The Strongest Market Season

The Strongest Market Season Has Finally Arrived

by Louis Navellier

November 7, 2017

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

Our friends at Bespoke Investment Group pointed out (in “Strength Begets Strength,” November 1, 2017), that November is especially strong when the S&P 500 is strong going into November.  Since 1928, there have been 15 years in which the S&P 500 has been up over 1% (each month) in September and October, and up 10+% year-to date.  In those 15 years, November averaged +3.1% and the average two-month gain (for November and December combined) was +5.6%.  In their “November Seasonality” report (October 30, 2017), Bespoke also said that in the last 20 years the Dow Jones Industrials have risen an average 1.96% in October, 1.93% in November, and 1.47% in December, for a compounded +5.46% gain in the fourth quarter, so the seasonally strongest time of the stock market year has arrived.

Autumn Leaves Image

The economic news last week was stunning.  On Tuesday, the Conference Board announced that its consumer confidence index surged to a 17-year high of 125.9 in October, up from a revised 120.6 in September.  Economists were expecting the index to come in at just 121.3, so this was a major positive surprise.  The proportion of consumers saying that jobs are “plentiful” rose to 36.2% in October, up from 32.7% in September.  Due to seasonal hiring for the holidays and a tight labor market, this optimism on the job front may rise further.  With a happy consumer, this holiday shopping season should be strong.

In This Issue

I’ll have more to say about the economic tea leaves and Fed policies later, but first Bryan Perry shows how politics aren’t fueling this market as much as the economy and earnings.  Then, Gary Alexander identifies three common signs of a market top – none of which we’re seeing now, except perhaps in bitcoins.  In Global Mail, Ivan Martchev examines why Japan’s market is still stuck in nearly 28 years of doldrums, and then Jason Bodner examines the various types of market “quakes” that could strike now.

Income Mail:
The U.S.S. American Economy Sails Full Steam Ahead – Despite DC
by Bryan Perry
Obamacare – The Ten Trillion Dollar Elephant in The Room

Growth Mail:
Price Spikes, Euphoria, and “New Paradigms” Signal Market Tops
by Gary Alexander
Boring Old Gold vs. Sexy New Bitcoins

Global Mail:
Samurai Doldrums
by Ivan Martchev
The Yen Wild Card

Sector Spotlight:
Market Quakes can be Like Earthquakes – Tiny or Earth-shattering
by Jason Bodner
InfoTech Continues to Power the Market Higher

A Look Ahead:
The Fed Leaves Rates Unchanged … for Now
by Louis Navellier
Another Slew of Winning Statistics Released

Income Mail:

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

The U.S.S. American Economy Sails Full Steam Ahead – Despite DC

by Bryan Perry

We are currently 10 months into the Trump administration and there is yet to be one single piece of game-changing legislation passed. In addition, the pending passage of tax reform looks like it may extend into 2018. At least, that's how I see it. However, let me go out on a limb and make a few observations about why the bull market will prevail in 2018 – with or without any major Trump initiatives being enacted.

My first piece of evidence is the market’s reaction to the announcement of the latest tax package – it was as exciting as watching paint dry. Clearly, the market was far more interested in the release of Apple’s third-quarter earnings. The market simply doesn’t care about first-version drafts of any kind of legislation. On the positive side, the stock market feels no serious threat of real change emanating from Washington that could alter the current investing landscape. Far from relying on Congress, the market tends to view gridlock as a cue to ignore Washington and focus on the economy. (Please note: Bryan Perry does not currently hold a position in Apple. Navellier & Associates does currently own a position in Apple for client portfolios).

The current tax reform package is not a done deal in its current form – not by a country mile. But, in my view, the stock market isn’t rallying on the expectation that a single piece of legislation will change the world. If that were the case, I would be very worried about a broad correction should tax reform fail.

Political gridlock is the sad reality of Capitol Hill, and Donald Trump simply has too many enemies on both sides of the aisle. That prevents his agenda from being effectively implemented. The powers that be simply won’t allow President Trump to have a major victory in the arena of political accomplishments.

