“Trump Bump” Cooling Off

Is the “Trump Bump” Cooling Off for Now?

by Louis Navellier

December 6, 2016

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

Last week there was a lot of profit taking in technology stocks (NASDAQ had its worst week in the past 10 months) and we also saw some massive rotation in energy stocks. This “washing machine” cycle and heavy trading oscillation will likely settle down in the upcoming weeks. I expect the crème de la crème will soon rise to the top as institutional investors fine-tune their portfolios in conjunction with year-end window dressing. Last Friday, in fact, I was encouraged to see how many high-quality, fundamentally strong large-cap growth stocks surged. I believe this flight to quality will likely persist this week, too.

Constitutional Referendum Image

As we go to press, results from Italy’s Constitutional Referendum on December 4th are just coming in.  Ivan Martchev will analyze the meaning of the referendum’s failure below, but I fear the long-term results may torpedo the euro, strengthen the U.S. dollar, and disrupt many European financial markets, especially banking stocks. The good news is that the U.S. will remain an oasis for many overseas investors. That’s one reason why the U.S. dollar surged over 7% in November against a broad basket of key currencies.

The U.S. dollar is also rising due to (1) anticipation that the Fed will raise key interest rates next week, (2) the fact that the 10-year Treasury bond yield rose over 60 basis points in November, and (3) euphoria over an onslaught of robust economic growth statistics. Since over 50% of the S&P 500’s sales are outside the U.S., domestic, small-capitalization stocks have had a recent advantage over large-cap multinationals. As a result, we may see a surge as institutional investors reallocate to more small-cap and domestic companies.

In This Issue

In Income Mail, Bryan Perry continues his series on the seismic shift in the income-investing landscape since the recent election. In Growth Mail, Gary Alexander uses the 75th anniversary of Pearl Harbor to examine the potential for a growth turnaround following Trump’s surprise victory. In Global Mail, Ivan Martchev covers the implications of the Italian vote, along with an update on the oil market, and in Sector Spotlight, Jason Bodner examines sector volatility in light of the internal workings of ETF market makers.

Income Mail:
Seismic Shift in Fixed-Income Assets
by Bryan Perry
Taking Stock of the Bond Market

Growth Mail:
“Days of Infamy” Often Generate Years of Growth
by Gary Alexander
Confidence Breeds More Confidence, Which Breeds Growth

Global Mail:
Italy’s Trumpian and Brexitous Vote
by Ivan Martchev
11th Hour Crude Diplomacy

Sector Spotlight:
A Short Time Can Seem Very Long
by Jason Bodner
Inside the ETF Market Maker’s Mind

A Look Ahead:
December is the Market’s Most Positive Month
by Louis Navellier
OPEC Made Their Promise, But Can They Keep It?

Income Mail:

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

Seismic Shift in Fixed-Income Assets

by Bryan Perry

When the dust settled at last Friday’s close, the yield on the benchmark 10-year Treasury had risen to 2.39% after briefly tagging the 2.45% level. A huge sell-off in the U.S. bond market coincided with a sharp rally in cyclical stocks, as all manner of dividend stocks tied to defensive sectors have come under severe selling pressure as trigger-happy traders and fund managers sold their defensive dividend stocks in a wave of disgust that resembled the classic political TV commercial of pushing Granny off the cliff.

With that said, some very high-profile market gurus – namely DoubleLine’s Jeff Gundlach and legendary value hedge fund manager Stanley Druckenmiller – are predicting 10-year Treasury yields will rise to 6% by 2018 and GDP growth will reach the same 6% rate by 2019. Anticipation of those numbers could take the 10-year Treasury Note yield above 3% fairly soon, in anticipation of further Fed tightening.

Investors are having to rapidly adjust to this incredible turn of events in an almost overnight fashion that is very unsettling for those holding tight to their long-dated bond holdings. The only solace is that all bonds mature at par value – if you elect to hold on to long-dated maturities. Either way, the great bond rally of the past eight years is officially over – at least until the next recession comes around.

Ten Year Treasury Note Chart

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

It would seem that both Gundlach and Druckenmiller are getting some early tailwinds for their forecasts. U.S. Treasuries took their cue from the economic calendar as positive news translates to a downhill slope for bond prices. Durable goods orders jumped by 4.8% (month over month) in October (versus consensus estimates of just 1.1%). In addition, the Commerce Department announced that GDP growth surged at a 3.2% annual pace in the third quarter, up from its initial estimate of 2.9%, as consumer spending was revised up to a 2.8% annual pace, from 2.1% initially estimated. Also, existing home sales rose to 5.6 million in October vs. 5.49 million in September, and corporate profits jumped 6.6% in the third quarter.

