The Market Rallied

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by Louis Navellier

September 29, 2015

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The Market Rallied after Two More Sinking Spells Last Week

by Louis Navellier

September 29, 2015

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

Last week, the S&P 500 lost 1.37% with the biggest decline coming on Tuesday, due in part to the crisis at Volkswagen and Hillary Clinton’s proposal for a cap on drug prices, which I’ll cover in detail later on.

Later in the week, the market seemed eager to retest its late-August lows on Thursday.  Fortunately, the Thursday retest seemed to exhaust any and all selling pressure and there was a nice reversal late in the day.  So far there have been two major retests of the August 24th lows – on September 1st and 24th.  A couple of more retests are possible in October, so we are not quite out of the woods yet.  By November, I believe that any and all retests will likely be exhausted, so I am expecting a strong finish to the year.

University Building ImageIn a speech at the University of Massachusetts, Amherst, on Thursday, Fed Chairman Janet Yellen said that she expects inflation will return to 2% over the next few years as temporary factors currently holding it down will ebb.  Specifically, Yellen said that “most FOMC participants, including myself, currently anticipate ... an initial increase in the Federal Funds rate later this year.”  Translated from Fedspeak, it appears that the Fed will raise key interest rates 0.25% in December – which I’ve been predicting.

Toward the end of her speech, Yellen suffered awkwardly long pauses, which raised concerns that she was not feeling well.  A YouTube video clearly illustrates how uncomfortable she was. A Fed spokesman said, “Chair Yellen felt dehydrated at the end of a long speech under bright lights,” adding, “she was seen by EMT staff on site at UMass Amherst.  She felt fine afterward and has continued with her schedule….”

Despite the Fed’s dovish nature, the U.S. dollar remains strong, causing commodity prices to fall further (in dollar terms).  Deflationary pressures are spreading, with gasoline under $2 a gallon in some parts of the U.S. This should help put more money in consumers’ pockets, further boosting consumer spending.

In This Issue

In Income Mail, Ivan Martchev will examine the latest bond trends and China’s economic deterioration in light of Xi Jinping’s current visit to America. In Growth Mail, Gary Alexander will look at the sharp drop in investment sentiment – a bullish contrarian indicator – over the last few months. Jason Bodner’s Sector Spotlight will also have some comments about the market’s recent black mood. Then, I’ll return with an examination of the latest economic statistics, along with the latest developments in China and Germany.

Income Mail:
As Dignitaries Collide
by Ivan Martchev
Jawboning the Bond Market

Growth Mail:
Investor Sentiment Falls Off a Cliff
by Gary Alexander
The Fastest Slide in Sentiment since 1984

This Week in Market History:
September 29 – A Turning Point?
by Gary Alexander

Sector Spotlight:
Predicting the Market’s Mood
by Jason Bodner
Hillary Turns Healthcare on its Head

Stat of the Week:
Second-Quarter GDP Revised up to 3.9%
by Louis Navellier
Stocks Hit by Hillary and VW on Tuesday

Income Mail:

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

As Dignitaries Collide

by Ivan Martchev

It was a bit odd to witness how His Holiness Pope Francis and Chinese president Xi Jinping were stealing each other’s thunder last week. The Chinese state visit and the Pope’s American tour should have been separated in time as either event would have generated plenty of topics for discussion on its own.

United States Flag Yuan ImageFrom an investment strategy perspective, the Chinese state visit was more interesting as it happened at a time of a historic downshift in economic growth that, in my opinion, is far from over. Whether Chinese economic growth will turn negative or not, I cannot be sure, as it is happening at a time of record financial leverage in the Chinese economy. The only recent parallel is the Asian Crisis of the late 1990s, when similarly overleveraged financial systems in Asia fell like dominoes. The trouble this time is that China has a GDP of $11 trillion so, as a problem, it is several multiples larger compared to the Asian Crisis.

The repercussions are being felt in the precipitous decline in commodity prices, which in turn has led to a precipitous decline in commodity-based currencies. While the U.S. Dollar Index (which includes only developed market currencies) has stalled since March, a broader measure of currency movements, like the Broad Trade Weighted U.S. Dollar Index (which also includes all major emerging market currencies), has been on a tear. I think before we hit the final economic bottom in China the broad dollar index will set a new all-time high above 130. Whether it will reach 140, 150, or higher I can't be sure at the present time.

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.