I don’t think I’m overstating the case. This is no longer a battle between two political parties, but a clash between three well-defined camps. (1) The progressive Democratic camp sees a utopian world embodied by socialism, in direct conflict with what most middle-class Americans want. (2) The ‘Don’t Tread on Me’ Freedom Caucus and Tea Party tends to block Trump for not going far enough. (3) Then, there is the Establishment – which includes the most centrist and powerful Democrats and Republicans, known as “The Swamp,” ruled by K-Street influence, outside special interests, and their insatiable lust for power.

Mister Smith Goes to Washington Image

Whatever happened to “Mr. Smith goes to Washington”? Where is Jimmy Stewart when we need him?

Obamacare – The Ten Trillion Dollar Elephant in The Room

Tax reform isn’t Mr. Trump’s first experience with obstructionism on Capitol Hill. We’ve recently been flimflammed by three drafts of health care reform that ultimately failed and resulted in a hurry-up effort that ended up as a two-year extension of Obamacare. If not, the whole health insurance system would have imploded come enrollment period sign-up time.

I think that Trump just wanted any kind of plan to pass so as to put a check mark in the win column. That whole fiasco was shameful as it exposes how “the swamp” is still very much in control. As a small business owner, my health care premium is set to spike to a new all-time high for 2018. Am I steamed over this broken promise? You bet. Using current CBO projections and the trend in off-budget debt, the U.S. government debt could grow by an additional $13 trillion in the next 10 years. That would put total debt at $33 trillion and push debt to 150% debt-to-GDP. The main culprit? Obamacare annual subsidies.

Here’s the big problem: that’s the optimistic scenario. It assumes 2.5% to 3% growth and no recessions.

Health Insurance Subsidies for People Under Age 65 Bar Chart

The federal government subsidizes health insurance for most Americans through a variety of programs and tax provisions. In 2017 alone, net subsidies for people under age 65 will total $705 billion, CBO and the Joint Committee on Taxation (JCT) estimate. And that number just heads north. The government also bears significant costs for health insurance for people age 65 or older, mostly through Medicare and Medicaid, as CBO has reported. Healthcare costs will soon account for one-quarter of the economy.

Healthcare Costs Bar Chart

It is kind of a miracle that the market doesn’t correct on the complete ineptitude of Congress when these elected officials fail to perform even at the lowest levels of expectation. Because the $19 trillion U.S. economy is too big for even the politicians to derail, the stock market can take all the political garbage in stride and power forward. The past decade of recovery has this economy running full speed ahead.

The U.S. economy is like an aircraft carrier. It takes five miles to get a Nimitz-class supercarrier, such as the recently activated U.S.S. Gerald Ford, up to its full speed of 30 knots and then another five miles to come to a full stop. One could think of the U.S. economy in the same manner. America’s economy is just getting up to cruising speed and it will be some time before any adverse forces (like exploding healthcare costs) can create meaningful headwinds that could derail growth or more record gains for stocks.

United States Super Aircraft Carrier Image

President Trump may want to talk up the stock market at his press conferences, but other than banging his own drum and cheerleading, he hasn’t contributed any tangible stimulus to the bull trend, in my view.

What I do know is that from my long experience in the world of high-yield asset investing, the following high-yield sectors are set to continue winning for investors in the months ahead, based on my analysis:

  • Blue-chip stocks with rapidly growing dividend payouts
  • Floating-rate preferred debt and floating-rate business development companies (BDCs)
  • Hotel real estate investment trusts (REITs), gaming REITs, data center and cell tower REITs, industrial REITs
  • Short-term corporate, convertible debt funds
  • Private equity firms
  • Covered-call, closed-end funds with emphasis on technology
  • Liquefied Natural Gas (LNG) master limited partnerships (MLPs)
  • Select gas pipeline/transfer/storage/logistics and refining MLPs

The simple fact is that just about anything with a dividend or current yield of any significant amount will rally when interest rates are on the decline. It is like shooting fish in a barrel. For the past 10 years, this was the case for 90% of income-bearing assets until the election last November, when the bond market apparently determined that the great rally in bonds was officially over. But with rates moving lower now, everything under the sun that has a yield is operating like clockwork, and you can take a shotgun approach to spreading around your capital dedicated for income. However, when interest rates start to rise, the field of rate-sensitive choices narrows greatly and selectivity comes at a premium, you have to hunt for yield with a deer rifle. It becomes much more difficult to find yields of 5%+ that will also grow principle. We are in a bull market and rates are going to grind higher in the year ahead. That’s my prediction, and President Trump and Congress will have little, if anything, to do with that outcome.

