The Best Earnings

The Best Earnings in 7+ Years Deserve a Better Market Than This!

by Louis Navellier

May 8, 2018

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The first-quarter announcement season is shaping up to be the strongest earnings season in 7+ years. With 81% of the stocks in the S&P 500 having announced first-quarter results, the blended earnings growth rate, according to FactSet, is +24.2%, the best growth rate since Q3 of 2010. What’s more, 78% reported positive earnings surprises – the best rate since 2008 – and 77% have reported positive sales surprises.

Specifically, some of the Apple suppliers that I own rallied on Wednesday in the wake of Apple’s better-than-expected first-quarter results, and Lumentum (LITE) posted a 9.9% earnings surprise and 2.1% sales surprise to “squeeze” the short sellers that were spreading fake news that China would not buy U.S. optical components. As it turns out, much of last month’s relative strength was fueled by short-covering.

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

The S&P rose just 0.27% in April, but Bespoke Investment Group published an analysis of what worked best in April and it was shocking – it was a mirror image of what worked in previous months. The lowest 10% (decile) in Price-to-Sales rose 3.06% and the highest decile for P/E Ratios rose 2.34%. The highest 10% in Short Interest rose 1.69% and the worst decile for Analyst Ratings rose 1.47%. The lowest decile for International Revenues was up 1.38%. In a word, this report said there was a lot of short-covering in April, since companies with high P/E ratios, horrible analyst ratings, and high short interest fared well. Short-covering rallies are how corrections often end, so this report could be a sign of better times ahead. 

In This Issue

Bryan Perry is concerned about the S&P’s technical support, so he has an “escape hatch” planned if the market turns sour, but Gary Alexander believes these risks are minor compared to most other historical times. Ivan Martchev argues that the press is giving cover to the Federal Reserve, the real “Damocles Sword” facing the President, while Jason Bodner sees some welcome signs of life in key sectors. In the end, I will argue that most good stocks tend to recover after the computers have their way with them.

Income Mail:
Profit Margin Deterioration Raises Risks to the Bullish Narrative
by Bryan Perry
Prudence Would Warrant Having a Safe Haven Plan in Place

Growth Mail:
May the 8th Be With You
by Gary Alexander
Today’s Big Worries are for Wimps

Global Mail:
The Real Damocles’ Sword over the President
by Ivan Martchev
The Awe of Unelected Central Banking Power

Sector Spotlight:
When Will This Market Show Signs of Sustainable Life?
by Jason Bodner
Information Technology Returned to the Lead Last Week

A Look Ahead:
Expect “Delayed Reactions” to Good Earnings News
by Louis Navellier
The Lowest Unemployment Rate (3.9%) Since 2001

Income Mail:

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

Profit Margin Deterioration Raises Risks to the Bullish Narrative

by Bryan Perry

There is no shortage of hand wringing in the current market landscape, especially with the S&P 500 retesting its closely-followed 200-day moving average that was briefly violated last week. Volatility is running high, and for good reason. Stocks are struggling to rally in the midst of the most robust earnings season since 2008. The bearish camp has embraced the “this is as good as it gets” mantra, which says that the first quarter would be the “high water mark” for profit margins. That one-liner has had more influence on investor sentiment than any other data point or earnings surprise that has crossed the tape lately.

To the bull’s credit, all five FAANG stocks posted strong Q1 results as all five FAANGers beat on both top and bottom lines, and yet those heady results have been met with very modest enthusiasm – with the exception of Amazon, which soared to a new all-time high on simply fantastic numbers. And the report that Warren Buffett’s Berkshire Hathaway bought 75 million more shares of Apple in the first quarter helped to fortify the market last Friday as it too traded to a new all-time high, but not because of earnings.

(Please note: Bryan Perry does not currently hold a position in Amazon, Berkshire Hathaway or Apple. Navellier & Associates does not currently own a position in Amazon, Berkshire Hathaway or Apple for client portfolios).

