The U.S. Market Stalls

The U.S. Market Stalls While Global Markets “Melt Up”

by Louis Navellier

May 23, 2017

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

I was at the Money Show in Las Vegas last week, and all I can say is that I had to calm people down a bit.  On Tuesday, I held my traditional “Bull vs. Bear” debate with Peter Schiff.  Then I held a workshop in which I basically said what I say here each week: “Don’t sell in May or Go Away.  Just invest smarter.”

Bulls versus Bears Image

But on Wednesday, while I was holding another workshop in Las Vegas, the bears seemed to be winning, as the stock market got rattled over the latest White House leaks to the New York Times and Washington Post of alleged tapes and documents that media critics imply could be used to impeach President Trump.  Even though these tapes and documents have not been produced, the media is relishing in their power to disrupt Trump’s economic agenda and possibly impeach a sitting President that they clearly do not like.

The week as a whole wasn’t bad, with the S&P 500 down only 0.38%.  For the month of May so far, the S&P 500 is down only 0.1%, so the validity of the “Sell in May and Go Away” strategy is still in doubt.

Some overseas stocks seemed to have “melted up,” even while the U.S. market corrected.  What is happening essentially is a rapid flow of funds into the American Depositary Receipts (ADRs) of select overseas stocks, causing some of these stocks to “melt up.”  The number of ADRs has fallen in recent years, so as international and emerging markets have heated up, many ADRs have been benefitting, since many institutional investors prefer ADRs, which meet all the strict U.S. accounting and reporting standards.  Essentially, stocks that attract persistent order imbalances, like ADRs, continue to melt up. 

In This Issue

Bryan Perry reminds us of the strength and leadership of the U.S. economy on the world stage, while Gary Alexander chronicles recent gains in global markets – along with a look at the market’s historical reaction to impeachment.  Ivan Martchev shows how a European recovery and stronger euro have made the dollar look weak, while Jason Bodner examines last week’s correction in the Infotech sector.  My closing column takes a look at the Memorial Day weekend and June, including some indicators the Fed watches closely.

Income Mail:
An Expanding Economy Trumps All the Ills on Capitol Hill
by Bryan Perry
Will Washington’s Elite Shoot the Messenger?

Growth Mail:
What’s the Worst that Can Happen (in DC)?
by Gary Alexander
The Clinton & Nixon Impeachments – a Time Line
Most Global Markets are Up Double-Digits in 2017

Global Mail:
More Shoes to Drop from the Centipede
by Ivan Martchev
Are We Seeing a Weak Dollar or a Strong Euro?

Sector Spotlight:
Is “Free Energy” a Distant Possibility?
by Jason Bodner
Infotech Still Leads over the Last 3-6 Months

A Look Ahead:
Memorial Day Week and June Should be Positive for Stocks
by Louis Navellier
The Latest Economic Indicators Point Toward a Rate Increase in June

Income Mail:

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

An Expanding Economy Trumps All the Ills on Capitol Hill

by Bryan Perry

While there is now some doubt about whether President Trump’s economic agenda will be the goose that lays golden eggs, the bullish case for stocks remains fairly healthy on its own merits. We’ve seen the economy hitting its stride this quarter – regardless of what we hear from the White House. If tax reform, healthcare reform, trade reform, deregulation, and infrastructure spending also happen, so much the better.

Until then, I would argue that while we’re moving down the road of populist change, it matters little in the big picture about how the political circus plays out in Washington D.C.  the inertia created by an economy the size of America can still help accelerate us to a cruising speed of 3% or higher GDP growth.

Take a look at the U.S. economy for a minute:

  • The United States is the world’s largest national economy in nominal terms, representing 22% of nominal global GDP. The U.S. GDP was estimated at $18.56 trillion in 2016.
  • The U.S. dollar has been the world’s foremost reserve currency since World War II.
  • Americans have the highest average household income and employee income among OECD nations, and America has essentially held this ranking since the 1890s.
  • America is also the second largest manufacturer and third largest producer of oil and natural gas and is home to 128 of the world’s 500 largest companies.

This is quite a handsome resume. This set of advantages easily explains why America’s financial markets attract more than $2.4 trillion in foreign investments. At the same time, American investments in foreign countries total more than $3.3 trillion. In addition, the U.S. leads in international ranking on venture capital and global research and development funding. Topping it all off, consumer spending comprises roughly 71% of the U.S. economy with household final consumption expenditure five times larger than Japan’s. Americans are by far and away the world’s greatest shoppers! (Wikipedia – Economy of the U.S.)