The hits keep on coming: The Institute for Supply Management (ISM) announced that its manufacturing index rose to 53.2 in November, up from 51.9 in October. This was the highest the ISM manufacturing index has been in the past five months and well above economists’ consensus estimate of 52.5. The new orders component rose to 53 in November, up from 52.1 in October. All this is good news for continued strong GDP growth. (Source: Institute of Supply Management, December 1, 2016)

Looking forward, the Atlanta Fed’s GDPNow model forecast is now at 2.9% for fourth-quarter U.S. real GDP growth, so the U.S. economic recovery looks to be gathering speed from the sluggish pace that prevailed for most of 2016. That said, interest rate markets have priced in a lot more growth and inflation and the rationale for the Fed raising interest rates to stem inflation and rising GDP now seems inevitable.

GDP Now Model Forecast Chart

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

While stronger U.S. economic data has been supporting higher Treasury yields, the big unknowns are the size and composition of any fiscal stimulus coming in 2017. The Republican-controlled White House and Congress are expected to enact some combination of tax cuts and infrastructure spending next year. In general, the larger the infrastructure package, the more it should push nominal interest rates higher.

The recent pronounced move in Treasury yields has priced in a good portion of future expectations to where the move looks overdone, with many blown-out dividend growth stocks that have strong organic growth in earnings and dividend payouts now trading at hugely attractive prices. It’s as if a 7.5 earthquake rippled through many income-paying sectors all at once, taking down several terrific growth and income stocks, providing a multi-year opportunity for income investors to pounce on. But then again, the current trading landscape resembles attractive, tropical waters where a shark sighting has been reported. It sure looks tempting to jump in, but not at the expense of having a bite taken out of one’s income portfolio.

If the chorus of respected Wall Street mavens gets any louder on the topic of hotter economic growth going forward, then by all means, these seemingly terrific entry points for the dividend payers are only going to get more terrific. It’s just too early to tell, and because of that, it would be wise to stand aside and see just how high the market wants to take interest rates heading into 2017 before attempting to bottom-fish too heavily. We’re in the kind of market where more than one shoe could drop for bond investors if the data keeps improving at a better-than-expected pace. Taking partial positions in great dividend stocks is a more highly recommended strategy or dollar cost averaging as the market permits.

Taking Stock of the Bond Market

Within the bond market smorgasbord, the ultimate sweet spot on the yield curve is the 5-7 year maturity class. History is strongly on the side of owning maturities in this timeframe when rates are on the rise, as the bond market tends to crush everything with maturities beyond seven years. The best hidden opportunity for fixed-income investors will be to buy into the junk-bond and low-end investment grade (BBB rating) space through closed-end funds and Unit Investment Trusts (UITs) that have durations that don’t reach beyond 2022. As the economy strengthens, this debt class gains more balance sheet credibility as the investment proposition becomes very compelling, since their maturities are reasonably visible.

The chart below compares Treasuries, investment grade corporate bonds, and junk bonds. These three lines show how junk bonds began to outperform other categories during the early part of the third quarter. I view this performance spread as one that will be maintained against the backdrop of an improving economy where investors are willing to take on more credit risk while shortening up maturities.

Comparison of Treasuries, Investment Grade Corporate Bonds, and Junk Bonds Chart

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

The ground has definitely shifted under the bond market. Bond investors can no longer be complacent about their long-term holdings. The inflation genie looks to finally be out of the bottle and has taken a seat in the locomotive of the GDP train that is now leaving the station. This scenario can be materially negative for bond portfolios that don’t have short duration periods and investors that are over-weighted long-dated maturities need to consider the implications of what is already “history in the making.”

Growth Mail:

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

“Days of Infamy” Often Generate Years of Growth

by Gary Alexander

Tomorrow marks the 75th anniversary of Japan’s surprise attack on Pearl Harbor on Sunday, December 7, 1941, a date that President Franklin Roosevelt told Congress (the next day) “will live in infamy.”

As FDR spoke on Monday, December 8th, Battleship Row was in shambles, but the stock market damage was slight.  You could almost say that investors had already priced U.S. entry into World War II into the market.  After Pearl Harbor, the Dow only fell 2.9% on Monday, December 8th, and the Dow stayed fairly level for the next three months until a dip below 100 in April, 1942.  But after the psychological lift of Jimmy Doolittle’s bombing raid over Tokyo (April 18, 1942) and the surprising U.S. victory at Midway (June 4-7), the Dow quickly recovered to pre-Pearl Harbor levels and then doubled by war’s end in 1945.