That said, the pronounced weakness in several favorite sectors – namely, semiconductors, aerospace-defense, and financials – has raised the anxiety level of many investors who feel that while the bullish narrative still has the upper hand, there is broad technical damage in a number of former market leaders.

One major concern is lower profit margins – the spread between revenue and the costs of doing business. With the costs of most hard and soft inputs rising, how long can U.S. companies expect the dollars they get in sales to flow to the bottom line at the current rate without substantially raising prices for their goods and services? Based on aggregate revenue and earnings estimates, the projected net profit margin for the S&P 500 for 2018 is 10.9%. If 10.9% is the final number for the year, it will be the highest annual profit margin for the S&P 500 since FactSet began tracking aggregate earnings and revenue for the S&P 500 in 2008. Nine of the 11 sectors are expected to see profit margins increase on a year-over-year basis in 2018.

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

Measuring earnings before interest and taxes, S&P 500 profit margins are now at 13.7%, according to Fundstrat’s Thomas Lee. Profit margins reached a record 14.04% in December 2014. (Source: Bloomberg, “Stock Investors Don’t Care About 24% Earnings Growth,” May 4, 2018.)

And then there is the geopolitical and domestic political landscape. There is the upcoming summit with North Korea, the likely undoing of the Iran nuclear deal, the reworking of NAFTA, potential tariffs with China and Europe, the ongoing involvement with Syria, and all the visceral drama taking place in Washington DC. All that has to be taken into account in the mid-term elections and the possible loss of Republican control of Congress, which would put President Trump in a virtual lame-duck position.

While some of these saber-rattling hot spots may seem to invoke exogenous risk, they most likely will be diffused in time, but they will also provide a basket of excuses to “sell first and ask questions later.”

The summer months are a seasonally weak time of the year for stocks – as if we needed yet another reason to be concerned. When we look at the market from a purely technical standpoint, the S&P 500 is running the risk of a breakdown if its 200-day moving average suffers a protracted breach. Because program trading dominates over 70% of all daily trading on the NYSE and Nasdaq, any high-volume penetration of 2,600 to the downside for the S&P will invite a 100- to 200-point sell-off for that benchmark index. A move of that magnitude could change the market narrative from bullish to bearish.

Something like that could happen very quickly because of how these computer-generated sell programs feed on themselves. But the market has diverted this inflection point in the past and thus, the glass for the long-term technical bullish trend remains half-full, for now.

Prudence Would Warrant Having a Safe Haven Plan in Place

At this point, investors should have a defensive strategy to deploy when the caution flag is being waved, and, from my viewpoint, it is now at the ready. Just because we are in the month of May doesn’t mean we should “sell and go away,” but the last thing investors want to see on CNBC or Bloomberg is the trading floor at the NYSE beset by hyperactive floor brokers because the market has dropped through the S&P’s 200-day moving average like a hot knife through butter in reaction to some unexpected negative storyline.

Any major crack at this level over a two-to-three-day period could invite a swift move lower that could then cause great technical and psychological damage. The current 200-day moving average sits at 2,615 with the next near-term support level down at 2,585 and then down at the February low of 2,550, but those second and third levels are soft and will only act as speed bumps to lower levels, in my view.

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

The problem I see is that after three short breaches of this key line, a fourth breach could be a watershed event. Each rally attempt off this level has resulted in what chartists call a lower-high. Friday’s rally came just in the nick of time, but the market is a long way from being out of the woods. Since late February, volatility has been highly elevated, and I don’t see that diminishing any time soon.

Having a well thought-out, already built-in hedging strategy to protect portfolios of all sizes that is certain to mitigate downside risk in the event of a trap door sell-off is the best course of action heading into the summer months. We all know the old saying, “If you fail to plan, you plan to fail,” and nothing could be truer than when it applies to our money in a frothy market.

