The Best January

We’re on Pace for the Best January in Over 30 Years

by Louis Navellier

January 30, 2018

Shipping Container Ship Image

Through last Friday, the Dow Industrials are up 7.68% in the first four weeks of January and the S&P is up 7.45%, on pace for the best January in over 30 years, since 1987. The stock market certainly likes the effects of the new tax law, the lower dollar (boosting trade), and the fact that the U.S. government found a way to get back to work last Monday after only a brief weekend of closing its doors over budget disputes.

Last Wednesday the rumor mill began to circulate that Apple would discontinue the iPhone X. My theory is that this rumor was being propagated by unscrupulous short sellers in a last-ditch attempt to hit Apple suppliers before they announce stunning fourth-quarter results. Even if Apple plans to change its iPhones, that would be good news, since it means there will be more new orders from Apple’s suppliers. I cannot wait for Apple suppliers to “squeeze the shorts” with strong fourth-quarter results in the upcoming weeks! (Please note: Louis Navellier does not currently hold a position in Apple. Navellier & Associates does currently own a position in Apple for client portfolios).

In This Issue

It’s a week of transition at the Fed, with Janet Yellen chairing this week’s FOMC meeting, giving way to the new Fed Chairman Jerome Powell by the end of the week. Even though the market continues to soar, our authors are still concerned about the market’s overbought condition leading to a potential correction. We remain fully invested but keep our eyes out for dangerous sectors or overheated markets. When this market corrects is anyone’s guess, but this has certainly been a January for the record books.

Income Mail:
The Super Bowl of Stock Market Rallies
by Bryan Perry
Stronger U.S. Economy Going Global

Growth Mail:
The “January Barometer” No Longer Works
by Gary Alexander
The Super Bowl Indicator Has Also Failed Recently

Global Mail:
Extreme Readings from the Stock Market
by Ivan Martchev
Treasuries to Get More Volatile

Sector Spotlight:
Keep Your Eyes Up…and Your Feet on the Ground
by Jason Bodner
Sector Leaders Last Week … and the Last 3-Months

A Look Ahead:
The American Delegation Dominates Davos
by Louis Navellier
Downbeat Housing Statistics Justify “Status Quo” at the Fed

Income Mail:

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

The Super Bowl of Stock Market Rallies

by Bryan Perry

The major indices once again set new all-time highs last week, and stocks are enjoying a historic winning streak fueled by solid earnings from market-leading stocks and the perceived benefits of tax reform. Heading into the final days of January, the S&P 500 has now appreciated in 14 of the last 16 trading days and, after blasting through the 2,800-level last week, the index is now sitting at 2,860. The Nasdaq is approaching the 7,500 level quickly, as that tech-heavy index is on a torrid run. The Russell 2000 small-caps are also participating in the rally, as they made a nice push to new highs above the 1,600 level.

However, the S&P 500 Volatility Index (VIX) has also been rising, which is slightly worrisome. The VIX spiked to a peak of 11.88 last week. While it is off its highs of around 12.70 from mid-January, the VIX held above both its 50- and 200-day moving averages, so I’m slightly cautious at this point as any negative headline of significance could trigger some knee-jerk selling. However, the power of FOMO (Fear of Missing Out) is also at work, with a great deal of sideline spectators wanting to jump on board.

Investors trying to hop aboard the rally at this moment could well end up like this Philly Eagles fan who smacked into a fixed object. (By the way, he was OK from the brutal Dick Butkus-like hit the pole rendered to his body). Those who chase parabolic moves in stocks will likely see their portfolios take a 3% to 5% profit-taking hit that feels like a hit from an all-pro middle-linebacker, but they will recover as the game goes on, because this near-nine-year-long rally now has fresh legs, thanks to tax reform, and it has broadened out on a global scale. We are truly in the “Super Bowl season” of stock market rallies.

Philly Eagles Fan Hitting a Pole Image

Elsewhere in the market, crude oil is continuing its advance after breaking through the $60-per-barrel level at the start of the year. The price is now sitting just above the $66 level, despite a report from the American Petroleum Institute (API) last week that showed supplies of crude oil in the U.S. rising by 2.8 million barrels versus an expected drawdown of 1.6 million barrels. The weakness in the U.S. dollar, geopolitical tensions, and a more disciplined OPEC have contributed to the rise in oil prices lately.

