The Market Endures

The Market Endures another “Zombie Apocalypse” Week

by Louis Navellier

January 26, 2016

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

Zombie Apocalypse ImageWelcome to the “Zombie Apocalypse.”  Remember October 2014? That’s when the stock market freaked out over fears that we were all going to be dead within 60 days from Ebola. Well, ironically, we are still here; but the stock market on Wednesday broke through the “Ebola lows” set in October 2014. The best news is that most of us are still alive, but the second best news is that we saw a high-volume panic-selling capitulation day and subsequent intraday reversal on Wednesday that typically marks a stock market low.

What I want to see now is a high-volume reversal and then a series of retests on lower trading volume to confirm that the Wednesday low was really the low. Volatility will likely persist, but part of the problem we face now is that many financial advisors and investors do not know where to invest first, since market leadership remains very narrow. This is largely because of the market’s infatuation with indexing and ETFs based on indices, which have effectively undermined fundamental investing, since fundamentals are nowhere to been seen on their FINRA-approved fact sheets and sales pitches for most of these ETFs.

Investors have been misled by the big “asset gatherers” who say that indices and ETFs are better, when in fact they are more expensive to trade, as a recent (August 24, 2015) study released by the Stanford Business School shows.

I like to describe the current market environment as a house party that has gotten too rowdy, so the police barge in, detaining selected guests, while other guests scatter. That is essentially how the stock market has been behaving. Investor confidence remains low, since (1) the indices and ETFs are not doing well, (2) the financial news media continues to try to scare investors, (3) the global growth environment has decelerated, and (4) the U.S. political environment remains uncertain. Fundamental investors like me are outnumbered by very nervous investors, so the neighborhood has clearly deteriorated. However, in the meantime, I remain impressed with how stocks responded to their fourth-quarter sales and earnings announcements as well as their relative strength on down days. This “flight to quality” bodes well for us.

I suspect that the market will continue to be led by companies that (1) have better-than-expected fourth-quarter results, (2) issue positive guidance, and (3) are characterized by dividend growth. I expect that the dividend growth stocks will continue to lead the way, improving investor confidence, which should expand to include stocks that score rising quarterly earnings results along with positive 2016 guidance.

In the meantime, the S&P 500 dividend yield (2.28%) is still above the 10-year Treasury yield at 2.05%.  This means that when all the dust settles, money should return to the stock market because it continues to yield more than 10-year bonds. However, as soon as a major energy stock follows Kinder Morgan and cuts their dividend, I suspect that the stock market will get nervous again, especially those high-dividend ETFs that are heavily invested in energy stocks. Last Friday, for instance, Chesapeake Energy eliminated its preferred stock dividend (it eliminated its common stock dividend last July) to conserve cash and pay down its debt. I expect more energy stocks to make dividend cuts to preserve cash and their credit ratings.

In This Issue

It’s looking more and more like the Fed will have to recant on their indication of more rate hikes to come. Bryan Perry shows how little the rate hike has moved global bond rates, while Ivan Martchev shows how Treasury yields have actually fallen after the recent rate hike. Gary Alexander points to some troubling economic charts, while Jason Bodner looks at sector waves from the perspective of a tsunami survivor.

Income Mail:
According to the Bond Market, the World is “Flat”
by Bryan Perry
Despite Central Bank Activity, Treasuries Stay Unchanged

Growth Mail:
Too Many Charts are Pointing Down
by Gary Alexander
Comparing Recoveries: Reagan vs. Obama
Late January in Market History

Global Mail:
The Fed’s Epic Mistake
by Ivan Martchev
The Broad Dollar Keeps Making New Highs

Sector Spotlight:
Riding Waves of Health and Wealth
by Jason Bodner
Sector Leadership Passes to Telecoms

Stat of the Week:
Consumer Prices Rose Only 0.7% in 2015 (a 7-year low)
by Louis Navellier
Oil Bounces off $27 to reach $32, But Deflation Remains

Income Mail:

*All content in "Income Mail" is the opinion of Navellier & Associates and Bryan Perry*

According to the Bond Market, the World is “Flat”

by Bryan Perry

Global markets sniffed out a new round of coordinated central bank intervention and ran with it last Friday, not knowing what size and form it might take. The market just needed a headline jolt and ECB President Mario Draghi did what he is a master of doing – talking the talk and then walking the walk after talking the talk. The euro continues to test $1.08 and is likely to trend lower after Draghi’s speech.