With that said, it’s good to see the market “holding the line,” as per last Friday’s session, but the bears aren’t going away any time soon. Until the S&P 500 breaks above 2,750 on high volume, there is inherent risk of a downside break in the benchmark index. The best time to put a defensive plan in place is when the market is bouncing higher or acting complacent. So, while the S&P has found a near-term bid that will hopefully build on itself this week, summer seasonality is fast approaching, when trading volume lightens up and volatility is more pronounced due to a more thinly-traded market.

If the worst-case scenario does unfold and the S&P cracks lower, professional money will be raising cash and buying hedging instruments by the trainload. Having a good strategic plan already in place is like buying hurricane insurance when it is sunny, long before hurricane season. While the market is back in rally mode for the time being, one or two or five up days doesn’t make for a trend, and it would be a wise move on the part of investors to consider an automated exit strategy when it comes to protecting capital.

Growth Mail:

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

May the 8th Be With You

by Gary Alexander

On Friday, I received e-mail messages titled, “May the 4th be with you,” with follow-up inquiries about “Where were you when the first Star Wars movie came out?” or “What’s your favorite Star Wars movie?” (Sorry, none of them.) Then came Saturday’s Cinco de Mayo, celebrating the Mexican victory on May 5, 1862, with toasts using a favorite brand of Mexican beer or tequila. More avocados are sold around May 5 than any other time of year, and more beer is sold on May 5 than either St. Patrick’s Day or Super Bowl Sunday, and most of that beer is made in Mexico. (Forget the trade war talk. Mexican beer is flowing!)

My children and their generation were transfixed by Star Wars movies and personalities, like I was by… the real thing: World War II. Our GI’s didn’t have magic laser swords, but I wonder why we don’t party on May 8, when the Evilest of Empires was brought down after a long and costly struggle. Why do we celebrate a Mexican battle in 1862, or a fictional Star War instead of our own “Greatest Generation”?

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Why such unmitigated joy on these faces (except the kid)? Consider the mood five years earlier, as depicted in a recent movie, “Darkest Hour,” with an Academy Award winning performance by Gary Oldman as British Prime Minister Winston Churchill. Over 400,000 troops of the British Expeditionary Force (BEF) were trapped in Dunkirk, France, with no apparent escape route, surrounded by German troops. That’s the source of another great movie, but Dunkirk was just one corner of a very troubled world. Consider this profile of the rest of the world in mid-1940, as chronicled in a recent book:

“Picture Summer 1940. Nazi Darkness covers Europe, imperial Japanese darkness has fallen over Asia. The vast Soviet Union, comprising fifteen modern nations, is under the heel of a police-state that starves its own citizens and summarily executes any dissident. China is torn by a three-way war that will end badly, with the government-imposed misery that is the trademark of communism. Central and South America and Spain are in the hands of tinpot military oppressors whose trademark is the temper tantrum followed by disappearance of opponents and academics. Poland, Ukraine, and the Baltic states are repressed by Nazis and Communists simultaneously. India, Indonesia, Southeast Asia, and most of Africa are exploited by colonialism. Backed by industrial-scale weaponry and the newly-developed mass propaganda – before radio, political decrees could be heard only in person – fascism and communism seem impossible to overcome: since they allow no rights and torture anyone who criticizes their Big Brother figures, how can revolution happen? The light of democracy still shines in only a few places – Australia, Canada, the United States, and the British Isles, though the latter light flickers, considering Britons brutally subjugate India for the personal profit of the English aristocracy. Matters get so bleak Franklin Roosevelt suggests to Winston Churchill that the Royal Navy abandon a doomed homeland and sail west to assist in making North America the final redoubt of human liberty.”

– Gregg Easterbrook, “It’s Better Than It Looks: Reasons for Optimism in an Age of Fear,” page 164

In 1940, America may have been a geographical haven, but we provided no economic hope for the world. We were in the 10th year of a Great Depression. Unemployment rates were 14% or higher every year from 1931 to 1940. Farmers suffered a multi-year Dust Bowl, and GDP in 1940 (at $103 billion) was less than what it was in 1929 ($105 billion). We had virtually no army or air force and our navy would be severely crippled by a surprise attack on Pearl Harbor. The outlook for global freedom never looked bleaker.