The attack on Pearl Harbor shocked America but it also guaranteed the eventual retreat and ignominious deaths of Hitler in Europe and Tojo in Japan.  A 2011 book by Craig Shirley said December 1941 marked “31 Days that Changed America and Saved the World,” because it ignited our dormant nation into action.

Economically, America went from 14.5% unemployment in 1940 to barely 1% in 1944, due mostly to the united war effort.  Meanwhile, U.S. GDP growth rates exploded to +18.9% in 1942 and +17.0% in 1943.

Market recoveries often follow “Days of Infamy,” perhaps because terrorist attacks tend to unite us in a greater cause, drowning out our previous petty-sounding arguments.  As I’ve shown in the past, stocks rose after the JFK assassination in 1963, the Challenger explosion in 1986, and the 9/11 attack in 2001. (GDP growth soared by an average 6.3% per year, 1964-66, +4%/yr. in 1986-89, and +3%/yr. 2002-2006.)

Perhaps that’s why the stock market has done so well since the election of Donald Trump, which many pundits in the press and in academia have called a “Day of Infamy” or “the end of the world as we know it.”  Perhaps that’s true, but many negative trends in the world we’ve come to know may deserve to end.

In his speech in Cincinnati last Thursday, President-elect Trump began by saying, “We’re going to find common ground, bring all of the nation together.  We’re a very divided nation, but we won’t be divided for long.  We’re going to find common ground.  To succeed we must enlist the effort of all Americans.  For too long, Washington has tried to put us in boxes, to separate us by race, age, income or geography. We spend too much time focusing on what divides us.  When America is united, nothing is beyond our reach.”

Inspiring words – perhaps written by others, but delivered with conviction.  Trump concluded with this challenge: “Americans must ignore the pessimists and embrace the optimism that has always been the central ingredient of the American character… somewhere along the way we began to think small.  I’m asking you to dream big again, and bold and daring things for your country will happen once again.”

The press clips from that speech focused on the negatives – his loose words, flippant asides, or smirking braggadocio, i.e., his “shtick” – but that merely proves the President’s gripe about the bias of the press.

Confidence Breeds More Confidence, Which Breeds Growth

The stock market isn’t the only economic indicator on the rise.  Consumer confidence, GDP (current and projected), and retail sales are all surging forward.  Confidence works wonders.  FDR was right when he said, “The only thing we have to fear is fear itself.”  Flip side: Showing confidence breeds more confidence.

Trump’s optimism is generating more confidence in the U.S. economy.  The news that Carrier would keep 1,069 jobs in Indiana rather than sending those jobs to Mexico may be a drop in the bucket as far as national employment statistics are concerned, but it was a very visible and symbolic boost to confidence.

On the same day Trump spoke in Cincinnati, the Institute for Supply Management (ISM) announced that its manufacturing index rose to 53.2 in November, up from 51.9 in October.  The new orders component rose to 53, from 52.1 in October.  Overall, 11 of the 18 industries surveyed reported growth in November.

Last Tuesday, the Conference Board reported that consumer confidence soared to 107.1 in November, up from 100.8 in October, reaching the highest level in nine years!  The “present situation” component hit 130.3 in November, up from 123 in October.  Ironically, most of the consumers that the Conference Board surveyed were contacted before the Presidential election, so the post-election euphoria could be higher.

All of a sudden, economists envision a return to robust GDP growth.  The Organization for Economic Cooperation & Development (OECD) last week revised its forecast for U.S. GDP growth to 2.3% in 2017 and 3.0% in 2018.  OECD also forecasts 2.9% global growth in 2016, 3.3% in 2017, and 3.6% in 2018.

Last Tuesday, the Commerce Department announced that GDP growth surged at a 3.2% annual pace in the third quarter, up from its initial estimate of 2.9%.  Corporate profits soared 6.6% in the third quarter, which bodes well for business spending in the fourth quarter.  The GDP is now growing at the fastest pace in over two years and the fact that consumers are spending more is the most important reason why: Last Monday (Cyber Monday) sales rose 12.1% to $3.45 billion, an all-time record.  Since consumers account for about 70% of GDP, it appears that the strongest GDP growth in more than two years is sustainable.