In this fourth-quarter reporting season, more than three-fourths of the S&P 500 companies that reported so far have topped earnings estimates. Fourth-quarter reports also offer the first guidance on the potential effects of the tax cuts passed by Congress. It’s still early in the earnings season, but sales projections for Q1 are showing an improvement. For Wall Street, forward guidance is critical as the market looks ahead to 2018 earnings and the effects of the tax bill. Stocks have been rallying since mid-December on expectations of a flow-through of tax benefits, which will not be fully understood for a while. However, the most recent data suggest that corporate revenue and earnings will top most investors’ expectations.

Here are further signs to support a bullish view of Q4 results and Q1 guidance:

The U.S. Citi Economic Surprise Index, a measure of economic data relative to expectations, was recently near record highs.

Standard and Poor's 500 Price to Earnings Ratio versus Citigroup Economic Surprise Index Chart

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

As discussed earlier, manufacturing has been the strongest in a dozen years and is historically well correlated with earnings growth. The Institute for Supply Management’s Manufacturing PMI in the U.S. rose to 59.7 in December of 2017, up from 58.2 in November, beating market expectations of 58.1.

Purchasing Managers Index Chart

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

Weakness in the U.S. dollar boosts overseas earnings for U.S.-based multinationals and may present a tailwind for Q4 earnings.

United States Dollar Index Chart

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

Fewer negative profit warnings tend to lead to better-than-expected earnings results.

Stronger U.S. Economy Going Global

According to the International Monetary Fund, global growth will accelerate to the fastest pace in seven years as U.S. tax cuts spur businesses to invest. The IMF raised its forecast for world expansion to 3.9% this year and next, up 0.2 percentage points for both years from its projection in October – the fastest growth rate since 2011, when the world was bouncing back from the financial crisis (source: Reuters – “IMF Raises Global Growth Forecast, Sees Trump Tax Boost,” January 22, 2018).

About half of the IMF’s global upgrade stems from the tax cuts passed in December and enacted this year. Cuts to the corporate tax rate will give the world’s biggest economy a boost, lifting U.S. growth to 2.7% this year, 0.4 point higher than the fund expected in October. Projected U.S. growth was the highest among advanced economies. The IMF says the global recovery now under way is the broadest in seven years, with growth picking up last year in 120 countries, accounting for three-quarters of world output.

For dividend investors, 2018 might be shaping up as its own Super Bowl year of special dividend payouts. One has to wonder if special dividends will make a comeback. Some back-of-the-napkin math suggests that Microsoft could use some of its $112 billion held overseas to declare a one-time special dividend of $14 per share. And the list gets very long from there. U.S. companies are holding more than $2.6 trillion in profits across the globe on which they haven't paid U.S. taxes yet. Wall Street has specific views on hoarding cash. Companies are valued on their future cash flows, meaning their ability to generate cash, not on how much they managed to keep. A big stash of cash is a measure of past success and Wall Street is more interested only in future value from the intelligent allocation of those resources.

If cash can’t be allocated to new product development or dedicated to accretive acquisitions, then by all means declare a special dividend and reward shareholders. Apple held more than $250 billion in cash or cash equivalents abroad as of last quarter. It plans to pay $38 billion in repatriation taxes following the enactment of the new tax law, adding to its challenge of finding ways of productively investing the money. It could be in the form of more R&D spending, a major acquisition, accelerated share buy-backs, a special dividend, or all of the above. Don’t be surprised if 2018 becomes the year of massive repatriation of capital and of one-time whopper dividends.

The current mix of healthy economic growth, tame inflation, low interest rates, a falling U.S. dollar, and business-friendly tax cuts serves investors well in a stock market environment that is relatively expensive, but not in bubble territory. If we pick up signals of slowing growth or a quickening of inflation and/or rising rates, then it would prove prudent to tighten trailing stops or just take profits outright. (Please note: Bryan Perry  does not currently hold a position in Apple or Microsoft. Navellier & Associates does currently own a position in Apple and Microsoft for client portfolios).

Until then, the trend is our best friend.

Growth Mail:

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

The “January Barometer” No Longer Work

by Gary Alexander

Records are made to be broken. More specifically, historical coincidences are just that, coincidences. Looking backward, various indicators – like hemlines, Super Bowl winners, and Triple Crown horse races – can be twisted into stock market indicators, but that’s only because they are constructed while looking backward. As soon as you start applying those arcane indicators to the future, you start making mistakes.