As Hitler’s Blitzkrieg drove through the low countries into France, the Dow Jones index fell 23% in eight days, falling from 148 down to 114. French citizens wept as the Swastika hung from French homes. “The Last Time I Saw Paris” won the Academy Award for the Best Song in 1940. Six versions of it were on the December 1940 Hit Parade, with Kate Smith having exclusive radio rights for six straight weeks.

“The last time I saw Paris, her heart was warm and gay.
No matter how they changed her, I’ll remember her that way.”

– An Academy-Award winning song by Jerome Kern (music) and Oscar Hammerstein II (words)

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But then a miracle happened. America came alive – industrially and spiritually. Defense spending grew from $1.5 billion in 1940 to $81.5 billion in 1945 – almost equal to the entire U.S. GDP in 1940. By 1943, America replaced all of the shipping lost by all of the Allied powers. In 1944 alone, the U.S. built more planes than the Japanese did from 1939 to 1945. The U.S. out-produced all Axis nations combined, and we built faster and better ships, planes, Jeeps, tanks, rifles, and armaments – and the only nuclear bombs.

The U.S. led the charge in two massive wars on two continents at once. We won both, in under four years. It’s no wonder that the world threw parades in our honor on May 8, 1945, so… May the 8th be with you!

Today’s Big Worries are for Wimps

Now, let’s examine what we’re so worried about today. Hint: It doesn’t hold a candle to Dunkirk.

The latest worry is “Earnings Peak Season.” Earnings are up over 24 % so far, year over year, and they certainly won’t match that lofty level in coming quarters, so the world is coming to an end, right? Not so fast. Earnings will still be going up, just not as fast, due to higher previous-year comparisons. For the full year, earnings are expected to be up 18%, but stocks so far are flat, so maybe this is a time to buy.

We’re also worried about a Trade War that isn’t happening. Negotiations are constantly under way between the U.S. and our NAFTA trading partners, Canada and Mexico, and also our European trading partners, and, most importantly, China. Somebody (Trump and his team) is finally confronting China on product piracy and sky-high tariffs. Those negotiations will continue. This isn’t trade war. This is the art of the deal. On April 24, Mr. Trump said, “China’s very serious and we’re very serious. We’ve got a very good chance at making a deal.” (The same confrontation is happening in North Korea. It’s about time.)

The press is also overly concerned about who paid what and when to a porn star. That’s outrageous or salacious, depending on your view, but it’s not exactly related to global economics or corporate earnings. Lying about sexual relations plagued President Clinton, but he avoided punishment and the stock market soared during his year-long struggle (1998-99) with a special prosecutor and impeachment procedures.

GDP growth fell below 3% in the first quarter, but real GDP excluding total government spending (on goods and services, not entitlements) grew over 3% in the first quarter for the first time since Q2 of 2015.

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

The Fed’s interest rate increases are also a major concern, but their four 2018 interest rate increases will still keep our rate structure well below historical norms. The amazing fact is not that rates are rising now, but that they stayed abnormally low (near zero) for eight years under President Obama. Rising Inflation is a related concern, but that is mostly tied to rising oil prices. Most technology prices are decreasing.

I scoured the headlines last week and can’t come up with any bigger worries than these. If you want to worry about 2% inflation, 2% interest rates, non-trade wars, rising earnings, and a porn star, have at it, but as for me and my house, we are sticking with this 73-year-old post-VE-Day miracle growth machine.

Global Mail:

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

The Real Damocles Sword over the President

by Ivan Martchev

With the best first quarter for earnings in 24 years, the stock market continues to shrug off the good numbers and is focusing on the rising number of distractions such as the U.S. President, including his flip-flopping on key statements, trade frictions with China, and even indications that the U.S. may withdraw from the Iran nuclear deal. The Federal Reserve, which should be in the forefront of investors’ minds, has somehow been left behind the smokescreen of some significantly more colorful distractions.