I have a high degree of conviction that the broad trade-weighted dollar will make a new all-time high and I believe that China is very far away from hitting an economic bottom as the record financial leverage that turbocharged years of unproductive GDP growth is still there. The cash flows to service that mountain of debt are disappearing with the economic deceleration that is gathering momentum.

The worst news from China is yet to come, so the troubles in many commodity-producing countries are far from over and that means the troubles for their currencies are not over yet either.

Shenzhen Composite Index Chart

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

The Shenzhen Composite (see chart above), where the China bubble was concentrated, tends to include a lot of small-cap and mid-cap domestically-oriented Chinese companies.  The Shenzhen Composite doubled its previous high from 2007 while the Shanghai Composite could not even reach its 2007 level before it turned lower.

It is not unheard of for stock markets in bubble mode to get cut in half three times consecutively from the top after the bubble pops as it was clearly evidenced by a similar bubble unraveling of the Hang Seng Index in Hong Kong in 1973. Since the bubble in the Chinese stock market has popped, following the bubble in the Chinese real estate market, both of which are subsets of the great China credit bubble, I think the Shenzhen Composite index is headed much lower. It has been cut in half once, closing last week at 1697 off its September low of 1580. The next target for that index would be 800 and after that 400, which would complete the circle of getting cut in half three times from the high.

Chinese Yuan Chart

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

It would be unpalatable to have President Xi on a state visit to the U.S. while the Chinese yuan weakens further or the Shenzhen Composite resumes its decline at the same time. The Chinese have shown their willingness to intervene heavily in both the currency and stock markets and I would not be surprised if they have held the pressure on both fronts with Xi in Washington so as to “save face” during his visit.

I think the Chinese leaders have realized that it is in their best interest to let the yuan depreciate, given how much emerging markets currencies have depreciated. A yuan at 7.5 or 8.0 to the dollar would give a much needed boost to the Chinese economy just like it did in 1994 when they depreciated it by 33% overnight. They have easily spent $300 billion in 2015 to support the yuan – given how much their forex reserves are down as displayed in the Federal Reserve Bank of St. Louis chart below – and they surely don’t want to put pressure on long-term U.S. yields to prop up their currency at a time when the currency depreciation helps their economy.

I think between now and year-end, the decline in the Chinese yuan will resume. As to how long it will take for the Shenzhen Composite to get cut in half twice more I am not sure other than to say that I expect the economic data coming from China in 2016 to be much worse than the data we have seen so far in 2015. I think we will find out if China will face a bad recession or a real depression by the end of 2016.

Right now, the odds of either of those grim scenarios seem pretty high.

Jawboning the Bond Market

When the Chinese devalued the yuan/dollar exchange rate from 5.82 to 8.72 in January of 1994 – in effect planting the seeds for the Asian Crisis that got going in earnest in 1997 – the Chinese had very little cash.

Chinese Total Reserves Chart

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

Today, China is the envy of the world with its forex reserve checkbook. At last count, the Chinese have $3,557 billion. By contrast, at the end of January 1994, they had only $26.3 billion. This year, in August alone, they spent $94 billion supporting the yuan, so they had far less money in early 1994 than what they recently spent in about a 10-day period in August, trying to prop up their currency. (Source: China Foreign Exchange Reserves, as reported by TradingEconomics.com China Foreign Exchange Reserves)

China's forex reserves have dropped sharply since mid-2014, when they stood at $4,010.8 billion. The Chinese have experienced a massive $453 billion in net outflows in order to defend the yuan peg. Suffice to say that if the People’s Bank of China was not intervening daily, the yuan would be a lot lower.

While the Chinese do not disclose the composition of their forex reserves, it is widely believed that the largest component is made up of U.S. dollar assets. Part of the reason for the backup in U.S. long-term interest rates since January 2015 comes from China selling part of their dollar assets, i.e., U.S. Treasuries.

Ten Year Treasury Notes Constant Maturity Rate Chart

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

If inflation is at 0.2% and about to turn negative, and if the FOMC has cited persistently low inflation for not hiking the fed funds rate, why would Janet Yellen try to jawbone the market last week by saying that FOMC members expect a liftoff in the fed funds rate in 2015? Mind you, inflation tends to be seasonally weak in the fall and winter and that seasonality will be magnified by the cyclical weakness in China.

Why a Fed rate hike then?!