Markets continue to digest the latest dovish comments from Draghi as he reiterated his determination that Europe’s central bank stands ready to do “whatever it takes” to drive prices higher. Sounds like he got the memo from his homeland that Italian banks are experiencing loan defaults topping 10% of total loans outstanding – as loans, primarily tied to emerging markets, are currently at their highest level since 1996. (See the January 20, 2016 MarketWatch article, “Italian Banks’ Bad Loans Continue to Mount.”)

Still, markets remain skeptical after Mr. Draghi fell short of lofty expectations at the December meeting. Accordingly, the probability of a 10 basis point cut in the ECB’s deposit rate at its March meeting has risen to almost 90% as of Friday, up from roughly 40% early last week, according to Bloomberg. In addition, the eurozone’s Markit Composite PMI fell to 53.5 in January from 54.3 in December. That was the lowest level since March, 2015. (Readings above 50 indicate expansion.) However, expectations for future activity hit their highest levels since May 2011. Another positive is that Greece’s credit rating has been upgraded by S&P to B- from CCC+ based on better-than-expected growth after their latest bailout. (See the January 22, 2016 CNBC article, “Greece Credit Rating Upgraded by S&P Amid Reforms.”)

Mount Fuji ImageNot to be outdone, Japanese central bankers also made big news. Rumors that the Bank of Japan would look to provide further easing measures at its next meeting pushed the yen back to 118 in the midst of a global rally. Markets continue to digest the possibilities from Europe and Japan. The dollar index pushed higher in response, as the greenback has been bolstered by strong economic data that included a better-than-expected reading on the preliminary, forward-looking Manufacturing PMI number for Europe.

On the home front, U.S. Existing Home Sales topped expectations, aided by the scheduled closings in November that spilled over into December due to the implementation of new regulations that slowed the process in November. A better leading indicator of the health of the housing market is Housing Starts, which came in at 1,149,000 (annual rate) for December vs. a consensus forecast of 1,197,000, a clear miss and down 30,000 from the November rate of 1,179,000. (See the January 22, 2016 Wall Street Journal article, “U.S. Existing-Home Sales Rebound in December.”)

Despite Central Bank Activity, Treasuries Stay Unchanged

Treasuries continue to hold steady with limited losses as the S&P 500 traded back up to 1,907. The yield curve is flattening for Treasuries while WTI crude is up 10% to $32.18/bbl. The U.S. Dollar Index is up a scant 0.3% to 99.4 and gold is up narrowly for the week (but +3.4% year-to-date) at $1,098 per troy ounce. With the U.S. still in the best economic shape of all the developed economies, I still find it short of amazing to see 10-year yields in France, Germany, Italy, and Spain well under that of U.S. 10-year notes.

United States and European Treasury Rates Table

Source: Briefing.com (January 23, 2016)

Clearly, the bond market does not trust any attempts to convince investors to rotate out of sovereigns and into equities as there would have been more give back on the Thursday and Friday equity rally by bond prices, if that were the case. This is a market “tell” that should be heeded. The Fed has stated emphatically that policy directives going forward will be data-dependent, and if so, then last week’s round of data for December (showing the CPI down, Housing Starts and Building Permits below November’s figures, the Philly Fed Index reading of -3.5 highlighting further slippage in manufacturing, and Initial Jobless Claims of 293K the highest in seven months reflecting a big uptick in layoffs within the energy sector) should serve as a caution flag regarding any further interest rate hikes at this week’s FOMC meeting.

Initial Unemployment Claims Chart

As one-year and two-year Treasuries initially popped higher following the quarter-point rise in the Fed Funds Rate in December, the benchmark 10-year note has retreated from a high of 2.35% to 2.05%, narrowing the spread between 2-yr and 10-yr Treasuries. The flattening of the yield curve portends a deflationary trend in motion that is probably at the root of the latest coordinated central bank actions.