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

Still, the fact that the Treasury market has calmed down somewhat does not mean that it cannot quickly become front-page news again as Treasury issuance is accelerating, the federal budget deficit is exploding, and interest rates are rising at the same time the Federal Reserve plans to hike the fed funds rate and let more and more bonds run off its balance sheet.

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

The present runoff rate from the Fed’s balance sheet is $30 billion a month. In January that rate was $20 billion per month. When the balance sheet reduction started in 2017 the initial was $10 billion per month.

The Fed balance sheet runoff rate has tripled in a short period of time. It is not inconceivable that the runoff rate will be $50 billion per month at the end of the year and the Fed would have run off more than $200 billion from its balance sheet. The runoff rate – the amount of bonds the Fed lets mature and does not reinvest on its balance sheet – is not preset and can be left constant if deemed appropriate.

Still, the fact remains that the runoff rate is now accelerating as the federal budget deficit is exploding courtesy of the Trump tax cuts and rapidly rising spending programs. It is ironic that those very same Trump tax cuts that caused in big part the late-cycle earnings growth acceleration in the stock market may add to an interest rate spike that could kill the very growth cycle they were supposed to stimulate. It is not hard to see how bond yields can overshoot and create quite the panic in financial markets.

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

While the stock market is currently worried more about trade frictions, leaving the Fed’s balance sheet shrinkage on the back burner, the dollar has definitely noticed and has started to move rather aggressively higher. As I suggested in December 2017, I would not be surprised if we rise above 100 on the U.S. Dollar Index by year end. I know from experience that when the currency markets start moving they can do so rather aggressively, similar to what happened from mid-2014 to the first quarter of 2015 when the U.S. Dollar Index moved from 80 to 100 in just nine months. That means that if the Treasury market overshoots by the end of 2018, the U.S. Dollar Index can overshoot, too.

The Awe of Unelected Central Banking Power

When central bank activity in the U.S. starts to accelerate, as it is doing at the moment, I always remember the words of one of my favorite graduate school finance professors, who said more than once throughout several courses he taught that the Chairman of the Federal Reserve, in his opinion, held more power over the economy than the President of the United States. While this sounded like a bombastic statement that was easy to dismiss when I was 25, I no longer think it is so bombastic, two decades later. I have come around 180 degrees on this issue and I basically agree that my finance professor was right on the money.

If the Chairman of the Federal Reserve wanted to, he could drive the U.S. President out of office by simply pressing harder on the balance sheet runoff rate accelerator and creating a spike in long-term interest rates and the dollar. Such spikes, if they happen quickly, can hurt the healthy earnings growth environment and crash the economy into a recession due to the high amounts of financial leverage U.S. business activity is used to. Such a scenario will undoubtedly cause the Blue Wave anticipated in the mid-term elections this year to become a Blue Tsunami, which could very well lead to an impeachment given the divisive nature of the President's rhetoric towards the Democratic Party. And he used to be a registered Democrat!

The last thing I want to see is an impeachment mess driven by a super spike in long-term interest rates and the dollar, but to borrow the eloquent phrase used recently by former FBI Director Comey when discussing the Russia investigation, “It’s possible, however unlikely” that this could happen this year.

The Damocles sword over President Trump's head may not be held by the hand of Special Counsel Robert Mueller, but by that of Fed Chairman Jerome Powell.

Sector Spotlight:

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

When Will This Market Show Signs of Sustainable Life?

by Jason Bodner

Volatility. We’ve heard that word a lot lately. The markets have certainly been on a wild ride since late January. We often see intraday reversals from negative to positive and vice versa. It’s hard to know when we see signs of a market promising to run higher. At the first sign of positive performance, it seems like stocks get rocked by more volatility. So how do we know when there are signs of life returning?