The January Barometer, devised by Yale Hirsch in 1982, states that “As the S&P goes in January, so goes the year.” According to the 2010 edition of Hirsch’s Stock Trader’s Almanac, the January Barometer had registered only five major errors from 1950 to 2008 for a “91.5% accuracy rate.” (I’m quoting the 2010 edition since that’s when the January Barometer started to fail.) In both 2009 and 2010, the market fell in January, but the full years rose by double digits. Then, in 2011, January was up and the full year was flat.

The January Barometer has been 50-50 (a coin flip) over the last 10 years. Here is the record since 2001:

Standard and Poor's 500 January versus Full Year Performance Table

As you can see from this table, in the 17 calendar years since the dawn of the new century, the January Barometer has worked nine times – and failed eight times. That means it is statistically insignificant.

In fact, you might be surprised to see that January has been a down month in three of the last four years – declining 2.5% in 2014, -3.1% in 2015, and -5.1% in 2016, yet the full year rose twice (2014 and 2016).

Through last Friday, the S&P is up 7.45%, the best January since a frothy +13.2% in 1987. Does that mean the market will rise in 2018? No. The market will likely rise, but not because of January alone.

The Super Bowl Indicator Has Also Failed Recently

Whether you favor the AFC’s New England Patriots or the NFC’s Philadelphia Eagles in Super Bowl LII, most investors are aware of the Super Bowl Indicator, which basically says that the market will go down in a year in which the AFC team wins, and it will go up if an “old-line NFL” team wins the Super Bowl.

Like any artificial retro-fit coincidental indicator, the Super Bowl Indicator worked pretty well for a very long time. From 1968 to 1982, the market mostly declined at a time when the AFC won most Super Bowls. Then, from 1983 to 1997, when the market mostly rose, the NFC won most of the Super Bowls.

The Super Bowl Indicator worked for 30 of the first 31 Super Bowls, missing the mark only in 1990. So: If a coin flip comes up heads 30 of 31 times, what are the chances it will come up heads the next time?  The correct answer is 50%, but some will bet the trend (heads) while others will say, “Tails is overdue.” A whole industry (gaming) is built on the war between casinos filled with trend-followers vs. contrarians.

The Denver Broncos ended the Super Bowl Indicator’s 31-year 97% winning streak. In both 1998 and 1999, Denver won the Super Bowl, but the bull market of the late 1990s just kept charging higher. Then, in 2000, the St. Louis Rams (NFC) won, and the market fell. Then, in 2001, the Baltimore Ravens (an old-line NFL team) won, but the market kept on falling. In 2008, the NFC New York Giants won the Super Bowl, but 2008 turned into the worst market year since the 1930s. The Indicator had flipped!

One of the big problems with the Super Bowl Indicator is the slippery definition of “old-line NFL.” Some recent Super Bowl winners are currently aligned with the AFC, but they are also old-line NFL teams: The Indianapolis Colts (2007 winners) were once the Baltimore Colts, while the Baltimore Ravens (the 2013 champs) were once the Cleveland Browns. The AFC Pittsburgh Steelers (2006 and 2012 winners) are also from the old-line NFL. The market went up in all four of these years, but are these teams AFC or NFL?

I’m sure that much of this Super Bowl lore is pure entertainment. I’m not sure if anyone ever believed it, but some newspapers are desperate to fill their news pages in winter, so the Super Bowl Indicator was first offered (perhaps in jest) in 1978 by a New York Times sports reporter named Leonard Koppett, who mocked some other silly sports statistics in his Sporting News article, “Carrying Statistics to Extremes.”

For the next two decades, several more tongue-in-cheek articles came out, saying that NFC teams (like Washington or San Francisco) “saved investors” by pulling out last minute wins in the Super Bowl. In 1989, the staid Financial Analysts Journal stooped to ask: “Did Joe Montana Save the Stock Market?”

The secret of the original Super Bowl correlation is that the stock market goes up more than it goes down and NFL teams won more often than AFC teams. Since Super Bowl #1 in 1967, the Dow has risen in 37 of 51 years. In the first 51 Super Bowls, old-line NFL teams won 34 times, so there was a lot of overlap.

The reason that these two historical theories worked for a time, then didn’t work, is that retro-fit theories are manufactured to fit historical data, while the future is random. You can apply this lesson to the length of bull markets, the length of recoveries, the trading range of stocks, and many other market variables. Just because something happened in the past, there is no logical reason the same thing will repeat in the future.