Very low inflation goes hand in hand with weak economic growth, so it’s worrisome that bond investors are expecting inflation to be low even five to 10 years from now. A measure of expected future inflation, called the “5-year forward 5-year inflation break-even rate,” has dropped sharply in the past few weeks.

Five Year Forward Inflation Breakeven Chart

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

After inching lower last week, the 5-year forward 5-year inflation breakeven rate narrowed by 13 basis points to 1.59%, signaling a clear lack of inflation concerns. The inflation breakeven rate has returned to levels not seen since early 2009. The drop was helped along by the continued weakness in oil prices and soft economic data that should lead the Federal Reserve to delay its next rate hike. (Just as a reference point, the forward inflation breakeven rate was 1.76% at the end of 2015 and 2.08% at the end of 2014.)

What we saw in “The Big Short” (book or movie) as collateralized debt obligations (CDOs) or credit default swaps that exacerbated losses when the mortgage market seized up, have reappeared under the repackaged name “bespoke traunch opportunity.” Demand for this sort of exotic product is returning now and there’s no real surprise why. Everyone is searching for yield after more than six years of near-zero interest rates from the Federal Reserve, not to mention stimulus efforts by central banks in Japan and Europe. If the threat of deflation continues to magnify, QE4 could emerge with a new and misleading handle after which the Fed will have to do a mea culpa regarding their recent interest rate hike.

Pride comes before the fall. Some things just don’t change.

Growth Mail:

*All content in "Growth Mail" is the opinion of Navellier & Associates and Gary Alexander*

Too Many Charts are Pointing Down

by Gary Alexander

I hear the human race is falling on its face, and hasn’t very far to go….
But I’m stuck like a dope with a thing called hope”.

-- From “A Cockeyed Optimist” (a song in “South Pacific”) by Rodgers & Hammerstein (1949)

Last week,  while the Northeast suffered record storms, I enjoyed the 15th annual Jazz Cruise in the sunny Caribbean.  However, like the markets up north in New York City, our seas were choppier this year than recent years. We bypassed one port altogether. But that’s good news. It means more music: One singer, Ann Hampton-Calloway, delivered the song I quoted above, “A Cockeyed Optimist,” while another diva, Dianne Reeves, prefaced a love song with her view that “in this world, with headlines scaring us every day, remember: There’s far more good than bad in this world, and more love than hate.”

In Growth Mail, I’ve been a “cockeyed optimist” for nearly seven years. Some might say I’m in a state of denial about all the problems we face. I’ll give the skeptics their due. Too many charts are pointing down these days.  This malaise didn’t spring up overnight. It’s been going on for eight years under Republican George W. Bush and seven years under Democratic incumbent Barack Obama. Here are a few examples:

Real Median Household Income has been declining since 2000. It rose briefly in 2005-07, then fell sharply from 2007 to 2012, with a short recovery in 2013 and a resumption of the decline in 2014 and last year. The Census Bureau says that the real (adjusted for inflation) income for the median household was $57,357 in 2007, but only $53,657 in 2014, the most recent full-year with available nationwide statistics.

In addition, too many (24%) of U.S. households have no wage earner. This sad chart shows the decline in real median household income (since 1999) along with a concurrent rise in no-wage-earning households.

Median United States Household Income Chart

This rise in no-income households is partly due to the decline of the Labor Force Participation Rate.  Here’s another dismal chart that peaked in 1999 (at over 67%) and then went into a long decline. The labor force participation rate is down to 62.6%, which is the lowest rate since the Carter years in 1978.  The sharpest declines have ironically come in the years of “recovery” since Obama took office in 2009.

Civilian Labor Force Participation Rate Chart

Home Ownership rates show a similar decline. Although I’ve never thought of homeownership as the Great American Dream – starting your own business is more like it! – home ownership reflects a certain level of hope in the future, counting on setting down family roots, getting a good job, and profiting from the rising value of land over time. In other words, home ownership means you have “skin in the game.”