Sometimes, things look hopeless… but hope remains. Consider the case of Fabrice Muamba, who played professional soccer for the Bolton Hotspurs. In 2012, during a match with Tottenham, Muamba collapsed with cardiac arrest on the field. His heart stopped completely; it did not beat for 78 full minutes. He was clinically dead for over an hour. Imagine coming to life from certain death. His heart began to beat, and he awoke to life. He eventually regained full cardiac function and went on to make a full recovery.

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I liked Friday because there were some signs of life. After the market rocketed higher on Friday, I noticed something interesting on Saturday morning. When I look at unusual institutional activity, I don’t only look at buying. I look at selling, too. After the market peaked on January 26, the selling signals accelerated on February 2. Since then, we have seen two sell signals for every one buy signal. Our historical average is two buys to one sell. What I noticed was that the number of sell signals on Friday was the lowest it’s been since April 18th which was also the market peak for the last 31 trading days.

This is significant because it marks a change from the selling we have seen the last few weeks. Are these signs of life?  That will only become apparent with more time, but it’s noteworthy for now.

Information Technology Returns to the Lead Last Week

Before we get too excited, let’s take a look at the sectors leading and lagging the charts last week.

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Looking at the sector performance for the week, we see Information Technology, Energy, Materials, and Real Estate as the top four (and only positive) sectors for the week. Tech was a clear winner whose return to glory is curious. The tech sector has been under fire lately for fear of “peak earnings momentum,” amongst other worries. With some screaming earnings reports and recovery from profit-taking, it seems that “FAANG fever” is alive and well. Signs of life – just as the media was ready to “de-fang” the tech sector – are significant because in my research I saw heavy institutional accumulation in the tech sector.

Real Estate’s positive performance is also striking because the sector typically attracts buying in anticipation of static or lower rates. The sector has some defensive characteristics, but as yields are relatively higher than in other sectors, it becomes attractive as attitudes towards rates become less hawkish. We also saw signs of heavy institutional accumulation in Real Estate this past week.

Materials, while eking out a positive performance, saw hardly any signs of institutional buying last week. Rounding out the top four, Energy continued to show buying power. We first observed institutional buying in Energy in mid-April. Since that time XLE (no position) has rallied more than 9.6%. This is a trend we continue to have our eye on. The buying in these sectors (minus Materials) also correlates to heavy unusual institutional buying. By unusual, I mean buying that is above average volume –outside the normal volatility range and irregular in its price behavior, according to my firm’s metrics.

On the tail end, Consumer Staples, Health Care, and Telecom saw poor performance last week. (Telecom has a small number of constituents so it should be treated accordingly.) Areas with unusual selling were Consumer Staples, Consumer Discretionary, Health Care, Financials, and Industrials.

Are these metrics showing us signs of life? Are we out of the woods yet? It’s too early for me to say, but I like to see a meaningful shift in the data followed by a validation. We have seen the beginnings of a shift; now, we need to see a confirmation. I’ll be watching sector activity closely to see market approval.

Fabrice Muamba’s heart stopped for over an hour. He literally came back from the dead to resume life as a husband and a father. Earlier this year, the market had a form of cardiac arrest. It ran into a wall in late January and has been struggling to find its footing ever since. Is Friday the sign of life we have been waiting for or do we need to see more flushing of the system? Buddha may have held the answer when he said: “Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment.”

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A Look Ahead:

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

Expect “Delayed Reactions” to Good Earnings News

by Louis Navellier

So far in May, the stock market likes those companies that have posted strong sales and earnings with strong positive guidance. Strong earnings aren’t enough. Strong forward guidance has to follow. I have fielded some concerned calls from investors wondering why positive first-quarter earnings are not being sufficiently rewarded. My answer is that any stock that announced positive first-quarter results but did not provide strong forward guidance was punished. However, many of these stocks typically rebounded in a few days. The bottom line is that good stocks bounce like tennis balls while bad stocks bounce like rocks.