Can this euphoria continue?  Yes, for a time, but be aware that the political pendulum seldom stops in the middle.  We keep swinging to extremes.  Since I was born in 1945, we’ve generally alternated between eight years of Democrats and then eight years of Republicans and then back again.  The only exception was four years for Jimmy Carter followed by 12 years of Reagan/Bush.  Eight years ago, Barack Obama won handily, with a stronger Democratic majority in Congress than Trump enjoys with Republicans now.

Newsweek Political Blunders Image

The February 16, 2009 cover of Newsweek – a magazine later sold for $1 – was titled, “We Are All Socialists Now.”  Jon Meacham, who wrote the cover article, opened by saying, “The America of 2009 is moving toward a modern European State.”  On November 8, 2016, Newsweek made one of the greatest gaffes in publishing history, calling the election victory prematurely for losing candidate Hillary Clinton.

As the 2009 Newsweek article predicted, Obama’s first Congress emulated the European game plan:  In 2009, the Senate was 59-41 Democratic and the House was 255-179 Democratic.  That 111th Congress passed the $830 billion American Recovery and Reinvestment Act (on February 17), home mortgage bailouts (May 20th), Cash for Clunkers (June 24th), the Affordable Care Act (March 23, 2010), and more; but in November 2010, voters from the Tea Party issued a restraining order on Congress, so we entered six years of gridlock, with a Republican Congress and a suddenly lame-duck Democratic president.

The political pendulum will likely keep swinging.  Maybe Trump and his team will overhaul America in favor of business, moving away from the European model.  If voters like that trend, he could be re-elected.  If they don’t, the election of 2018 will start the pendulum swinging in the other direction for a while.  For those who hated (or loved) the outcome of this election, rest assured the next election is never far away.

Global Mail:

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

Italy’s Trumpian and Brexitous Vote

by Ivan Martchev

On Sunday, Italians voted on a Constitutional referendum to simplify the Italian political process – in effect giving the executive branch more power. To get a clue on the results, I watched a live stream of the EURUSD (euro/U.S. dollar) cross rate. I figured the news would show up in the market faster than on any TV channel or news site. By 6pm Sunday in New York, the EURUSD cross rate was down over 1%.

Euro Versus United States Dollar - Weekly OHLC Chart

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

As of 7pm (EST) Sunday, The Wall Street Journal reported that “Italian Prime Minister Matteo Renzi announced he will tender his resignation after admitting defeat in Sunday’s referendum. According to projections, 59% of people who cast ballots on Sunday said ‘no’ to a plan backed by Mr. Renzi that would make it easier to pass laws, including measures meant to make the country more competitive.”

The referendum was regarded as a barometer of anti-establishment sentiment in Europe. Italy’s PM Renzi asked about reforms to streamline parliament but instead the referendum was widely seen as a chance to show discontent with the prime minister himself. The populist parties in Italy supported a ‘no’ vote.

As I write this, the EURUSD cross rate seems destined for another test on the bottom of the $1.05 to $1.15 range that had contained the vast majority of cross-rate trading since March 2015. I think that trading range will break to the downside soon, despite the rebound in the euro seen on Monday after the referendum.

Brexit weakened the EU and in that regard it weakened the euro, too, even though Britain is not a member of the Eurozone. The Trump election victory was a vote against globalization and is in that regard similar to Brexit. What happened in Italy on Sunday is a similar anti-establishment vote. While Italians are pro-EU and want to remain in the Eurozone, one could also read the Italian vote as a vote against expanding EU powers. To make matters worse, Italy is in the middle of a banking crisis which is probably too big a task for a technocratic government. This is a situation that could spiral out of control quickly.

European Union Unemployment Rate Chart

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

In the past six months the EU has weakened dramatically with Brexit and now the Italian Constitutional referendum. There will be more elections in the next couple of years in Europe and it is not hard to see the anti-establishment vote winning. With unemployment near 10% for the Eurozone – 11.6% in Italy – the same type of voters that elected Donald Trump and voted for Brexit will be voting for change. This is all very bearish for the euro as most anti-establishment voters are also against expanding EU integration.

11th Hour Crude Diplomacy

Crude oil was the big mover in the commodity markets last week as OPEC agreed to their first cut in production in eight years. What makes this deal remarkable is that Russia – a non-OPEC producer – agreed to join the cartel for the greater good and it, too, signed off on the proposed production cuts.

The agreement is that OPEC will reduce output by about 1.2 million barrels a day by January, cutting daily production to 32.5 million barrels. The agreement exempted Nigeria and Libya, while Iran was allowed to raise output to about 3.8 million barrels a day in order to help it recover from sanctions.