Home ownership rates rose from 64% in 1995 to over 69% in 2004, but fell to below 1995 levels in 2015. When Obama took office, the rate had dropped to 67.5%, but it reached a 25-year low of 63.5% in 2015.

Quarterly Homeownership Rates Chart

Source: Housingwire.com (data through the third quarter of 2015)

Comparing Recoveries: Reagan vs. Obama

President Reagan and President Obama each inherited an economy in shambles from a terrible recession.  By most measures, President Reagan’s task was greater – facing 11% unemployment, 20% interest rates, and two back-to-back recessions in 1979-89 and 1981-82, the second (and deeper) recession beginning after he took office. The 1981-82 recession was the worst since the Great Depression. Only by throttling the money supply did the Federal Reserve begin to bring inflation and interest rates down, but at great cost to the economy. By comparison, President Obama’s recession began with 8% unemployment and much lower interest rates and inflation rates. He faced no new recession after he took office in 2009.

Still, President Reagan rescued the economy at a far faster clip than did Mr. Obama:

Cumulative Growth after Deep Recessions Chart

Source: Daniel J. Mitchell in International Liberty (September 16, 2015)

Historically, recoveries after recessions usually happen much faster than they did under President Obama.  After the eight postwar recessions from 1948 to 1981, under both political parties, recovery came very fast. The next two recessions – 1990 and 2001 – were shallower and milder but the recovery took slightly longer. This latest (2009-15) recovery, however, has been the slowest developing recovery by a long shot.

Percent Job Losses in Post World War 2 Recessions Chart

Source: Calculatedriskblog.com

I don’t normally include many charts in Growth Mail. This week, I’ve given you five charts to chew on.  They show a weak 21st century of U.S. economic growth. However, I find a great deal of hope in that fact since I believe in “regression to the mean,” i.e., long periods of slow growth provide a base for expansion.

If you look at stock markets, the indexes have been erratic in this new century, with two huge crashes and two long recoveries, netting small overall gains. The S&P 500 peaked at 1527 in March, 2000.  We’re 16 years into the new century and the S&P 500 is around 1900 (yesterday), for a net gain of 24% in 16 years, or just 1.5% per year on average (not counting dividends or inflation, which tend to offset each other). In the previous 50 years, from January 1, 1950 to December 31, 1999, the S&P gained 8720% or 9.4% a year, compounded.

Going back further, the market struggled in the first two decades of the 20th Century, too. The Dow Jones Industrials ended 1900 at 70.44 and closed 1920 at 71.95, for basically no change in 20 years; but the DJIA closed the century at 11,500, up 163-fold. You have to look at the long haul in stock investments.

If I may hazard a closing comment with political overtones, we need an optimist (cockeyed or otherwise) in the White House next year. We need someone who believes in the small-business owner and nurtures entrepreneurs. We need fewer barriers to growth in Washington, DC. The current crop of leading candidates sounds and feels very negative to me. After the primaries peak in March, we may see a new leader emerge. I am hoping a young and energetic Marco Rubio (or even Rand Paul) might soon lead.

Either way, we need an optimist in the White House, and then maybe we’d see more growth in America.

Late January in Market History

Space Shuttle Image

30 years ago this week, on January 29, 1986, the nation mourned the Challenger explosion. Therefore, let us pause to honor these brave astronauts: Christa McAuliffe (a teacher from New Hampshire), Ellison Onizuka (a USAF major), Francis “Dick” Scobee (mission commander), Judith Resnik (astronaut), Michael Smith (pilot), Ronald McNair (mission specialist), and Gregory Jarvis (payload specialist).

How did the market respond? Ironically, the DJIA rose over 1% the day of the tragic explosion. The index rose 6% (from 1502 to 1594) during the last seven trading sessions of January, 1986. That pushed a depressed January to a barely-positive (+0.23%) S&P performance for January. The S&P rose 14.3% for all of 1986, so the “January Barometer” worked well in 1986. But how has it worked lately?

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.)