Growth Mail:

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

Price Spikes, Euphoria, and “New Paradigms” Signal Market Tops

by Gary Alexander

Pundits keep predicting this market is overdue for a correction – or is overvalued – but markets don’t die of old age, and high valuations can be justified if earnings are rising and the supply of stock is shrinking due to buy-backs. A more reliable set of indicators of a top would be rapid price spikes, waves of euphoria, and widespread claims of “this time, it’s different.” I don’t see any of these signs in today’s stock market.

In New Orleans, I had a great time chatting with Bob Prechter, editor of The Elliott Wave Theorist since 1976. Earlier this year, he had sent me a copy of his magnum opus, “The Socionomic Theory of Finance.”

One of his bedrock observations is that leading financial news media tend to make foolishly absolute statements near major market tops or bottoms. We’re all aware of some of the most outrageous historical comments. A week before Black Thursday (1929) on Wall Street, the leading economist of the 1920s, Irving Fisher, said that “stock prices have reached what looks like a permanently high plateau.”

Here are some other extreme comments or trends taken from Prechter’s studies in market psychology:

 

Bond rates in 1984 were over 14% (for 30-year Treasury bonds). On July 2, 1984, the Wall Street Journal said, “It would take a miracle for rates to fall.” That was near the beginning of a bond bull market of a lifetime. Long rates fell to under 2% in 2016. On July 13, 2016, when the 10-year Treasury yield hit an all-time low of 1.366%, the Journal wrote an article, “Why Ultralow Interest Rates are Here to Stay.” It didn’t work out that way: 10-year bond rates quickly shot up to over 2.5% and are now standing at 2.34%.

Gold peaked in real terms in January 1980, when gold reached the same level as the Dow Industrials (around 850). There were 4,000 giddy attendees at the New Orleans gold conference that year. Twenty years later, in 2000, the Dow was over 10,000 and gold was $250 for a 40:1 Dow/gold ratio. That year, fewer than 300 gold bugs gathered in New Orleans, even though it was the perfect buying time for gold.

Headlines reflected those peaks and valleys. On February 12, 2001, when gold was under $260, Barron’s ran this headline: “Tarnished! Nobody expects gold prices to turn up soon.” The article included quotes like “There is nothing positive. It’s as bad as it gets” and “the shorts have a good thing going.” But gold soon began a 10-year surge, reaching $1,900 in 2011, when a Gallup poll ranked gold the “best long-term investment.” Societe Generale predicted $10,000 gold and 98% of gold futures traders were gold bulls.

Oil has been far more volatile than gold, bottoming at barely $10 in 1998, reaching $147.50 in mid-2008, only to fall 78% in five months to $32.40 in December, 2008. Prechter reports: “On July 2, 2008, nine days before oil topped out, the Daily Sentiment Index (DSI) reported 97% bulls among oil-futures traders. Near the low it was 4%.” Oil recovered to over $100 by mid-2014, when books and headlines predicted $200 oil. The DSI was back to 91% bullish, plus an “all-time record net long position among Long Specs.” Of course, oil fell over 75% after that, plummeting to a low of $26.05 on February 11, 2016.

 

Last week, I noticed a popular new investment which is even more volatile than either gold or oil….

Boring Old Gold vs. Sexy New Bitcoins

It’s so very, very easy to see peaks and valleys in the rear-view mirror, but it’s so very, very hard to see them peak in advance. I’ll venture one guess here about a future bubble, and we’ll see how it turns out.

Here are three consecutive headlines in the Wall Street Journal last week, and my interpretation of them:

(1) “Bitcoin Futures Plan Signals New Respect” (Wednesday, November 1, 2017): “Bitcoin is moving from the margins of the financial world closer to its center. CME Group Inc., the world’s biggest exchange group, said Tuesday it aims to launch a futures contract based on bitcoin by the end of the year. … CME’s plan to bring bitcoin to the futures market offers a stamp of approval from a financial giant.”