Will Washington’s Elite Shoot the Messenger?

The notion of lower taxes, less government intrusion, pro-business initiatives, and big-time public works spending targeting job creation has sentiment readings at historic highs. Whether or not this economic agenda passes this year, the process of turning ideas into laws has provided a needed jolt to business and consumer confidence. Good ideas have a way of spawning themselves into grass roots movements that suddenly burst onto the national stage, which greatly explains why a guy like Donald Trump is President.

While the messenger is mired in a political morass, the message is resoundingly popular with the business community and half the voting population. The growing popularity of the Trump message has Democrats in a full-blown lather. Even if a cure for cancer were included as part of the Trump agenda, his opponents would still likely prefer to find a way to jettison Mr. Trump from office before approving a cancer cure.

Howard Taylor Quote Image

Last Wednesday, equities suffered their worst one-day decline since September following a New York Times article (“Comey Memo Says Trump Asked Him to End Flynn Investigation” – May 16, 2017). But the decline was reversed by week’s end. Underpinned by the strength in the technology sector, the S&P 500 advanced 0.4% on Thursday despite a Reuters report (“Trump campaign had at least 18 undisclosed contacts with Russians” – May 18, 2017). The news couldn’t stop the bulls on Friday, because in the now famous words posted in the Clinton campaign HQ by James Carville in 1992, “It’s the economy, stupid.”

The S&P 500 rose another 0.7% on Friday, with cyclical sectors showing relative strength. Treasuries ticked down, and the CBOE Volatility Index (VIX) dropped over two points. Crude oil came back into focus once again, jumping 2% to $50.33 per barrel, following reports that top oil producers will consider increasing the size of their production cut when they meet on May 25.

The fed funds futures market still points to the June FOMC meeting as the most likely time for the next rate-hike announcement – with an implied probability of 78.5%, unchanged from last week's 78.5%.

Current Target Rate Probabilities Bar Chart

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

Turning to the Trump agenda, even as Congress embarks on overhauling the Affordable Healthcare Act, some aspects of it are now non-negotiable, such as the inclusion of those that didn’t have healthcare before and coverage for pre-existing conditions. Even as Obamacare is hemorrhaging from cost overruns, any new legislation will somehow incorporate these two features. In the same way, Trump’s agenda items may not pass in their current proposed forms, but I have no doubt that “the genie is out of the bottle,” and it’s my firm belief we will see all these agenda items passed in some stronger or weaker version thereof.

Taken at face value, nothing has been done to enact anything Trump has campaigned on and yet earnings and forward guidance from America’s largest companies is clearly bullish for the economy and the stock market. It’s my position – and that of a growing number of market analysts – that the stock market is still in the first phase of the business cycle, the “expansion” phase. We’re just moving from the central bank’s involvement to stimulate growth to that of organic earnings-driven growth, with a lot of runway left before we would experience something approaching the ‘peak’ phase of the business cycle.

In the wake of all the accusations, investigations, and “he-said, he-said” bantering, it will be nothing short of amazing if Mr. Trump survives the onslaught of the Washington elite and the legions of special interests that have had their way for several decades. Yes, Mr. Trump is a highly contentious personality, but the message he voices specifically for the economy is a positive one. The question is whether there truly is a bi-partisan plan to “kill the messenger” because of his threat to their entrenched power.

As this reality show unfolds, investors can take confidence that the U.S. economy is like a giant aircraft carrier that, once up to cruising speed, takes five miles to come to a complete stop because of the ship’s inertia. The vast domestic economy also carries inertia. Business is good and getting better and all the political forces marshalled against President Trump can’t stop American prosperity from growing at a more robust rate under his watch. And that’s the part that probably stings them the most.

The big ship U.S.S. Economy has set sail and it is approaching cruising speed. Full speed ahead. 

Growth Mail:

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

What’s the Worst that Can Happen (in DC)?

by Gary Alexander

OK, after another week of soap opera plot developments in Washington, DC, what’s the worst that can happen next – and how would the market likely react to that worst-case scenario?  What if President Trump continues with his ham-handed, foot-in-mouth habit – in his case, call it tweeting tort bait – the worst-case scenario is that mild-mannered Vice President Mike Pence takes over and the Trump agenda moves more smoothly through Congress than it has moved in the first four months of the Trump era.

Let’s examine the market’s reaction to previous Presidential impeachments – in 1998-9, 1974, and 1868.