Here is the record of the S&P 500 in January and in each full calendar year since 2001:Standard and Poor's 500 January Barometer Table

As you can see from this table, in the 15 calendar years since the dawn of the new century, the January Barometer has worked eight times and failed seven times – i.e., it is statistically insignificant. Yes, it worked in 2015, with a weak January and a marginally declining full year, but – more to the point – the January Barometer has failed to work in four of the last seven years since the bull market began in 2009.

The S&P 500 is down 6.7% through last Friday, so it will likely be down for all of January; but don’t worry if the market declines this January. That doesn’t really portend a declining full year in 2016.

Global Mail:

*All content in "Global Mail" is the opinion of Navellier & Associates and Ivan Martchev*

The Fed’s Epic Mistake

by Ivan Martchev

Pondering the worst start to the year for U.S. and Chinese stocks, I came upon a January 22, 2016 Bloomberg story (“Market Volatility Did the Work of Four Fed Rate Hikes: Morgan Stanley”). Before we started the year about four quarter-point rate hikes were priced into fed funds and eurodollar futures markets, so if the Morgan Stanley analysis is right, the Fed should be about done with their rate hikes. As stocks and junk bonds have sold off in 2016, those rate hike probabilities have notably diminished.

Fed Funds Futures Chart

This rate hike probability screen, taken from Bloomberg.com on January 21, 2016, shows that fed funds futures went from implying a small probability of a rate hike for this week’s FOMC meeting to zero probability of a rate hike and a 6% probability of a rate cut! Now I do not believe that the Fed will cut interest rates this week at the FOMC meeting, as doing so would indicate that they are admitting their mistake in hiking the fed funds rate in the midst of the worst global deflationary shock since the Great Depression, only this time driven by China. Economics 101 teaches that central banks should fight deflation and not add to it via rate hikes. I think the Fed will realize the error of their ways sometime in 2016, hopefully before making another monetary policy mistake as markets are already tightening financial conditions by delivering the worst sell-off since the 2008 crisis for the riskiest of junk bonds.

Ten Year Treasury Note - Weekly OHLC Chart

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

There are ways to trade the path of Federal Reserve policy other than with fed funds and Eurodollar futures (which are more appropriate for institutional investors). Playing the surge in Treasury prices in January is one way. Too many investors were positioned for Treasury bonds to go down and their yields to go up due to the expected future rate hikes by the Fed. Instead the opposite happened: Treasury prices surged in 2016 and the 10-year Treasury yield fell last week to 1.93%, closing the week at 2.05%. In other words, the 10-year Treasury yield traded just 54 basis points (0.54%) from its all-time low set in 2012 at 1.39%. As the year progresses I think there is a good chance for taking out that low of 1.39%.

What does well when long-term interest rates are falling? The obvious answer is utility stocks as they on average provide dividends supported by investment-grade balance sheets. Those dividends are not economically cyclical. The utility sector in 2016 is up while the overall stock market is down.

The other less-obvious answer is zero-coupon bonds. Zero-coupon bonds have maximum duration leverage to a move in interest rates. As they have no coupons, the interest rate is implied as a discount to the bond price. I won’t get too much into the mathematics of this manufactured bond – the U.S. government does not issue them but Wall Street banks strip interest and principal and repackage them as separate securities – but zeros can have dramatic moves as interest rates rise and fall.

Vanguard Extended Duration Zero Coupon Bonds Chart

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

When the 10-year yield rose from 1.65% in January 2015 all the way up to 2.49% last summer (due to Treasury liquidations by oil producers that needed to get access to their petrodollars and the liquidation of forex reserves due to the flight of capital out of China), the Vanguard Extended Duration ETF (EDV) that holds zeroes went from $136 to $103. In 2008, as the 10-year note yield fell to 2.10%, EDV went from $60 to $105. Then, as the 10-year note approached 4% in 2009, EDV fell to $55.