The price of bitcoins rose 4% the next day on expectations that this would provide unsophisticated retail investors – who wouldn’t risk trying to use real bitcoins – an easy way to trade the price of bitcoins. In this over-regulated financial world, creating a new electronic marketplace in two months is a super-fast track, reflecting great demand. This reminds me of 1974, when Americans were forbidden to own gold. A plan was announced to let Americans start owning gold the last day of 1974. That announcement caused foreign traders to pour into gold, doubling its price in four months. As a result, the first day gold was legal for Americans to trade, the price fell $20 and it kept falling all the way to $103 by September, 1976.

(2) “Gold Rally Leaves Out Retail Metal Dealers” (Thursday, November 2, 2017): “Gold prices are rallying, but retail gold dealers and shops are struggling to survive…. sales this year of American Eagles, a popular gold coin and a proxy for retail sales of physical gold, have fallen to their lowest levels since 2007 [as] a number of retail buyers are turning to cryptocurrencies like bitcoin.”

The Latin root of “invest” means “clothing” (vesta) as in holding wealth close to your vest, which implies physical possession. In olden days, investors hoarded ornately-printed shares. But now, it’s all electronic. Investors are buying less physical gold, even though gold derivative demand is up. Investors have bought over $8.5 billion of the largest gold ETF since the end of 2015, WSJ says. Mohamed El-Erian, chief economic adviser at Allianz SE says bitcoin has “taken some of the dedicated interest in gold away.”

(3) “Bitcoin Price Exceeds $7,000 for First Time” (Friday, November 3, 2017): Bitcoin traded as high as $7,355 on Thursday, up as much as 658% for the year. Alas, some other cryptos were down that day: “Ether” was down 3% to $289, “litecoin” was down 0.7% to $54, and “ripple” was down to 20-cents. Amazingly enough, Bitcoins traded at $1,076 on April Fool’s Day this year. The price doubled from $3,500 in mid-September to over $7,000, including a $1,000 gain in the first four days of November.

Bitcoin has all the earmarks of a bubble to me. One sign: A study of 120 million U.S. keyword searches linked to cryptocurrencies over the last year found a 91% correlation between search requests and price.

Bitcoin Search Volume and Exchange Rate Correlation Chart

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

That brings up the biggest problem. Bitcoin is the first of many cryptocurrencies. Wikipedia cites over 900 different crypto-currencies trading as of July, 2017. In the 1920s, hundreds of little automobile companies were born. Only three survived into the 1960s. Same with dot-coms in the late 1990s. How many of them still exist? Making cars takes capital and labor. A new cryptocurrency can be created out of thin air. How do you know you’re picking the best 1920s car, 1990s dot-com, or 2017 cryptocurrency?

Cryptocurrency (like cars and the Internet) is here to stay. It provides safety and privacy for sophisticated users. The main value of cryptocurrency is practical, so use it if you wish, but don’t chase a soaring chart.

Global Mail:

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

Samurai Doldrums

by Ivan Martchev

The 1929 pre-crash high in the Dow Jones Industrial Average was 381. Less than three years later, it had retreated 89% to 41. By that yardstick, the Japanese came pretty close (-82%) when the Nikkei 225 Index, which topped out in December 1989 at 38,900, fell down to 6995 during the nadir of the 2008 Crisis. The biggest difference is that it took Japan nearly 20 years to fall over 80% vs. just three years in 1929-32.

Japan Nikkei 225 Stock Market Index Chart

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

How long did it take for the Dow Industrials to overtake its pre-Great Depression high? Fully 25 years. The Dow made its first fresh all-time high in late 1954 and has not looked back since then. By now, it is nearly 28 years from the all-time high of the Nikkei 225 Index in December 1989 and the Nikkei 225 benchmark index of Japanese blue chips is still about 42% below its all-time high. Clearly, there is something wrong with Japan, especially given the recent calls for a major breakout in Japanese stocks.