Global Mail:

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

Extreme Readings from the Stock Market

by Ivan Martchev

“I was dreamin' when I wrote this, so sue me if I go too fast,
But life is just a party and parties weren't meant to last.
War is all around us, my mind says prepare to fight,
So if I gotta die I'm gonna listen to my body tonight.
Yeah hey, they say two thousand zero zero party over, oops, out of time,
So tonight I'm gonna party like it's nineteen ninety-nine
Yeah, yeah, hey”

 -- A verse from Prince’s runaway hit “1999”

I thought of Prince’s song before I sat down to write this column as the stock market is truly “partying like it’s 1999.” The stock market bolted out of the gates in 2018 amid signs of investor euphoria that are hard to ignore. The options market is showing a skew towards call buying that typically means the herd is astoundingly bullish. The trouble is that such skews in sentiment are generally viewed as contrarian.

Standard and Poor's 500 Large Cap Index Chart

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

If one looks at the index tracked by the largest amount of assets in the U.S. – the S&P 500 – one would see that the price chart is moving away from its 50- and 200-day moving averages and almost trying to “curve backwards,” suggesting an unsustainable rate of change. A more sustainable trend is one where the index “backs and fills” and generally hugs its 50-day moving average and occasionally dips towards its 200-day moving average. We have not touched the 50-day moving average in five months and we have not touched the 200-day moving average since the November 2016 election.

Typically, as the economic cycle ages, the economy slows down. As the bull market in stocks ages it tends to narrow. We are experiencing exactly the opposite now. The economy seems to have picked up while the stock market has broadened and accelerated.

I would agree that some of that has to do with the tax overhaul passed by Congress at the end of 2017, but it also has to do with a more vibrant global economy. Be that as it may, the last thing a bull wants to see is for an index to go parabolic right in the middle of a Fed tightening cycle. The last time we had the phenomenon of stocks rising sharply as the Federal Reserve was hiking interest rates at the end of a long economic cycle was the year 2000. We didn't know it at the time, but this was the end of the longest economic expansion in U.S. history that lasted from March 1991 to March 2001.

How parabolic is the stock market at the moment? Extremely so.

If one looks at a popular overbought/oversold indicator like the Relative Strength Index (RSI) on the S&P 500, one would see a daily reading of 86.69, which is a reading we have not seen in over 20 years. RSI varies between 0 and 100. For a detailed explanation, you can see a glossary in www.stockcharts.com)

Excerpt: “Assuming a 14-period RSI, a zero RSI value means prices moved lower all 14 periods. There were no gains to measure. RSI is 100 when the Average Loss equals zero. This means prices moved higher all 14 periods. There were no losses to measure.”

A reading of 86.69 for the S&P 500 means the index was up the vast majority of the past 14 days. The magnitude of how much the index was up also matters, so this type of reading on a popular oscillator like RSI becomes extremely rare. One can look at RSI on a weekly basis and get similar extreme readings.

Since the Dow Industrial Average is an index with longer history than the S&P 500, I pulled the weekly readings of RSI for the Dow and removed the index chart in order to better see the indicator values.

Here is the result.

Dow Jones Industrial Average Index Chart

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

With a weekly 14-period RSI reading of 92.03, the Dow has not had similar reading since 1904. Given that the Dow Jones Industrial Average first appeared in the Wall Street Journal in 1896 and Charles Dow began work on the index in 1884, this type of extreme reading is a once-in-a-lifetime type of event.

All of the above does not mean that a market crash is imminent, but it does put things in perspective as one considers what to do next. Being very overbought in the stock market simply means that the prudent thing to do is focus as much on defense as offense and pay close attention to leading economic indicators.

Treasuries to Get More Volatile

It is about a week before the new Fed Chairman Jerome Powell takes over and things couldn't look better for the new Chairman. Unemployment is low and the stock market is “partying like it’s 1999.” As the stock market is climbing, interest rates are climbing too, with the 2-year yield on fire, well above 2%, and the 10-year Treasury yield rising to the highest point since 2014.

United States Ten Year Government Bond versus United States Two Year Note Yield Chart

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

Since the Fed is slated to up the pace of quantitative tightening and deliver up to four fed funds rate hikes this year, I would expect volatility in the bond market to pick up dramatically and to see that increased volatility reflected in the stock market.

Remember what happened to bonds when then-Chairman Ben Bernanke issued the word “taper” in May 2013? We should see similar volatility in bonds particularly as the monthly runoff of the Fed’s balance sheet rate increases from the present rate of $10 billion.