The EDV ETF does not completely follow the rise and fall of the 10-year yield due to the shifting maturities of the bonds in the portfolio and the normal turnover of the portfolio at times of different interest rate levels due to the mandate to maintain maximum extended duration; but if one wanted to capitalize on a rapid fall in U.S. long-term Treasury yields, the EDV would be a good choice. (Please note: Ivan Martchev does not currently own a position in EDV. Navellier & Associates has not in the past and does not currently own a position in EDV for client portfolios.)

The surge in Treasury prices- that I envision should not necessarily be taken as an extrapolated negative forecast for the S&P 500, which was doing fine in 2012, the last time we made all-time lows in Treasury yields. As I have maintained consistently, I do not believe that the generational economic unraveling in China can cause a recession in the U.S., which is a service-based economy. For us to get a nasty bear market in the U.S. of the type we saw in 2008 we need an economic problem here that, frankly, I do not see at the moment. That said, what we just experienced is the same type of sell-off in U.S. stocks we saw in late August. The difference is that the August decline happened over three days while this time it took about two weeks. So the Chinese stock market can hit the U.S. stock market as its epic bubble unravels. My target remains 1000-2000 for the Shanghai Composite in the next 12-24 months, but external shocks are much easier to rebound from if they don’t cause economic problems here.

Ten Year German Government Bond Chart

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

The other point is that the collapse of German long-term interest rates in 2014 caused quite the spike in German stock prices as investors simply had no other alternatives. So as long as the U.S. economy does not get hit by the situation in China, U.S. long-term interest rates can decline precipitously and this may not be necessarily bad for U.S. stocks.

The Broad Dollar Keeps Making New Highs

Even though we have been flirting with the 100 level on the U.S. Dollar index (DXY) for nearly a year now, it is not well known outside of professional circles that the broader measures of the U.S. currency, like the Broad Trade-weighted U.S. Dollar, have been blasting away to new highs. I think in 2016 we will take out the high at 130 that was registered by the Broad Trade-Weighted Dollar Index in 2002.

Trade Weighted United States Dollar Index Chart

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

For economic aficionados, when this broader measure of the dollar was near 130, the U.S. Dollar Index (that is today near 100) was near 120 at the time. It is normal for commodity-linked currencies to lead the way and make fresh lows as the CRB commodity index is making fresh 40-year lows. But the point is that this is a trade-weighted index. So the more you trade with a country, the bigger the impact.

Total Trade Weights Table

The table does illustrate how trade affects this calculation. I think the coming Chinese devaluation and a further decline in commodity prices as a result of a Chinese economic hard landing will push the U.S. dollar much higher than its present levels in 2016.

Sector Spotlight:

*All content in "Sector Spotlight" is the opinion of Navellier & Associates and Jason Bodner*

Riding Waves of Health and Wealth

by Jason Bodner

I have to admit, I’m a sucker for fun facts – the kind you can read under the tops of Snapple bottles. I read an interesting fact the other day that the Indonesia 9.0 earthquake in 2004 released more energy than all the earthquakes on the planet in the last 25 years combined. A segment of seafloor the size of California moved upward and seaward by more than 30 feet, displacing huge amounts of water. This made me think of the tidal wave that seems to have hit the markets, but it made me reflect on more important things, too.

Nature can unleash some pretty powerful events. To think that the energy that caused a series of waves in the late-2004 tsunami eclipsed the energy of 25 years’ worth of global earthquakes is astounding. I should know. Believe it or not, I was in the middle of it. December 26, 2004 found me on holiday with my wife, 3-month-old son, and nine other members of her extended family. We were in Thailand on a tiny island 12 miles south of Phuket called Koh Racha. We were disappointed, because we booked an ocean-front room only to find we were given a room high up in the hills and far away from the beach.

Early that morning I felt a rumble of vibration and noticed how suddenly the loud birds in the trees went totally silent. It was around 8:15 in the morning. We went to the breakfast room which was slightly underground but directly on the beach. I stayed behind with my son while my wife went to see something “strange” on the beach. Later I found out that this “strange” scene was boats lying on their sides in the bay where the ocean used to be. Ten minutes later she came running in and screaming for me to run. I was proud to have ordered an omelet for her, but she told me to “forget the omelet! Grab the baby and go!”