Can the Nikkei 225 go higher? It sure can, given that Prime Minister Shinzo Abe won a third term to lead the government last month in a snap election and the present governing coalition now has a two-thirds supermajority in parliament, which gives him the opportunity to change the Japanese constitution. You can see the excitement in the Nikkei 225 Index which is diverging notably from the USDJPY cross rate.

Japan Nikkei 225 Stock Market Index versus Japanese Yen Chart

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

Why is there such strong correlation between the yen/dollar rate and the Nikkei 225 Index? Large Japanese corporations export more than U.S. multinationals, so it is not uncommon that 70-80% of earnings come from abroad. The lower the yen the more money they make when they repatriate profits.

The driver of the yen has been the Bank of Japan, which since 2013 has carried out the monetary policy arm of Abenomics – a QE (quantitative easing) program that is 3X more powerful than what the Fed’s was at the heyday of quantitative easing in the U.S., relative to the size of the Japanese economy.

Japan Central Bank Balance Sheet Chart

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

The way the BOJ is going, it may end up owning the Japanese bond market and then some, given that in the Japanese QE program there is room left to buy equities, unlike the QE operation in the U.S. For all intents and purposes, the rally in the Nikkei feels manufactured – as it is not due to a domestic saving and investment cycle, but rather on central bank monetarist engineering.

While I think the Nikkei 225 Index can go higher as the yen feels pressure and the BOJ is pressing pedal to the metal on their QE policies, this is not a self-sustaining dynamic as Japan has negative population growth which, if it continues, virtually dooms Mr. Abe’s policies to failure as with shrinking population Japanese GDP is doomed to shrink. This is one of the major reasons why Germany has had an open-door policy to Syrians, since the influx of refugees has reversed Germany's long-term population decline.

Japan Population versus German Population Chart

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

This population decline that was foreseen by many experts 20 years ago also suggested that the deflation that has plagued the country was likely to persist, as it sure did. It also led to the highly interesting monetary phenomenon of the Japanese yield curve disappearing, or the difference between short-and long-term rates hovering near zero for extended periods of time.

Japanese Interest Rate versus Japanese Ten Year Government Bond Chart

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

I know that if the BOJ leaves the JGB market the Japanese yield curve will re-steepen somewhat due to the supply of JGBs, but fundamentally we have a much bigger problem than monetary policy. Unless the Japanese figure out a way to encourage more immigration, which is a taboo for their homogenous society, or install 3D printers at the Bank of Japan to produce babies, they can’t overcome their demographic choices. If the Nikkei rally is driven only by pushing the yen lower, then it is ultimately doomed to fail.

The Yen Wild Card

It is also well known among traders that under normal conditions the USDJPY cross rate tends to follow BOJ policy – which means to weaken – but under stress in global financial markets it turns into a fish swimming against the current and moves higher. This is because of the huge yen-funded carry trades that result in a synthetic short against the yen, which creates a giant short squeeze in times of global turmoil.

This is the primary reason why the USDJPY rate moved from 125 to 100 from 2015 to 2016. This is why if the Chinese chose to do a hard (overnight) devaluation to the tune of 20%-40%, similar to what they did in 1993, I think the yen will overshoot to the upside and appreciate below 100 to the dollar. We are not there yet and such a move is impossible to predict accurately, but I think it is coming in 2018 or 2019.

Upon such a Chinese devaluation, I expect both the yen and the dollar to move significantly higher at the same time, which is not something we see often in global markets. Until that happens, the dollar is likely headed higher and the yen lower.

Sector Spotlight:

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

Market Quakes can be Like Earthquakes – Tiny or Earth-shattering

by Jason Bodner

The tug of the sun and the moon can actually cause an earthquake. With the same power that shifts the levels of the tides on our shores, they can shift the tides of the tectonic plates drifting under the earth.

I was unfortunate to have been on a small Thai island in the Indian Ocean when the Boxing Day earthquake caused the largest tsunami of modern times. I was extremely fortunate to have survived unscathed. While I certainly wasn’t expecting it, the reality is that earthquakes can pop up anytime, and they can strike practically anywhere. There are regions more prone to catastrophe than others, but earthquakes are just a part of - well, earth! We may perceive them to be rare events, but the fact is there are about 500,000 earthquakes a year, of which 100,000 are felt by humans and 100 or so cause damage each year. As with most things, the deadly or damaging ones attract the news coverage and attention.

