disintegration drove investors into the German bund market. While such disintegration fears have been alleviated given pro-euro election wins in the Netherlands, France, and Germany, the shatz notes are still within 25 basis points of their record negative yield.

What gives?

Germany Two Year Schatz Yield Chart

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

The euro area inflation rate has again begun to drift lower. Since we are in a weak season for commodity prices and some EU economies tend to exhibit negative seasonality in the fall and winter months, I would not be surprised to see the EU inflation rate drop below 1%. While economists are famous for “adjusting for seasonality” in their forecasts, investors are famous for extrapolating in linear fashion. Deflationary pressures in the EU still abound and the German and “confederate” bond markets show this.

European Union Inflation Rate Chart

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

In is interesting to note that the big decline in the EURUSD cross rate from $1.40 to $1.04 between 2014 and 2015 did very little to help inflation in the eurozone as it also coincided with weak commodity prices and a weak EU economy. I think the euro is mired in a major weakening trend similar to what we saw from the mid-1970s to the mid-1980s and from the early 1990s to the early part of the 21st century. (Yes, the euro existed only in electronic format before 1999, but it is possible to extrapolate the exchange rate using the ratio at which the historical Deutsche marks and French francs were folded into the euro.)

Euro United States Dollar Exchange Rate Chart

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

I think that ultimately the euro will decline below parity to the dollar (1:1). The interest rate differentials are in favor of the dollar and the EU is in the middle of what looks to be a bitter divorce with the UK. Even though the UK is not part of the eurozone, their Brexit divorce weakens the EU and by extension the euro. Considering where the EU economic cycle is and its effect on the interest rate markets as well as the actions of the ECB, I would not be surprised to see further record lows in European interest rates.

When I look at how the bundesschatzanweisungen are behaving, I often think of the May 2, 2015 article (“German Bunds: The Short of the Century”) in Barron’s, which profiled the views of bond kings Jeffrey Gundlach and Bill Gross on the German bond market. As the column stated: “In recent days, this weirdness has spurred the once and current Bond Kings to suggest that negative interest rates not only are unsustainable, but also tradeable as short sales. Bill Gross, the former head of Pimco before exiting for Janus Capital, called betting against Bunds the short ‘of a lifetime,’ while his rival, Jeffrey Gundlach, who heads DoubleLine Capital, similarly termed it the short ‘of the century’ that’s just 15 years old.”

Japanese Ten Year Government Bond Chart

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

The trouble with such bombastic statements is that they imply some sort of urgency and a turning point. As far as I can tell by the performance of key interest rate markets in Europe, the situation is beginning to resemble Japan, where bombastic statements about the JGB market have miserably failed for 20 years.

Update on That Treasuries-Deutsche Bank Correlation

Speaking of German bunds, I like to watch one of the strangest correlations in financial markets, the one between Deutsche Bank’s stock and the 10-year U.S. Treasury yield. It has continued to hold since I wrote about it on June 24, 2016 (“A look at the global economic malaise through Deutsche Bank”).

United States Ten Year Treasury Index Yield Chart

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

It is surreal how the largest bank in Germany – and one of the largest banks in the world – could dance with the 10-year U.S. Treasury yield like that. Right now, quantitative tightening in the U.S. implies higher 10-year Treasury yields for the time being and going into 2018. I am not sure if that is enough to buy Deutsche bank stock since the situation in Europe is not all that great and DB sure is exposed in the eurozone quite a bit. But according to the 10-year-DB correlation, it sure looks like a no-brainer. (Please note: Ivan Martchev does not currently hold a position in Deutsche Bank. Navellier & Associates does currently own a position in client portfolios).

Sector Spotlight:

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

Tune Out the Channel-Surfing Noise

by Jason Bodner

The Andromeda galaxy, containing about one trillion stars, is one of 10 galaxies that can be seen with the naked eye from earth. It’s our closest galactic neighbor. I don’t want to overly alarm you, but it is hurtling toward us at 86 miles per second. That’s about the distance from New York to Philadelphia every second.