It appears that Janet Yellen is jawboning the market to maintain some appearance of control as everything I look at suggests there should not be a rate hike in 2016, either. It would be quite the about-face to go from talking about rate hikes to talking about QE4, but stranger things have happened.

In that environment I expect the 10-year Treasury note yield to drop below 1% in 2016, which would most likely happen when the market realizes that no rate hikes are coming next year. I don’t have the faintest idea when the market may realize this is a deflationary quagmire, but suffice to say that it is my experience that sometimes it takes a while for the market to “get” it. This is why I would expect the dive below 1% 10-year Treasury rates to happen in the second half of 2016.

Get ready to refinance!

Growth Mail:

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

Investor Sentiment Falls Off a Cliff

by Gary Alexander

“It’s always something – if it’s not one thing, it’s another”

-- Roseanne Roseannadanna (Gilda Radner) on Saturday Night Live’s Weekend Update (late 1970s)

We’re less than two days away from the close of September and the end of the third quarter, as well as the contentious end of the federal government’s fiscal year, with the all-too-familiar threat of a government shutdown.  In that regard, it’s interesting to note that there was a major threat of a shutdown in 2011 and a very real 16-day shutdown in October of 2013, but the S&P 500 rose strongly in October of 2011 & 2013:

 Source: Yahoo! Finance 
  October    S&P 500 
2010 +3.69%
2011 +7.72%
2012 -1.98%
2013 +4.46%
2014 +2.45%

 

We’ve seen a lot of scary Octobers in history – most recently in 2008 – but four of the last five Octobers have delivered net increases in the S&P 500, averaging +3.3%. Since 1991, the S&P 500 has risen in 17 of 24 Octobers. Even if you look at the bad Octobers, the month becomes the birthplace of bull markets. It’s the month when markets tend to reach their bottoms and then recover. In 2011, for instance, the S&P 500 declined for five straight months – May through September – with the largest drop coming in August (-5.7%), but the bottom came on the first trading day of October, with the full month gaining 7.72%.

More importantly, through last Friday, the S&P 500 is up 75% since closing at 1099 on October 3, 2011.

This year, like 2011, we’ve seen net market declines in four of the last five months and a significant (12%) correction through the late-August lows.  Could we see another strong recovery beginning this October?  One clue is the “contrarian” study of sentiment.  When too many people are on one side of a trade, the tendency is for the trade to go the other way, as “everyone who wants to sell has already sold.”

Bob Doll, chief equity strategist at Chicago-based Nuveen Asset Management, was quoted on September 22, 2015, in BusinessWeek as saying, “This is the least-believed economic recovery and the least-believed bull market of our careers…. people have stepped to the sidelines. The question is, who is left to sell?”

Or, as the late Yogi Berra said (of a certain restaurant): “Nobody eats there anymore; it’s too crowded.”

The Fastest Slide in Sentiment since 1984

Bloomberg’s BusinessWeek said (in “Who’s Left to Sell Stocks? Mood Darkens Most Since Volcker,” September 21, 2015) that the bull-to-bear ratio in the Investors Intelligence’s survey of newsletter writers fell to a four-year low of 0.9 in early September – a precipitous decline from 4.1 in April, when the S&P 500 was near its all-time high. Back then, the bulls were running down Wall Street like it was Pamplona.

According to BusinessWeek, the last time sentiment crashed this fast was in June of 1984, when the S&P 500 was nearing the end of a nine-month 14.4% decline (from 172.65 on October 10, 1983 to 147.82 on July 24, 1984). At the time, Paul Volcker’s Fed was launching another round of rate hikes to throttle new inflation fears. Volcker raised the fed funds rate from 9.25% in October 1983 to 11.75% in August 1984, and stocks fell. But when the Fed began easing rates in October 1984, stocks shot rapidly back up again.

Today, we’re seemingly in terror of a small rate increase from zero to maybe 0.5% or even 1%, but back then Volcker was pushing rates into double digits just one year into a bull market!  Today’s investors (and the Fed) seem to be weenies compared to the Volcker Fed and 1980s investors. As BusinessWeek says:*

“Investors hate stocks – again. Amid a six-year bull market that’s notable mainly for how little conviction there is in it, equity sentiment is plunging at a historic rate, falling by some measures at the fastest pace since Federal Reserve Chairman Paul Volcker had just finished pushing up interest rates in the 1980s,” but, they add: “Fret not. All of this is good news for bulls, if history is any guide. Since 1963, the Standard & Poor’s 500 Index has advanced an average 11% in the year after newsletter writers surveyed by Investors Intelligence were as pessimistic as they are now, data compiled by Bloomberg show. That compares with an annualized return of 8.3%.”