Here is a map of the places where earthquakes have happened and are most likely to happen again:

Earthquake Map Image

Our dynamic markets can easily be compared to the plates of earth’s crust drifting into each other. Much of the time, the motions are smooth and predictable, yet sometimes they create major events that cause damage and aftershocks for perhaps years to come. But just as there are way more earthquakes than one would think – over 1,000 a day – there are plenty of small-sized seismic events in the market, too.

A market quake can start at the single stock level and not ripple any further. Just this past week, some stocks released great earnings and guidance, but it wasn't enough of a “surprise” and so they were sold down 10-20%. That was the extent of the damage. Occasionally, an outside scandal can have impact on several stocks in unrelated industries. News broke this past weekend of Prince Alwaleed bin Talal being detained in a corruption inquiry in Saudi Arabia. He has significant holdings in several large-cap stocks around the world. We will see what fallout if any ripples its way through these stocks. Other times one name can drag down a whole industry group or even an entire sector. Tech earnings have been upbeat lately, most recently with Apple , but imagine if there was an ugly miss by the king of iPhones - the Nasdaq would get pounded and likely drag down the entire market to some extent. (Please note: Jason Bodner does not currently hold a position in Apple. Navellier & Associates does currently own a position in Apple for client portfolios).

InfoTech Continues to Power the Market Higher

Sometimes, sector movements are more noteworthy than other times. Let's take a look at last week.

Information Technology continues its powering of the market higher. The sector posted a +1.84% performance last week and is up +12.23% in the last three months. Some readers have asked me: are you really still bullish on tech? My answer is a resounding YES. Until there is a material change, I want to bet with the leadership. Tech companies, while reaching uncomfortable valuations for some, are largely posting great earnings and sales growth with reasonable multiples.

I’d like to take a moment and address Energy. If you have been reading regularly, it should come as no surprise that I have been down on energy for a long time: since 2014! Earnings growth has been really impressive, and the current administration is definitely favorable for energy companies. I dare say: energy is back. Here’s the way I view things: I generally don’t try to catch the falling knife and pick the bottom, and I rarely try to sell tops. My goal is to have a high probability of catching the middle of a move. In order to do this, data has to be convincing which means inherently missing the very beginning of a move. So is the case with energy. It has rallied +5.47% in 3 months, yet now I am witnessing numbers that cause me to take notice. Stay tuned on energy.

The bad news is that Telecommunications Services continues to be the ugly spot in the sector listings each week. The good news is that it is the smallest sector with only a handful of constituents.

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

Sectors highlight why it's not only important to be intimately knowledgeable about your stock portfolio, but also acutely aware of the traffic you are in once you are onboard. If the flow of traffic is suddenly impacted by an 18-wheeler flipping over, your car and its value may be fine, but you're going to be stuck for a while. If a major accident was caused by a manufacturing fault in the same model car that you drive, your car may be fine but its value and that of the company that makes it, may suddenly take a turn down.

Commuting to Work Image

The moral of the story is this: markets are at all-time highs, sector leadership is more consistent, and largely all seems right with the stock world. There are daily micro earthquakes in the market that we all accept as part of the landscape. We need to take notice of when major ones can occur, and the good news about markets is that we usually get signs beforehand. When the housing crisis was brewing in 2007, for instance, Bear Stearns’ internal hedge fund collapsed. That was a clear sign before the market fell sharply.

On the smaller scale, when liquidity begins to dry up and stocks experience outsized moves in reaction to news events, this is an attention getter for me. This could be a sign of just a mini-quake (a non-event in the overall market) or it could be the first tremor of many more intense ones to come. Either way, regardless of the greatness of your stocks (car), it’s essential to be aware of the flow of traffic (the sectors and overall market) and to always buckle-up! Right now, the flow is great, and everyone is cruising along, but we are seeing some stock reactions that could be worrisome. Just keep looking several cars ahead.