Crude Oil versus United States Dollar Chart

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

While the U.S. Dollar Index was, technically-speaking, down marginally last week, it has been very strong since the U.S. Presidential election. That makes the surge of crude oil prices in a seasonally weak period for crude oil rather suspicious, as the dollar is expected to go higher when real U.S. interest rates are rising, and there is a clear inverse correlation of the U.S. dollar and crude oil markets.

To be clear, I do not believe that the U.S. dollar drives the crude oil market. Rather crude oil, via its effects on the balance of payments of producing countries, affects their currencies as quoted against the U.S. dollar. Surging supply and weak demand mean weak crude oil prices and weak producer countries’ currencies.

If the global economy is weak, which pressures the price of crude oil, it is natural for the U.S. dollar to be stronger as a safe haven. That raises interesting questions about the surge in crude oil, since the OEPC deal happened in early December, when crude oil prices are supposed to be weak. Since the majority of the world’s population lives in the Northern Hemisphere where fall and winter run from September 21st to March 21st, crude oil demand tends to be seasonally weaker in those colder months.

I have great difficulty seeing crude oil making progress into the mid-50s on the WTI futures contracts any time soon. Because the OPEC deal happened at the last minute, it is likely that there was a lot of opportunistic shorting that had to get reversed, causing the spike in WTI futures. I am watching with great interest how this spike is progressing, with the caveat that a short squeeze is like kerosene on the fire. After it burns off, the fire tends to simmer down, particularly if the firewood is wet. For all intents and purposes, we have a “wet firewood” situation here.

Chinese Yuan versus China Foreign Exchange Reserves Chart

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

The firewood is wet because the largest consumer of oil in the world (China) is headed into a nasty recession, in my opinion. As 2016 comes to an end, I am surprised that China has not been the source of more bad news on the economic front in 2016. Compared to the dramatic headlines we saw in 2015, this year has been more or less boring. I think the reason for that boredom is the fact that capital flight out of China “flattened out” for most of 2016. In the past couple of months, it appears to be accelerating again. If it continues to accelerate in early 2017 I think headlines out of China will become interesting again.

I think China is headed into a nasty recession because it is experiencing the effects of a busted credit bubble. The fact that it has not gone into recession yet does not mean it can avoid its destiny. For all intents and purposes the Chinese economy went from $1 trillion in GDP in 2000 to over $11 trillion in 2016. While the Chinese economy grew 11-fold, the total debt leverage in the Chinese economy grew 40-fold. I think we have reached a tipping point where faster debt growth in the Chinese economy and slowing GDP growth will stop feeding on each other and the Chinese economy will begin to contract.

China Shanghai Composite Stock Market Index Chart

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

I expect more bad news from China in 2017, which does not jibe well with a strong oil price since China is the #1 global consumer of oil. While the Chinese stock market is not a very good barometer of China’s economy, it has managed to detect increasing capital outflows. If we continue to see accelerating capital outflows in 2017, along with a weak Shanghai Composite, I will be looking for the price of oil to reflect that appropriately. I think there is much more downside than upside in the price of crude oil at present. That means the risk-reward is not stacked in investors’ favor when it comes to the energy sector.

Sector Spotlight:

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

A Short Time Can Seem Very Long

by Jason Bodner

When I look at my dogs and think that their lives are too short (maybe 15 or so years), I comfort myself in thinking that maybe they experience time relatively. Maybe their lives seem like a long and fruitful 90 years to them, while we owners feel it as just a snippet of time. As short as dogs live, the Mayfly has the dubious distinction of having the shortest lifespan of any animal – just 24 hours. Maybe that Mayfly lives nearly 100 years of rich life in just 24 hours. Time may just be relative in that way, as scientific studies suggest (see “Time passes more slowly for flies, study finds,” The Guardian, September 16, 2013).

Time is Relative Image

Remember when it seemed financials could do no right? A former big-bank CEO, John Stumpf, was on the hot-seat. Then there were rumors and sharks swirling around Germany’s Deutsche Bank. The whole sector was unloved and seemingly headed for disaster. Well that was then and this is now. The fact that then was merely eight weeks ago is telling. This is because while many still struggle to comprehend the magnitude of the presidential upset, the market's shift has been truly epic. The sector rotations are just as wild as in 2014, when growth suddenly saw outflows in favor of REITs and utilities. Just as sudden, in August of 2014 Hilary Clinton’s comments about high drug prices caused an epic slide in Health Care. (Please note: Jason Bodner does not currently own a position in DB. Navellier & Associates, Inc. does not currently own a position in DB for any client portfolios. Please see important disclosures at the end of this letter.)