The Clinton & Nixon Impeachments – a Time Line

On Thursday, October 8, 1998, by a vote of 258 to 176, the House of Representatives authorized a wide-ranging impeachment inquiry of President William Jefferson Clinton.  Even though the Republicans had a narrow majority in the House, 31 Democrats joined the Republicans in voting for impeachment.

On that very day, the DJIA bottomed out at 7731.91.  The next day (Friday, October 9), the DJIA began to rise strongly, up 167 points (+2.2%).  Within six weeks, the DJIA hit a new all-time high, up 21.2% in 32 trading days.  The S&P 500 did even better, rising 24% from October 8 to November 28, 1998.

On December 11 & 12, the House Judiciary Committee approved articles of impeachment.  The Senate trial began January 7 and ended on February 12, 1999, when the Senate found Clinton not guilty of perjury by a vote of 55 to 45.  On the second charge, obstruction of justice, the Senate was split 50-50. (The Constitution requires a two-thirds majority of the Senate to find a President guilty.)  From the time the House authorized impeachment proceedings until President Clinton was acquitted, the S&P 500 rose by 28%.  Then, during the 12 months following Clinton’s acquittal, the S&P 500 rose by another 13%.

In Bill Clinton’s case, the market realized that he was expendable, since Al Gore was waiting in the wings and the stock market – led by a phenomenal technology rally – would continue almost “no matter what.”

The impeachment proceedings against President Richard Nixon in 1974 were cut off before articles of impeachment could be voted, since he resigned on August 8, 1974, effective at noon the following day.  There is no question that the Watergate scandal – on top of the Vietnam War’s ignominious end and the OPEC oil embargo, with resulting hyper-inflation – led to a decline in the stock market in 1973-74, but once President Nixon resigned and new President Gerald Ford pardoned him, the market bottomed out.

The S&P 500 gained 16.3% in October, 1974.  The S&P 500 gained a phenomenal 65.6% in two years – from October 1, 1974 (63.54) to October 1, 1976 (105.24).  In Nixon’s case, this seemed to be a “relief rally” following his resignation and pardon.  Gerald Ford, a more mainstream Congressional Republican of a more even temperament took his place.  (Put Mike Pence in the place of Gerald Ford and you have the potential for a similar rally if Donald Trump chooses to resign during any upcoming impeachment.)

Long ago, there was another impeachment trial of President Andrew Johnson in 1868.  The House passed articles of impeachment on February 24, 1868.  The trial ran in the Senate from March 30 to May 6, with the votes on May 16 and 26 narrowly acquitting the President, as 35 Senators voted to convict and 19 voted to acquit.  With a two-thirds majority necessary, President Johnson was saved by a single vote.

What did the market do in 1868?  According to The Almanac Investor (using Cowles and other early market indexes), the stock market rose 10.8% in 1868.  It also rose each year from 1866 to 1872.

So, the worst possible outcome of the current President’s seemingly inept brand of political leadership is a replacement by a far more politically skilled and far less controversial Mike Pence.  In such a case, my bet is that the stock market would breathe a sigh of relief and stage a strong rally to new all-time highs.

In the meantime, the whole world is growing and most global stock markets reflect that renewed growth.

Most Global Markets are Up Double-Digits in 2017

Back in 1997, “Wag the Dog” was a satirical movie about presidential politics.  “Wag the Dog” refers to a troubled President’s desire to change the focus of the press from his problems to other, unrelated global tensions.  During Clinton’s impeachment process, there was a clear “Wag the Dog” moment late in 1998.

On December 15, 1998, 11 moderate House Republicans announced that they would vote to impeach the President.  Then, seemingly out of left field, U.S. and British forces attacked Iraq the next day in a coordinated strike meant to punish Iraq for its failure to cooperate with U.N. weapons inspectors.  It worked – for a day.  On December 17, Republicans postponed the impeachment process… for 24 hours.

Critics are saying President Trump has begun a long foreign trip to take the heat off his statements and behavior in Washington, DC, but this trip was planned long ago and was not part of a “Wag the Dog” evasion.  However, this trip gives us the opportunity to lift our minds out of the mire of Washington, DC to look at the amazing performance of most global economies and stocks markets so far in 2017.

In the latest weekend edition of The Economist (May 20, 2017), fully 28 of the 42 biggest stock markets in the world are up by double-digit percentages in U.S. dollar terms, year-to-date through May 17.  Only three of 42 markets are down, and those declines are all minor: The Russian market is the worst, at -4.2%.