Kanagawa Tsunami Painting Image

When we made it out of the restaurant, the water had just arrived. We scrambled up a set of stairs to an above ground pool, where you could hear the water slapping the concrete. We evacuated up a tall hill. I managed to get my wife and son on board a military helicopter that was evacuating injured people. I watched from a perch as she ran with our son in her arms and boarded a chopper with no money, no phone, no nothing but the clothes on their backs and flew off into the distance. I spent the rest of that day going up and down the hills bringing food and water to people while we waited for further instructions.

No one knew the extent of the danger as it was happening. Finally at about 9:00 in the evening, the Thai Royal Navy arrived and evacuated us by boat to Phuket. I was of course happy to be safe but was very dirty from mud and a physically demanding day. When my wife’s family and I arrived at a hotel in Phuket, I asked if a driver could take me around to the hospitals in Phuket in hopes of finding my wife and son. My father-in-law and I searched for hours, each hospital more overcrowded than the previous. It was clear this was a very serious situation. I eventually found my son’s name on a survivor’s roster in a hospital. By random luck, at that very moment, someone was walking through the hospital with a sign with my father-in-law’s name on it. My wife’s uncle lived in Bangkok. He made some calls to locate my wife, who was waiting at a village home. I was reunited with her and my boy at 2:00 am on December 27.

The next day, reports came in that 450 people lost their lives due to the quake and tsunami. The day after the report was 1500. On the 29th the toll was 5000. On the 30th: 15,000. By the time we left Thailand on the 31st, the estimated death toll was 50,000. The final count was estimated as high as 300,000 fatalities.

Waves hit, and sometimes they hit really fast and really hard. The past few weeks almost feel like a tsunami hit the markets. Nothing was spared as selling seemed to go on day after day after day, although last week finally finished on a high note. It is important in times like these to pause for a moment from thinking about wealth, and focus on maintaining our health. The daily news may seem grim and fear may seem high. Wealth destruction is emotionally taxing, but our health and safety are far more important. Pausing to reflect on that for a moment certainly helps put things into perspective, for me at least.

Sector Leadership Passes to Telecoms

Speaking of pausing, why don’t we take a look at sector performance for the week and month to date? With all the talk in the media about oil and how low it can go, it may come as a surprise that Energy is not the weakest sector this month. In fact, looking at the table below we see that Industrials, Financials, and Materials are the biggest losers of the year, so far. Energy finally squeezed higher on Thursday and especially Friday as news broke of a Libyan oil field explosion. But let’s not forget that the S&P 500 Energy Sector Index is still down more than 37% over the past 12 months, according to Bloomberg. Financials continue to be in a dark place as fears of new crises are rippling through the system.

Telecom was the big winner of the week and the month’s second strongest sector behind Utilities. Let’s take a look at the weekly and year-to-date performance of the major sector groups:

Standard and Poor's 500 Sector Indices Changes Table

The positive here is that there are some stocks staging healthy performances in this earnings season. Another plus is that it seems the market made a bottom last Wednesday. It is also interesting to note that during the recent big sell-offs of August 2015 and October 2014, when we saw high volume days with new lows outnumbering highs by a wide margin, the bottom was seen as high-volume days met with a significant drop off in the number of lows. We saw that last week, too. There may be some relief that has finally arrived, but there is surely more volatility to come. So I will leave you with this: When it seems most dire and it feels like a tsunami has hit your portfolio, remember what Mahatma Gandhi said:

“It is health that is real wealth and not pieces of gold and silver.”

Stat of the Week:

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

Consumer Prices Rose Only 0.7% in 2015 (a 7-year low)

by Louis Navellier

Last Wednesday, the Labor Department announced that the Consumer Price Index (CPI) declined -0.1% in December, which was below economists’ consensus estimates of no change. Interestingly, energy prices declined -2.4% and food prices contracted -0.2% in December. The core CPI, excluding food and energy, rose 0.1% in December. In the past 12 months, the CPI has risen 0.7% and the core CPI is up 2.1% due largely to higher rents, healthcare costs, and service costs. The 0.7% rise in 2015 is the lowest full-year inflation since 2008. There is no doubt that deflationary forces are now spreading to the CPI.