*Note: All BusinessWeek quotes are from “Who’s Left to Sell Stocks? Mood Darkens Most Since Volcker,” September 21.

Back in 1984, the recovery was sharp: The S&P rose 128% in just over three years, from 147.82 on July 24, 1984 to 336.77 on August 25, 1987, although there were jagged swings in sentiment along the way:

Investor Confidence - Bull and Bears Chart

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

We’ve seen skeptics all along the way in this bull market, too.  We’ve seen six annual crises in Greece, an Ebola scare, a crisis in Cyprus and another crisis in Crimea.  The current “C” nation in crisis is China.

“If it’s not one thing, it’s another.”

According to BusinessWeek, “bearish newsletter writers surpassed bullish ones three other times during the last 6-1/2 years, in April 2009, August 2010 and October 2011. All turned out to be buying opportunities as the S&P 500 rallied for two straight quarters each time, with gains exceeding 20%.”

In futures trading, said BusinessWeek, “S&P 500 bearish contracts outnumber bullish ones by the most in three years, data from the Commodity Futures Trading Commission show. Speculators increased short positions in stocks to the highest level since March 2009, according to data compiled by U.S. exchanges.”

The irony is that investors may be over-reacting to a “flash crash” that has little or no basis in economic fundamentals.  According to economist Ed Yardeni, writing in last Tuesday’s Morning Briefing (“NZIRP Forever,” September 22), “The latest stock market correction was mostly a flash crash triggered by a bad combination of algorithms gone wild (including those used by high-frequency traders and risk parity portfolios) and the liquidity freeze that hit exchange-traded funds pricing. The market recovered from previous flash crashes because earnings continued to grow. In other words, the flash crashes didn’t signal that economic activity and earnings were about to fall into recession. So the recovery from the latest flash crash requires that investors regain some confidence in the earnings outlook. We think they will….”

Yardeni argues that earnings reports for the third quarter – which ends tomorrow, with announcements starting next week – is less relevant than forward earnings estimates when it comes to market sentiment.  For this quarter, he argues, “The odds are high that the actual results will be better” than the estimates. As for future quarters, he says “Industry analysts are currently forecasting $131.23 per share for the S&P 500 next year, up 10.5% y/y, and $145.28 in 2017, up 10.7%,” which represents 22% 2-year earnings growth!

We may not see earnings rise that fast over the next two years, but prices are likely to follow earnings; so annual earnings increases near 10% would tend to support a rising, not falling, market in 2016 and 2017.

This Week in Market History:

*All content in Market History is the opinion of Navellier & Associates and Gary Alexander*

September 29 – A Turning Point?

by Gary Alexander

A century ago today, while the world’s attention was centered on The Great War in Europe, technology was changing the world for the good. On September 29, 1915, the first transcontinental radio telephone signal was sent from New York City through Arlington, Virginia, to San Francisco and then to Honolulu.  It was the work of Harold DeForest Arnold at Western Electric, using thermionic tubes, which amplified radio and telephone signals. (Arnold later became the first Director of Research at Bell Telephone Labs.)

At the start of 1915, the DJIA stood at 54.58 and the New York exchange was partly closed due to World War I.  A century later, the DJIA had risen to 17,823, a nominal 326-fold gain, or +1,285% after inflation, plus generous dividends along the way.  But the market seldom rose in a gradual or predictable manner.

IRS Regulation ImageOn Monday, September 29, 1986, the night before the government’s fiscal year ended, Congress drafted sweeping tax reform legislation, reducing income taxes to just two rates, 15% and 28%, in exchange for eliminating most tax preferences and deductions.  The Tax Reform Act of 1986 completed a dramatic reduction of the top rate from 70% at the start of the 1980s. The stock market rejoiced over this news. The DJIA stood at 1755 the day the Tax Act passed. Then it proceeded to climb 55% to 2722 in less than 11 months, peaking on August 25, 1987.  In hindsight, one of the causes of the 1987 crash may have been that the market rose too far, too fast after this dramatic income tax cut.  Alas, the top federal tax rate rose back to 39.6% (or 41% with Medicare taxes) by 1993, without giving back any of those old deductions.