The euro area is up 15.9% as measured by the FTSE Euro 100 or +15.1% as measured by the Euro STOXX 50.  There are some big gainers on every continent.  Here are the top 10 global markets in 2017:

Top Ten Stock Markets in 2017 Table

The U.S. market – as healthy as it is – has underperformed the world so far this year.  Using the same dates, The Economist says the DJIA is up only 4.3% and the S&P is up just 5.3% through May 17.

In his Tuesday, May 16 briefing (“U.S. Underperforming”), economist Ed Yardeni pointed out that “the forward P/Es of the MSCI stock price indexes for the UK, the EMU, and emerging markets (EMs) have been below the U.S. valuation multiple since the start of the bull market,” so “investors are feeling that at current valuation multiples there is more risk in U.S. equities than foreign ones.”  He pointed out that as of May 4 (see chart, below), the U.S. forward P/E was 17.8, while the All Country World ex US was 14.2.

MSCI Forward Price to Earnings Ratio Chart

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

Economically, as I pointed out last week, Venezuela is the only country that suffers from a negative GDP in 2017 (among the top 42 national economies profiled by The Economist).  Most of the world’s top economies are growing by more than 2% -- i.e., more rapidly than the U.S. or the Euro zone (in Q1).

The world has far outperformed Trump’s home market in 2017.  So much for the “Trump Bump.”

Global Mail:

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

More Shoes to Drop from the Centipede

by Ivan Martchev

“I think we've seen this movie before. I think it's reaching a point where it's of Watergate size and scale…  It's a centipede that the shoe continues to drop.”

--Senator John McCain at the International Republican Institute's Freedom Awards, May 16, 2017

For the past two weeks, it almost feels that each day has been worse than the last for the embattled Trump administration, as a flood of leaks is painting the picture of a White House in chaos. I do not recall a day where there has not been a news alert buzz from my iPhone that has not given me pause. And it doesn't seem like this situation will get that much better as former FBI Director James Comey will testify before Congress after Memorial Day. The contents of his well-documented meetings with President Trump are likely to become public, sooner or later. If there are real tapes, this imbroglio will invariably escalate.

The most important question to investors is if this political crisis will affect the economic agenda that the stock market had been celebrating since November 2016. Legendary Republican Senator John McCain summed this situation up last week quite eloquently: “We’ve seen this movie before. I think it’s reaching the point where it’s of Watergate size and scale… it’s a centipede that the shoes continue to drop.”

A week ago, I thought that comparing “Russiagate” to Watergate was premature, but so much has happened in the last seven days that it no longer seems so outlandish. What will next week bring?

United States Ten Year Government Bond Yield Chart

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

Curiously, it is not the stock market that will tell us how this particular political scandal will rub off on the economic outlook, but it will likely be the bond market. The Treasury market sold off dramatically with the yield on the benchmark 10-year note touching 2.63% in December 2016. While the stock market has kept running with 1Q earnings up 13.6%, Treasury yields have been range-bound with a downside bias so far in 2017. The spike in Treasury yields after the election looks similar to the spike in Treasury yields during the “Taper Tantrum” in 2013, when the Federal Reserve’s then-Chairman Ben Bernanke caused a similar violent reaction in the bond market. A “Trump Tantrum” in the Treasury market seems to be fizzling out much in the same way the Taper Tantrum did in 2014 after the initial spike in May 2013.

That the stock market has been ignoring this political drama is due to the fact that earnings have been good. But those first-quarter earnings reports have little to do with the Trump administration, which has been in office for only four months. If six months pass and nothing seems to get done on the infrastructure and tax fronts, I think that there will be some disappointed stock market investors as well as considerably lower Treasury yields. I would say that if the 10-year note declines below 2% and stays there, bond market investors would have thrown in the towel on the idea that the Trump policies would give a boost to the U.S. economy. In that case, the political distractions would have taken their toll.

Are We Seeing a Weak Dollar or a Strong Euro?

Another indicator of the evolution of the Trump economic agenda is the U.S. Dollar, which has been under notable pressure in the past couple of months. With the dollar, Mr. Trump’s political troubles are not the sole culprit but rather the positive political developments in the EU’s heavy election cycle in 2017.

United States Dollar Versus Dollar/Euro Exchange Rate Chart

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

Since the euro accounts for 57.6% of the U.S. Dollar Index, the pro-EU outcomes of the elections in the Netherlands and France – and likely a pro-EU outcome in Germany, given recent local elections – the euro has “found a bid,” as traders like to say. The euro closed last Friday at $1.1201, so one can characterize the fall in the Dollar Index is not so much a weak dollar as a stronger euro.