The markets have an uncanny way to test new Fed Chairmen. The only recent Chairperson that was not truly tested by either the stock or bond markets was Janet Yellen. Given that the QT operation is slated to intensify in 2018, I think Jerome Powell will find out that the Fed Chairman’s seat will get hot pretty fast.

Sector Spotlight:

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

Keep Your Eyes Up…and Your Feet on the Ground

by Jason Bodner

We are all so consumed with our daily lives that we fail to look up. We are only concerned with what goes on terrestrially. Almost all of my life is spent looking at ground level. Whether it’s navigating the house or office, riding my bike, driving the car, or doing pretty much anything else, I rarely look up.

My kids look up much more than I do, which conjures memories of me lying in my backyard staring at cloud shapes. When I do look up, I oftentimes see a plane flying overhead, and while one plane seems like an isolated event, naturally there are many airships flying all day and night. In fact, there are about 100,000 flights per day. This means, there are literally millions of people overhead every single day.

Daily Flights Map Image

Why is this important? When markets meander sideways or sectors slosh around for a while, as they did in 2014 to 2016, it’s hard to imagine looking up. Now looking up is all we seem to do every day! The unstoppable rally that couldn’t seem to intensify any further has only intensified further. This past week saw a surge in every sector at a pace reminiscent of when the “Trump Bump” began in late 2016. That election day Tuesday market sell-off lasted a New York minute and gave way to a massively rising week.

Sector Leaders Last Week … and the Last 3-Months

This past week, Health Care’s 3.54% surge made it the top performer. This barely beat out the Telecom sector. I also noticed a “relief rally” in recently beleaguered sectors. Real Estate and Utilities have been the 3-month worst performers, especially Utilities, but Utes rallied +2.07% while Real Estate was +2.27% last week. The week’s “worst” performing sector was up “only” +1.11%. That was Consumer Staples.

The sector leaders last week showed some relief for recently pressured sectors as well as new life for some “middle-of-the-road” sectors. Health Care, having a three-month performance of nearly 11.5% would be outstanding by most yearly yardsticks. This year, however, 11.5% puts it squarely in the center.

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

The point here is that everything is going up and some weeks are rising at break-neck speed! There is no place else to look – other than up! People are happier. Prosperity is spreading. Tax reform is on the lips of everyone, especially business owners. The markets are high, as are our moods. Earnings reports continue to be rosy and stocks continue to climb.

There are, however, cracks in the surface that need to be monitored. Some companies are beating estimates handily with great guidance and then trading down. We are starting to see profit taking, even during an updraft of euphoria. One unique metric of institutional buying which I monitor closely labels this market as near-term overbought. This, along with standard indicators such as RSI, MACD, and ADX, all signal that this market is significantly overbought.

Standard and Poor's 500 Large Cap Index Chart

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

That’s not to say that we can’t keep going up in a parabolic trajectory for a while longer. Human history is decorated with examples of irrationally propelled prices. For many, the current peak must feel like it has risen “too high, too fast.” I for one, expect a near term sell-off spurred by profit taking. This would be a healthy pause to allow a reset as a springboard for higher mid- and long-term prices. The fundamentals continue to improve, the economy is heating, and let’s face it, people love feast more than famine.

I believe this market will be much higher a year from now. I believe near-term we should expect a technical sell-off – that is, many technical traders will find these overbought levels way too good to be true and will begin to “hammer it back” into its rightful place. But mid-term and long-term investors will still provide sufficient fundamental fuel to keep this rally alive and well for a while to come.

It’s important to know where we are and why we are there. Getting from point A to B is rarely a straight line, and I believe that a market rising in a straight line up is overdue for a little zag after a lot of zig. This would give us a more solid foundation for future price growth.

Theodore Roosevelt said it best: “Keep your eyes on the stars, and your feet on the ground.”

Theodore Roosevelt 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.*

The American Delegation Dominates Davos

by Louis Navellier

This was a very interesting week. Some of the global elites were a bit rattled a few weeks ago when President Trump said he planned to attend the World Economic Forum in Davos, Switzerland, since the Davos crowd is largely a pro-globalism group that wants to promote prosperity through free trade and breaking down trade barriers, and Trump was considered an isolationist. (Last week, President Trump imposed some tariffs on solar panels and washing machines to send a signal before his arrival in Davos.)