Woody Allen Quote Image

“All of my life is passing in front of my eyes. The worst part of it is I'm driving a used car.”

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 Fed Leaves Rates Unchanged … for Now

by Louis Navellier

Last week was a big week for central bankers, with the Bank of Japan meeting on Tuesday, the Fed meeting midweek, then the Bank of England meeting Thursday, followed by the nomination of Jerome Powell to become the next Fed Chairman.  Powell is expected to be more prone to seeking financial stability in both the bond and stock markets, so his appointment was viewed favorably on Wall Street.

Meanwhile, the Federal Open Market Committee (FOMC) announced that it left key short-term rates unchanged but signaled that a key interest rate increase at its December FOMC meeting is highly likely.  Specifically, 12 of 16 Fed officials provided guidance that the Fed would raise the Federal Funds rate to 1.25% in December, up from 1% currently.  These 12 FOMC members intend to “normalize” rates and to fight mythical inflation, despite there being no sign of any significant inflation.  The FOMC statement excluded any comment that inflation has been soft, so the doves on the FOMC now seem outnumbered.

Then, on Thursday, the Bank of England raised its key interest rate for the first time in over 10 years.  As Britain prepares to exit the European Union, it is struggling to strengthen the British pound, so this rate increase is not necessarily a surprise.  However, on Friday, the British pound plunged against the euro and U.S. dollar in its worst trading day in a year, so it appears that the Bank of England may have to boost rates further to stabilize the pound, as implementation of Brexit continues to undermine the British pound.

Another Slew of Winning Statistics Released

On Friday, the Labor Department announced that 261,000 payroll jobs were created in October and the jobless rate declined from 4.2% to 4.1%, the lowest level in 17 years.  However, there is a statistical glitch in this aggregate number.  A massive decline of 765,000 from the workforce, due largely to hurricanes, may have distorted the unemployment rate.  That’s because the labor force participation rated declined to 62.7% in October, down from 63.1% in September, likely due to workers fleeing hurricanes and wildfires.

Interestingly, average hourly earnings declined by 1 cent to $26.53 per hour – a rare decline.  That may cause our lame-duck Fed Chair Janet Yellen to possibly postpone a key interest rate hike in December.

The Commerce Department reported last week that consumer spending rose a robust 1% in September, the largest monthly increase in eight years (since August 2009), so third-quarter GDP growth may now be revised even higher.  Strong vehicle sales after Hurricane Harvey boosted consumer spending, but taking out vehicle sales, consumer spending remains very impressive.  Furthermore, personal income rose by a robust 0.4% in September, up from 0.2% in August.  Thanks to a strong job market, consumers are spending more money and the velocity of money (how fast money changes hands) is picking up.

On Thursday, the Labor Department reported that productivity rose at a 3% annual pace in the third quarter.  Economic output surged 3.5% in the third quarter, while hours worked rose 0.8%.  Although hourly compensation rose 3.5% last quarter, unit labor costs rose only 0.5%.  According to the Labor Department, unit labor costs have actually fallen in the past 12 months, a slightly deflationary trend.

On Wednesday, the Institute of Supply Management (ISM) announced that its manufacturing index slipped to 58.7 in October, down from the 60.8 in September that marked the highest level in 13 years.  This decline is of no great concern since any reading over 50 signals an expansion.  In addition, there are some very impressive component reports, led by new orders at 63.4 and production at 61.  Any reading over 60 is VERY strong, so the manufacturing sector remains healthy.  Due to this ISM manufacturing report and the strongest productivity report in three years, GDP growth may be revised higher by many economists.

On Friday, the Institute of Supply Management (ISM) announced that its service index rose to 60.1 in October, up from 59.8 in September, reaching the highest level in 12 years (since August 2005).  This was a big surprise, since economists were expecting a reading of 58.1.  Both the production and new order components of the ISM service index rose above 62 in October, which bodes well for GDP growth.  Since the service sector in the U.S. is much bigger than the manufacturing sector, I expect that economists will now be revising their fourth-quarter GDP estimates higher in the wake of the ISM service announcement.


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.

Marketmail Archives Trade Summary

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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