In this world of decimalized trading, where the vast majority of market makers have been replaced by computer algorithms, I have learned to “wait to trade.” After all, Goldman Sacks has gone from 500 to three people in its market-making division as computerized trading has taken over. Computers don’t think, they react; so I sell stocks that have become a bit too volatile, but I wait to sell them into strength.

I’m in the process of pruning these volatile stocks. May, June, and July are not as seasonally weak as they used to be, according the Bespoke Investment Group’s latest “Seasonality” report, but the market tends to get more volatile in August and September. This essentially means that we have three months to prune our portfolios. As a result, I have earmarked selected stocks to sell into strength over the coming weeks.

In my “no excuses” portfolios, where I buy what I consider the best stocks in all sizes – micro, small, mid, and large-cap, plus the best international and dividend growth stocks – I own approximately 90 stocks. By the end of July, I hope to own just 80, 70, or even just 60 stocks, since I want to do some pruning and trim the excessive risk that has materialized in recent months. However, typically, I wait for upticks to do my pruning, since we remain in an erratic market environment where what is down can suddenly be up the next day or week, like the FAANG stocks have demonstrated in their wide swings in recent months.

The Lowest Unemployment Rate (3.9%) Since 2001

On Friday, the Labor Department announced that 164,000 payroll jobs were created in April, significantly below economists’ consensus forecast of 195,000. The February and March payrolls were revised up by a cumulative 30,000 to 324,000 (down from 326,000) and 135,000 (up from 103,000), respectively. The unemployment rate declined to 3.9% from 4.1% in March, due largely to a shrinking workforce. Average hourly earnings rose by 0.15% or 4 cents to $26.84 per hour, so wage inflation slowed to a 2.6% annual pace in the past 12 months. Labor force participation declined to 62.8% for the second straight decline.

On Wednesday, ADP reported that 204,000 private payroll jobs were created in April, which represents the fifth straight month of at least 200,000 new jobs per month in private payroll jobs created.

The other economic news last week was also largely positive. On Tuesday, the Institute of Supply Management (ISM) announced that its manufacturing index for April slipped to 57.3 in April, down from 59.3 in March, significantly below economists’ consensus estimate of 58.7. This is the lowest reading in the past nine months, but since any reading over 50 signals an expansion, manufacturing remains healthy. The ISM non-manufacturing (service) index also slipped to 56.8 in April, down from 58.8 in March.

The Energy Information Administration (EIA) announced on Wednesday that crude oil inventories rose 6.2 million barrels in the latest week. Also notable was that gasoline supplies rose by 1.2 million barrels in the latest week, so we might get some relief at the pump. Crude oil prices hit the lowest level in the past couple weeks due to concerns about the growing supply glut due to record U.S. crude oil production.

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Israeli’s Prime Minister Benjamin Netanyahu’s press conference last week to expose Iran’s secret nuclear program, briefly caused crude oil prices to rise, but then quickly fizzled after API & EIA inventory data were released. Iran made the rare response of complaining that its nuclear documents had been seized by Israel’s Mossad spy agency, which ironically added credibility to Prime Minister Netanyahu’s assertion that “Iran lied.” Since the U.S. is expected to pull out of the Iran Nuclear Deal on or before May 12th, unless this six-nation deal can be amended to incorporate more stringent inspections, crude oil prices may spike one more time, but the long-term supply glut is expected to overpower demand and crude oil prices are expected to trade in a tight range between $65 to $70 per barrel during the peak summer driving season.

On Wednesday, the Federal Open Market Committee (FOMC) left key interest rates unchanged, but also signaled that a June key interest rate hike was likely. The FOMC also acknowledged that inflation was firming up. Furthermore, the FOMC said that both overall and core inflation “have moved close to 2%,” which virtually guarantees a June key interest rate hike. Overall, the FOMC statement signaled that the Fed intends to raise key interest rates slowly, but surely, as market rates rise. Looking forward, only an abrupt decline in Treasury yields could postpone more Fed rate increases later this year.


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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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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