However, President Trump used his premier speaking slot last Friday to give a powerful pro-American speech. There were a lot of assertive statements in Trump’s speech, but his comment that “Now is the best time to bring your money, your jobs and your businesses to America,” summed it up the best. The Davos crowd did not seem to be rattled by Trump’s statement that “We will enforce our trade laws and restore integrity to the trading system. Only by insisting on fair and reciprocal trade can we create a system that works not just for the United States but for all nations.”

Naturally, the message from President Trump, that the U.S. is the new global leader of free and fair trade, should be widely applauded at Davos, since rising prosperity is addictive. The fact that President Trump is striving to pump U.S. economic growth is good news for the stock market. I expect that President Trump will continue with his strong economic message through November’s mid-term elections.

The U.S. delegation at Davos was the largest ever, so it is clear that our many cabinet members were there to entice more multinational companies to expand in America. Last Wednesday, Treasury Secretary Mnuchin raised some eyebrows in Davos when he said that the U.S. is open for business and welcomed a weaker U.S. dollar. Specifically, Mnuchin said, “Obviously a weaker dollar is good for us as it relates to trade and opportunities,” and added that the currency’s short-term weakness is “not a concern of ours at all.” Interestingly, the U.S. dollar was making a three-year low at the time of Mnuchin’s comments.

The weak U.S. dollar policy that the Trump Administration is promoting is great for U.S. multinational company earnings, but problematic for the European Central Bank (ECB). The President of the ECB, Mario Draghi, on Thursday described the euro-zone’s economic growth as “broad-based” and “robust.”  Furthermore, Draghi said that the strong euro and currency volatility represents a “source of uncertainty.”

Despite previously signaling that the ECB would wind down its quantitative easing via its bond buying program, Draghi said that key interest rates will “remain at their present levels for an extended period of time,” and the ECB would continue its bond buying through September or “beyond if necessary.”

Davos Switzerland Image

Interestingly, J.P. MorganChase’s Jamie Dimon said in Davos that corporate tax reform will drive wages higher and spark an economic boom. Specifically, Dimon said, “I think it’s possible we’re going to hit 4% (GDP growth) sometime this year.” Furthermore, Dimon also predicted that inflation was brewing because he said, “I promise you, we are going to be sitting here in a year and you all will be worrying about inflation and wages going up too high.” This last comment is interesting, since Dimon expects that the Fed will have to raise key interest rates to combat a rate of inflation that has not yet shown up.

Downbeat Housing Statistics Justify “Status Quo” at the Fed

The Federal Open Market Committee (FOMC) meets this week, but they will likely leave interest rates alone this time, since this is one of those FOMC meetings in which they have not scheduled a press conference following their Wednesday adjournment. The next rate increase will likely come in March, and only then if economic growth statistics released between now and then warrant such an increase.

However, we saw a couple of downbeat housing statistics released last week. First, on Wednesday, the National Association of Realtors announced that existing home sales declined 3.6% in December to a 5.57 million annual pace. For all of 2017, existing home sales rose only 1.1% and the supply of homes for sale is only 3.2 months at the current sales pace, the lowest rate in 18 years! However, this low inventory is causing median home prices to climb steadily higher. In December, median home prices rose to $246,800, or 5.8% higher than a year ago.

Then, on Thursday, the Commerce Department reported that new homes sales declined 9.3% in December. For all of 2017, new home sales rose 8.3%, but a shortage of labor is hindering the home building industry. At the current annual sales pace, the inventory of new homes is at a 5.7-month supply. The median price of new homes rose to $335,400, just 2.5% higher than a year ago. Overall, a cautious housing market is one factor that the Fed must weigh when raising interest rates, since higher interest rates will likely continue to impede existing home sales.

On Thursday, the Conference Board announced that their Leading Economic Index (LEI) rose 0.6% in December. Naturally, this bodes well for the fourth-quarter GDP estimate. Speaking of which, the Commerce Department on Friday announced that its flash estimate for annual fourth-quarter GDP growth was 2.6%. Inventories and a bigger trade deficit reduced GDP growth by 0.67% and 1.13%, respectively. The big positives were that consumer spending grew at a 3.8% annual pace and business investment grew at a 11.4% annual pace. I would not be surprised if the fourth-quarter GDP is revised higher as inventory and trade figures are adjusted in the upcoming months.

Finally, the Commerce Department reported that durable goods orders rose 2.9% in December, led by a 15.9% surge in commercial aircraft orders. Economists were expecting a 0.9% rise, so this was a pleasant surprise. Excluding transportation, durable goods still rose an impressive 0.6% in December. Durable goods have risen for four of the last five months and bode well for continued strong GDP growth.