On Tuesday, September 29, 1998, Federal Reserve Chairman Alan Greenspan cut key interest rates by 0.25% in response to the global financial turmoil triggered by Russia’s default on billions of dollars in foreign debt and the failure of the Long Term Capital Management hedge fund.  The DJIA fell 475 points in the first four days of that week, but Greenspan’s work was not over.  The Fed cut rates two more times, October 15 and November 17. The DJIA responded by rising dramatically (+21% in seven weeks) from a low of 7731.91 on October 8 to 9374.27 on November 23, delivering yet another Happy Thanksgiving.

On Monday, September 29, 2008, the DJIA suffered its worst one-day point loss in history, down 777.68 points.  The next day, however, the DJIA rose 485.21 points (+4.7%), the third-largest point gain to that date. But on October 1, the DJIA began its most cataclysmic uninterrupted two-month decline since 1987. In just 37 trading days, the DJIA fell from 10,850.66 on September 30 to 7,552.29 on November 20. But a decline of this historic speed soon led to a bull market of great power and length, starting in early 2009.

Sector Spotlight:

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

Predicting the Market’s Mood

by Jason Bodner

When you’re in a good mood, typically you want to hear good news, tell funny stories, and shrug off the negative stuff.  And oftentimes, when you’re in a bad mood, you gravitate towards the negative stories on the news, or the anxiety you’re feeling, disregarding all the other positive things taking place.

This is a perfectly natural human thing to do as humans are ruled by their emotions. Years of evolution have made us slaves of our own feelings in both good ways and bad. The stock market is made up of the collective moods of millions of people every day. Clearly there are times where one type of mood prevails over the other. Needless to say, the market has been in a bad mood for some time now.

Stockbrokers ImageWhen looking at the equity markets, what are we seeing on a broad scale? Whatever the latest headline, the market has been reacting with anxiety and ultimately ugly action. When bad news hits, the impact is deep and injurious to stock prices. When the news has been good, the initial positive reaction recently has seemed to be more of a “liquidity event” for sellers. The market seems intent to focus on the negative and to brush past the positive. What this all boils down to is some seriously volatile behavior of the tape.

The overall market is not technically in a bear market, yet is exhibiting behavior akin to one. If we look into the sectors and how they are performing, we see another example of a week filled with volatility and violent moves. It seems each week the contest is not which sector was up the most; rather it is which one is down the most? The winner of “The Biggest Loser” this week was clearly healthcare.

Hillary Turns Healthcare on its Head

Just last week, I was discussing how strong the healthcare sector has been for the last 12 months and wondered whether or not it would continue. Well, in the wake of comments from presidential hopeful Hillary Clinton, the S&P Health Care Sector Index precipitously took it on the chin, finishing the week down 5.77%. Even though Clinton’s desire to attack overpriced pharmaceuticals is nowhere even close to becoming policy, especially considering she hasn’t been elected yet, Healthcare experienced heavy selling and is now up only 3.97% for one year. Looking at a 1-year chart, the picture looks unnerving.

Standard and Poor's Health Care Sector Chart

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

Materials also had another dismal week, finishing as our second biggest loser with a 1-week performance of -4.02%. Looking at the six-month chart (below), the picture seems anything but encouraging. In fact, the S&P Materials Sector Index is -19.74% for 1 year.

Standard and Poor's Materials Sector - Daily OHLC Chart

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

But if we look at a 5-year chart of both of these sectors, we see very different pictures.  The S&P Health Care Index is currently up roughly 118% after peaking at +153% in early August. Healthcare got all the headlines late last week, but it seems possible that these comments from Clinton could be more of a play to have a campaign platform for someone not yet in office.  It may be more of a pullback and potential opportunity than a reversal of the larger trend.

Standard and Poor's Health Care Sector - Weekly OHLC Chart

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

The S&P Materials Sector Index, on the other hand, is up at an annual rate of 4.18 % for 5 years. Looking at which sector has the stronger likelihood of continuing lower, Materials has spent most of the year in negative territory and seems more likely to stay that way.

Standard and Poor's Materias Sector - Weekly OHLC Chart

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

The volatility of late seems like it’s here to stay. Eventually, though, it will pass and stability will resume in the market. But for the moment, the market is in a bad mood.  Fear of China, energy woes, confusion about Fed policy, and now some healthcare profits under potential attack are all bringing about selling.