I do not think the dollar rally is done as the EU may end up having a bitter Brexit, which is not good for either the EU or the UK. I also believe that the chances of a ‘hard’ (overnight) devaluation of the Chinese yuan are multiples higher than the consensus estimates at present. The Chinese did devalue by 34% in December 1993 to deal with the issues of a nasty recession that they never officially admitted, but which did show in secondary (undoctored) economic indicators. Since I think the Chinese are headed for a hard economic landing, I think the likelihood that they will devalue to deal with the recession that they are headed into is very high. I would not be surprised to see an overnight devaluation of the USDCNY rate by 20%-40%. Such a devaluation would create a global deflationary tsunami pushing down U.S. Treasury yields and causing a dollar surge. Regrettably, it is hard to say whether this will happen in 2017 or 2018.

As to the Trump economic agenda, I think it will be delayed as former FBI director (now special counsel) Robert J. Mueller III completes his investigation. I think Director Mueller will be more meticulous and more expeditious than Ken Starr, the special counsel that began investigating the Clintons in 1994, an investigation which culminated with the December 1998 impeachment of Bill Clinton. In my opinion, a career law enforcement official like Director Mueller would take charges like “obstruction of justice” very seriously; and if those are provable, the political soap opera we’ve been seeing is still in its very beginning.

Sector Spotlight:

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

Is “Free Energy” a Distant Possibility?

by Jason Bodner

When we think of energy for propulsion, we think of the classic methods – such as combustion, steam, fossil-fuels, or atomic energy. Humanity has relied upon these forms for energy, but they remain very inefficient, with much of the energy conversion wasted as heat. We need fuel to produce energy: a fire can’t burn without fuel (wood) and a nuclear reaction can’t take place without material (uranium). This translates to the real problem of mining finite resources. We have heard the energy industry talk about dwindling supplies of available fossil fuels, which will run out in 50 years or so. It’s difficult to know if this theory has any merit, but holding to this party line is good for the energy business. Prices can be buoyed with a perception of diminishing resources. How will we address this dilemma in the future?

Crude Oil Supply and Demand Charts

Zero Point Energy (ZPE) is defined as the ground-state energy present in an atom, a subatomic particle, or a quantum field. In short, everything has energy even while at rest. In fact, there is still motion observed at absolute zero (−273.15° Celsius), which was widely accepted as the point at which molecular motion stops. It is even thought that there is energy present in vacuums (the absence of matter). If true, that energy could conceivably be harnessed and used as a universal, infinite, free energy source for everyone.

Many scientists have devoted significant work to study zero-point energy, notably Nicola Tesla. John Hutchinson, a Canadian scientist, claims to have discovered “free energy” (zero-point extraction), and filmed examples of his work; yet he has been relegated to quack-status by naysayers, and his work has yet to be proven or replicated. Zero Point Energy devices remain largely theoretical, fictional, or even bunk. ZPE has been attributed to the energy sources for UFOs requiring the monstrous energy output required to distort space-time and bend gravitational fields to allow for faster-than-light interstellar travel.

The likelihood is that ZPE may be an energy source for humankind many, many years from now. We don’t yet have the scientific capability to harness this power. For now, it remains almost mythical and a fuel for dreams. It is also entertaining as it fuels conspiracy theories about dark governmental projects.

Zero Point Energy Image

The idea of ZPE is either entirely plausible or hocus-pocus, depending on whom you talk with.

When it comes to financial markets, many things are also theoretically possible, but practically unbelievable. Take for a moment an investment officer who selects winning trades 100% of the time. Likely you would say, “Impossible!” Even if it were possible, would you not look upon him or her with a level of incredulity? Nobody wins every time, so what winning rate becomes desirable? 90%? 80%?

Does it even have to be over 50%? Logic would say yes, until we look at how one manages a portfolio.

Venture Capital and Private Equity often invest in start-ups. Some select these risky investments with the objective of getting just one or two right out of 10 or 20 tries (10%). They are willing to endure 18 or even more catastrophes, because one or two wins will cover all their losses and then some. The ultimate answer lies with each investor. Does an investor want to pick 80% wins, but each with a small gain? Or would you rather pick 60% wins where the winners are up substantially more than the 40% losses are down?