Andromeda Galaxy Image

Thankfully we won’t be around to witness the fireworks display. We still have loads of time to plan for it. It is still so far away that it will take 4.5 billion years to smash into our galaxy. The universe is that huge.

I learned about Andromeda watching a TV show. I’m amazed that I retained this information because (a) I rarely indulge in TV, and (b) even when I do, I find it really tough to focus on one show. I usually give in to the compulsion to flip channels. It drives my wife nuts, but it speaks to the restlessness of our age.

Today’s investor is pelted with non-stop information. As data becomes available with more immediacy, the investor is made to believe that he or she is supposed to try to digest all of it. All day long, stories on CNBC go by, one stock after another with this story and that. Just that single channel begins to feel like a carousel that’s going too fast, dizzying and disorienting. The stories that blaze by have a tendency to blur into a continuous din, like a crowded street. You hear one or two phrases but all in all it’s a steady noise.

Here’s how to focus: Just like mom taught us to apply ourselves to homework, we should use the same advice applying ourselves to investment research. Which is better: Trying to study Math, History, French, and English all at the same time – by simultaneously listening to four lectures? Or is it better to focus, absorb, and tackle each of the four subjects individually and in succession?  The answer seems obvious.

Why then is it a common practice to see a trader sitting in front of six computer screens, two TV stations, while reading emails, several research reports, and talking on a phone to a professional, scanning bits of data on 11 sectors and dozens of stocks simultaneously? Is this the best way to find the best investment?

Typical Stock Trader Image

Instead of flipping channels or wandering from story to story on unrelated stocks, investors would benefit more from focusing efforts on a few detailed subjects. Studying many great investors over the years, I have found a common thread among then: Patience… patience on price, payout, theme, and information.

The Single Best Screen – The Sector Scorecard

There is a lot to be upbeat about going into the holiday season. By now, 95% of S&P 500 companies have reported their third-quarter results with 74% beating earnings estimates and 66% beating sales forecasts.

Where then do we start researching? In my opinion, we start with what the major sectors have been doing lately. Anyone can tell you “what the market did yesterday.”  But do they know which sector did what, and which subsector influenced that sector? Which stocks emerged as leaders or laggards of the sectors?

This is why I bring you the sector performance each week. This past week saw Consumer Discretionary show some much-needed signs of life. Major retailers like Footlocker and Abercrombie and Fitch stunned analysts and short sellers when they reported better-than-expected quarterly reports. The results were spectacular rallies in those stocks, dragging up the entire sector. It’s worth noting, that while this was a sight to behold, the sector remains squarely in the middle of the pack for the last 3-to-6 months. (Please note: Jason Bodner does not currently hold a position in Footlocker or Abercrombie and Fitch. Navellier & Associates does not currently own a position in either for any client portfolios).

Energy, which saw some nice upward momentum recently, got punished on Tuesday and Wednesday, making it a depressing week for Energy fans. The sector fell -3.38%.

Regular readers know by now that I have been a lover of Information Technologyfor more than a year. Despite lackluster weekly results, the sector is the clear winner for the last three months and longer.

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

Having lots of information can feel comfortable, but it can also get you into trouble if you take it all at face value. So how do we see the forest through the trees and weed out the excess or misleading data?

Sectors are a great place to start. They help us find leading and lagging companies. Knowing a company’s market segment and its position within that segment gives us an idea of strength or weakness within a leading or lagging industry group. I can then look into what makes that company strong or weak, using public information readily available for free. Looking at a company’s sales and earnings growth rates also helps. Assessing buying and selling pressure coupled with investor sentiment helps identify opportunities.

Each day brings a choice: Take all the information and try to make sense of the soup, OR focus on one topic. As information hurries at us at a rate seemingly as fast as a galaxy speeding towards us, we may sometimes need to be reminded that it is up to us what we choose to let in and how much of it to read.

Once we understand that our galactic encounter is 4.5 billion years away, we can move on to other concerns. It becomes an extraneous fact. Still, it’s hard to fight human curiosity for that extra factoid, as Jerry Seinfeld rightly observed: “Men don't care what's on TV. They only care what else is on TV.”