Speaking of economic growth, the International Monetary Fund (IMF) on Tuesday cut its global GDP forecast to 3.4% and lowered its GDP forecasts for Brazil to -3.5% (down from -1%) and Russia to -1% (down from -0.6%). The IMF is expecting China’s GDP to expand 6.3% in 2016, but that forecast may be subject to revision. For 2015, the IMF said world GDP grew 3.1% and it forecasts 3.4% GDP growth in 2016 and 3.6% in 2017. The fact of the matter is that the IMF is way too optimistic, since GDP growth so far in 2016 is well below 2015. I’d say 2% worldwide GDP growth in 2015 is much more realistic. As a result, I expect the IMF to be slashing its GDP forecasts for more counties in the upcoming months.

If you need something else to worry about, on Thursday the Labor Department reported that initial jobless claims rose by 6,500 to 285,000. Initial jobless claims have been steadily rising since late October when they bottomed at 256,000 and are now up 11.3%, reaching the highest level in seven months. Clearly, there have been a lot of layoffs in the energy patch; but with decelerating economic growth, more layoffs may be forthcoming. Also, on Friday, the Conference Board announced that its leading economic index (LEI) declined by 0.2% in December as (1) weak housing starts and (2) falling manufacturing orders dragged down the LEI. Since Fed Chairman Janet Yellen is a labor economist, I suspect that she will be very reluctant to raise rates further if the labor market is deteriorating. Furthermore, a negative LEI may cause most other Fed officials to postpone any key interest rate increase. If the weak economic news persists, the Fed may have to do an “about face” and follow the ECB by creating a new stimulus program.

Oil Bounces off $27 to reach $32, But Deflation Remains

Oil Pipelines ImageCrude oil briefly crossed below $27 per barrel last week on fears that 500,000 barrels of Iranian crude oil will be dumped on the global market now that their sanctions have been lifted. Since then, crude oil prices rose back above $32 after the Libyan oil terminals were attacked on Thursday. Still, the supply glut persists: The Energy Information Administration (EIA) reported on Thursday that crude oil inventories rose by four million barrels in the latest week. The EIA also reported that gasoline inventories rose by 4.6 million barrels, so the prices at the pump should remain low. What is uncertain is just how much Iran will discount crude oil to try to steal business from Saudi Arabia and other OPEC members, so $25 per barrel oil may soon be forthcoming despite the fact that seasonal demand typically picks up in the spring.

Just so you can get an idea of how much discounting goes on in the crude oil business, sweet crude oil from North Dakota and the Permian Basin now sells for less than $20 per barrel according to Bloomberg last week, while the crude oil from the Eagle Ford Shale Formation is now selling for under $13 per barrel. Interestingly, no one wants the sour crude oil from North Dakota anymore, so those wells should all be capped, especially since the transportation costs from trucks and trains in North Dakota can run as high as $15 per barrel.   Since refiners can get sweet-to-intermediate grades of crude oil so cheap now, gasoline prices should continue to decline steadily, even though prices typically rise in the spring.

Deflation continues to spread in Europe. Germany’s Federal Statistical Office on Wednesday announced that producer prices declined 0.5% in December and 2.3% in the past 12 months. In other words, German wholesale prices are declining and deflationary rates are accelerating. Even when excluding energy, wholesale prices still declined by 0.6% in the past 12 months, so deflation is not just related to energy.

Have a great week.  I hope those of you in the Northeast can climb out from under the avalanche of snow.

P.S: I will be in Southern California this week, speaking at the Irvine Marriott in Irvine, California on Tuesday, January 26th and at the San Diego Marriott La Jolla in La Jolla, California on Wednesday, January 27th. These seminars start at 7 PM and you may attend at no cost, but please call 800-454-1395 to register. I will review where investors can achieve the highest yields in both bonds and stocks, as well as my current market outlook, favorite stock picks, along with an extensive question and answer session.


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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