Infotech Still Leads over the Last 3-6 Months

While we digest that quandary, let’s visit the sector action for the week. Wednesday was the kind of day when most stock holders were not winning. The swirl of controversy in D.C. put heavy pressure on the market. It is my belief, however, that the market was looking for an excuse to take some profits. Earnings are almost entirely out of the way now, and they were largely positive. Summer is coming, and with it potential uncertainty, so maybe a belated “sell in May and go away” decision caused this downdraft.

With that said, the market swiftly recovered – as it has usually done over the last eight years.

Infotech was heavily hit on Wednesday, down 2.8%. Infotech has been the leading sector for month-to-date, 3-, 6-, 9-, and 12-month periods. Wednesday initiated some expected profit taking. Financials also got smoked on Wednesday and finished the week as the weakest sector. Clearly there are concerns over the White House drama overshadowing policy reform agendas. The classic defensive trade rotation was in action as we saw capital inflows into Real Estate, Utilities, and Staples. While we are on the topic of Energy, it saw a modest uptick this week, but the sector remains the weakest performer for six months.

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

Can we find the solution to an ever-growing energy crisis by plucking energy out of thin air? Can an investor win 100% of the time? For now, the answer to these two questions is a resounding “No,” but that doesn’t mean “free energy” and winning streaks are not possible. Arthur C. Clarke put it nicely when he said, “The limits of the possible can only be defined by going beyond them into the impossible.”

A Look Ahead:

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

Memorial Day Week and June Should be Positive for Stocks

by Louis Navellier

After the market’s major downdraft on Wednesday – in which the S&P 500 fell by 1.8% – I appeared on CNBC’s Squawk Box Thursday morning, before the market opened.  I said that Wednesday had created a good buying opportunity.  Furthermore, I added that persistent buying pressure should return to the stock market during the week before the Memorial Day weekend, since the stock market likes to rally into long holiday weekends.  Still, I reminded listeners, this market looks increasingly narrow so you have to use these dips to buy fundamentally good stocks, since the market generally rallies after these corrections.

Sure enough, the S&P 500 gained over 1% in the last two days of last week.  I feel there are more gains yet to come.  Furthermore, I expect June to be favorable toward small-stocks for the technical reasons I explained here last week.  In addition, I see a strong market environment since bond yields remain unusually low and the “Goldilocks” economy – neither too hot nor too cold – persists.

Essentially, the stock market is a supply-and-demand equation.  As corporate America continues to borrow in the bond market to buy back their outstanding shares, the amount of stock outstanding continues to shrink steadily.  Stock buy-backs typically pick up in June after the first-quarter earnings announcement season is over.  Wall Street would far rather buy shares than raise money with new stock offerings.

The steady “melt up” underneath many stocks has resulted in the lowest volatility in 24 years based on the CBOE’s VIX index.  In the past, low volatility has sometimes preceded a correction, but even though the financial media is quoting a lot of bears to scare you, the truth of the matter is that the S&P 500’s dividend yield of 1.95% is higher than what you can earn on cash; and it is competitive to the after-tax income on high-taxed bonds, so investors seem to use any dips as buying opportunities!  The 10-year Treasury bond yield is around 2.23% while the S&P 500’s dividend yield remains at 1.95%.  Anytime the S&P 500 gets this close to the 10-year Treasury bond yield, it creates a buy signal for yield-oriented income investors.

The Latest Economic Indicators Point Toward a Rate Increase in June

We still have three weeks until the “data-dependent” Federal Reserve Open Market Committee (FOMC) meets next, but on the weight of the latest economic releases, I’d say they are likely to raise rates in June.

Industrial Robot Welder Image

On Tuesday, the Fed announced that industrial production rose 1% in April, well above the economists’ consensus estimate of a 0.5% rise.  A 5% surge in auto production was partly responsible for the big gain, but excluding vehicle production, industrial production still rose at a very healthy 0.7% rate.  Industrial production is now running at the fastest pace since February 2014.  Additionally, industrial production has now risen for three consecutive months, which bodes well for overall economic growth.  In the past 12 months, industrial production is up 2.2%, much of which occurred in the past three months.

Despite this good news, the U.S. market tanked on Wednesday.  It’s almost as if nervous traders were looking for any excuse to sell.  A New York Times political headline caused them to panic, but traders should realize that the stock market is fueled more by economic growth and earnings than politics.

On Thursday, the Conference Board announced that its leading economic index (LEI) rose 0.3% in April.  Of the 10 LEI components, only building permits and stock prices were a drag on the index.  The Leading Economic Indicators have risen every month this year, which bodes well for continued economic growth this year.  It also indicates that the Federal Reserve will likely feel confident enough to raise rates in June.


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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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