When strength returns to the market, sector leadership and laggards will return with it. But for the moment, unpredictability seems like the only thing that is predictable.

*Sector Index Returns source: S&P Dow Jones Indices

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.*

Second-Quarter GDP Revised up to 3.9%

by Louis Navellier

The U.S. remains an oasis amidst the economic chaos around the world.  On Friday, the Commerce Department revised second-quarter GDP growth to an annual rate of 3.9%, up from its previous estimate of 3.7%.  The primary reason for the upward GDP revision was that consumer spending grew at an annual pace of 3.6% in the second quarter, up from a previous estimate of 3.1%.  Naturally the increasing pace of consumer spending bodes well for third-quarter GDP, especially now that gas prices are falling below $2.

The Commerce Department announced on Thursday that August durable goods orders declined 2% due largely to a decline in autos and commercial aircraft.  This is the first monthly decline since May as auto parts orders declined 1.6% and commercial aircraft orders declined 5.9%.  Excluding autos and commercial aircraft, durable goods orders were flat.  Auto parts orders are up 9.2% year-to-date through August, while commercial aircraft orders rose 10.5% in July, so it appears that much of the slowdown was seasonal in nature, especially for the auto industry, which historically retools in August.

New Homes ImageThe good news on Thursday was that the Census Bureau announced that new home sales rose 21.4% to an annual pace of 552,000 in August compared to the same month a year ago.  This was the strongest annual pace for new home sales since February of 2008.  The other news on the housing front was that the National Association of Realtors said that there is a housing shortage in many areas of the country, particularly the West Coast; so further home appreciation is anticipated in the upcoming months (see Marketwach: www.marketwatch.com/story/new-home-sales-extend-surge-in-august-2015-09-24).  In her Amherst speech last Thursday, Fed Chairman Janet Yellen stressed that housing still has a way to go but added, “We are envisioning further improvements in the housing market.”

Stocks Hit by Hillary and VW on Tuesday

On Tuesday, the German stock market got hit 8%, due to a 23% plunge in Volkswagen’s stock, after the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) said they are gearing up to fine VW for software that allowed its clean diesel vehicles to pass emission tests.  Although Volkswagen has (1) admitted guilt, (2) apologized to its customers, and (3) banned the sale of additional clean diesel vehicles in the U.S., the ultimate fines it will be paying to California and the EPA will likely be staggering.  The biggest fine ever levied against an auto manufacturer was $1.2 billion assessed against Toyota for sudden acceleration claims that led to five deaths.  It is widely anticipated that Volkswagen will face an even bigger fine, despite no deaths. Also, it is widely anticipated that some other government agencies around the world will seek to fine Volkswagen, simply because it has admitted guilt and it is the world’s largest vehicle manufacturer.  On Wednesday, the Guardian reported that VW hired Kirkland & Ellis (the BP oil spill law firm) to help it deal with a growing array of regulatory investigations.

Also on Tuesday, Hillary Clinton’s tweet about drug price “gouging” hit pharmaceutical and biotech stocks especially hard.  Ms. Clinton said she would fight “runaway prescription drug prices” by (1) banning the corporate tax deduction on pharmaceutical advertising, (2) mandating future research & development spending, and (3) shortening exclusive drug patent period from 12 years to only seven years.

Ironically, since most pharmaceutical and biotech companies have foreign corporate charters or subsidiaries, Clinton’s proposal would just drive even more pharmaceutical and biotechnology companies overseas, so I suspect that her proposal is just a campaign pitch and cannot be effectively implemented.

Finally, I should add that Chinese President Xi Jinping visited Seattle on Wednesday. Almost every major Seattle corporate leader, plus many leaders from Silicon Valley and Warren Buffett attended a closed-door meeting.  President Xi vowed to work to remove barriers to foreign investment and improve intellectual property protections in a bid to crack down on China’s counterfeit of U.S. products.

Airplane Construction ImageSpecifically, Xi said, “China will open up still wider to the outside world. Without reform, there will be no driving force; without opening up, there will be no progress.”  He added that China will “stand firm” to protect intellectual property rights.  Xi also attributed China’s recent economic slowdown to three factors, namely (1) world economic problems, (2) proactive Chinese efforts at regulation, and (3) protracted structural problems.  After touring a Boeing manufacturing facility, President Xi then signed a cooperation agreement with the aerospace giant to build a 737 aircraft assembly center in China.


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Past performance is no indication of future results.

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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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