Jerry Seinfeld 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.*

A Cautionary Outlook for Crude Oil and Inflation

by Louis Navellier

When you look at the wild swings in the price of oil over the last 20 years, I don’t see how anybody could be so brave as to predict the oil price over the next 20 years, but the International Energy Agency (IEA) just created a “low oil price case” for crude oil in a range of $50 to $70 per barrel through 2040! In the near term, the IEA says there will be a supply surge from higher U.S. shale production, especially as oil prices near $60 per barrel. Due to that emerging trend, the IEA raised its estimate for the amount of shale oil that can be technically recovered by about 30% to 105 billion barrels. According to the IEA, the U.S. will account for 80% of the increase in global crude oil production through 2025. The IEA also expects that crude oil demand will remain strong through the mid-2020s, but eventually the growing proportion of electric and hybrid vehicles will slow the overall demand for crude oil, putting a lid on prices.

Due partially to higher crude oil prices in the wake of Saudi Arabia’s corruption crackdown, there is a fear that wholesale inflation may be brewing again. The Labor Department announced on Tuesday that the Producer Price Index (PPI) rose 0.4% in October, substantially higher than economist’s consensus estimate of a 0.1% rise. The culprit behind the surge in the PPI was a 2.1% surge in pharmaceutical prices, plus a 0.5% increase in food prices. Excluding food, energy, and trade, the core PPI rose only 0.2% in October, so wholesale inflation is not that bad yet. In the past 12 months, the headline PPI has risen 2.8% and the core PPI has risen 2.3%, the highest rise in over three years. Since both rates are now well above 2%, there seems to be a 100% certainty the Fed will raise key interest rates by 0.25% in December.

At the same time, the Consumer Price Index (CPI) rose only 0.1% in October, while hourly wages fell 0.1% and real wages gained only 0.4% in the past year. This “disconnect” will likely bother current Fed Chair Janet Yellen. I still expect that the Fed will raise key interest rates in December, but lackluster wage growth may likely be cited as a reason why the Fed may not want to raise rates any further in 2018.

Retail Sales Begin Picking Up for the Holidays

On Wednesday, the Commerce Department announced that retail sales rose 0.2% in October. That may sound small but it is a 2.4% annual rate and is significantly better than economists’ consensus estimate of no change. Auto sales rose 0.7% and were boosted by replacement vehicles after the major hurricanes and the devastating California fire. Excluding autos and gasoline, core retail sales rose 0.3% in October. Overall, consumer spending remains steady, which bodes well for the upcoming holiday shopping season.

The fact that Wal-Mart posted better-than-expected earnings last week helped propel other retail stocks to move higher, temporarily hindering Amazon, since many traders were long Amazon and short retailers. Although last week’s surge in many retail stocks may have sparked short covering, there is no doubt that a strong holiday shopping season should help many retailers post better-than-expected same-store sales.

One sign that fourth-quarter GDP growth is shaping up well is the Commerce Department announcement on Friday that housing starts surged 13.7% in October to an annual rate of 1.29 million, the second highest level since the economic recovery began in 2009. Also encouraging is that building permits rose 5.9% to a 1.3 million annual pace. Although the South was strong for housing starts after the devastating hurricanes, the Northeast surged a whopping 42%, likely boosted by abnormally warm weather.

Finally, Bloomberg had an interesting article on Friday about how Bitcoin more than doubled the going rate for their product in Zimbabwe after last week’s military takeover. Essentially, Bitcoin has become the new crisis currency, since it can be traded on cell phones. In Africa, there are more cell phones than bank accounts, so digital currencies are flourishing. As Bitcoin approaches $8,000, the catalyst to propel it higher may be another crisis in a country where cell phones outnumber bank accounts. In the past, the U.S. dollar has been the currency that benefitted the most in a crisis. Just in case you wonder, the stocks that I recommend for indirectly benefitting from the Bitcoin frenzy are NVIDIA and PayPal. (Please note: Louis Navellier does currently hold a position in NVIDIA and PayPal in Mutual Funds. Navellier & Associates does currently own a position in NVIDIA and PayPal for client portfolios).


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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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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