These sector rotations’ volatile and sharp gyrations have been going on for a while. This latest shift shows us that expectations about future events are always subject to a change in environment. And while a Trump presidency is clearly a good thing for financials (particularly banks) and industrials, and not as good for technology – in the eyes of the market, that is – there is one thing the incoming administration can virtually guarantee: The person at the helm cannot easily be labeled as conventional or predictable.

The VIX is back at 14 as the major indices have rallied substantially since this time last month. But for anyone who has been long technology and short financials, the headline barometer for volatility can be very misleading. At the sector level, the volatility continues to be rattling and wicked. Even if you are not concentrated in any one sector – perhaps you only seek the best of the equities, not minding their sectors – your choices are still vulnerable to that sector’s volatility. Indirectly, stocks that may have no business getting shoved around are involuntary participants in wild swings due to market mechanics.

To explain, let’s look inside the mechanics of the trading of ETFs.

Inside the ETF Market Maker’s Mind

Not to pick on ETF market makers (too much), the more than $2 trillion ETF market impacts market volatility significantly and affects everyone – without always making it plain that it is doing so. Market makers do not earn a commission; they earn a spread between where they deal out of inventory and where they can hedge or flatten the exposure (read: risk) from their original position in their specific market.

Their job may be to create a “fair and orderly market,” but their real objective is to make money. When volatility is high, the spread between bid and offer increases typically to reflect uncertainty. Of course, this makes sense fundamentally, but given human nature, market makers will further exploit a situation like this to their benefit, which of course is to earn more spread as a reward for risk-taking in an uncertain market. These sector rotations we are witnessing feed into how ETF market makers price liquidity.

For instance, since technology is suddenly out of favor and financials are suddenly in favor, this switch is reflected in the pricing of sector ETFs. No one can fault market makers for trying to make money and positioning themselves to take advantage of a situation or market environment. But when sectors move around in unusual ways, ETF spreads can widen to further amplify moves. If technology is for sale, bids and offers will generally be lower. If financials are desired, bids and offers trend higher. Bids may soften on technology as volatility of the underlying stocks increases, so volatility of the ETF itself intensifies.

As an ETF market maker gains exposure, its hedge may come in many forms, but a basket of the underlying stocks is often the most direct hedge. If a market maker gets sold a Technology-Media-Telecom (TMT) ETF by a client, the market maker may sell the underlying stocks. If the market maker anticipates a client selling, the market will shift lower, thus exacerbating the pressure on that market. The cycle can continue for some time, and naturally it can even be fed by the market-making activity itself.

This past week saw Energy stage a pop of more than 2.5% on the OPEC deal news, with most of this coming on Wednesday’s nearly 5% spike. For the week, Energy was the big winner with Financials a distant second. Information Technology shed nearly 3% as this sector polarization continues.

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

Financials are still our biggest winner for the past three months, with most of the gains coming very recently. Info Tech, in a notable move, went negative for 3 months – it was our strongest sector for a while. Real Estate continues to occupy the bottom of the barrel, down nearly 13% for three months.

Standard and Poor's 500 Quarterly and Semi-Annual Sector Indices Changes Tables

Bill Gross said this past week that he believes the Reflation Trade is nearing an end. This “Trump Bump” rally may indeed be nearing its conclusion, but the data suggests that institutional buying has far outweighed institutional selling for weeks now. The trend, while less intense, has not yet approached even. So, again, we may pose the question: “Is this merely short covering or is it a bull market catalyst, or both?” While no one really knows, I’d like to close by quoting Buddha on the vagaries of time:

Buddha Statue Image

“Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment.”

-- Buddha

A Look Ahead:

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

December is the Market’s Most Positive Month

by Louis Navellier

We’re probably in for a good month with a lot of year-end portfolio window dressing.  According to Bespoke Investment Group, December averages 1.41% gains over the last 100 years.  December is tied with July as the best-performing month in the last century.  December is also the second-best month over the last 50 years, with average gains of 1.48%, second only to April.  In addition, “December has been positive 73% of the time over the last 100 years, which is by far the highest ‘up rate’ of any month.”

In addition, December is especially good during elections years.  Historically, December has averaged +1.45% in the 22 Presidential election years since 1932.  The S&P’s biggest election-year December increases came when a new and hopeful President came in: Franklin Roosevelt in 1932 (+5.65%), John F. Kennedy in 1960 (+4.63%), and Jimmy Carter in 1976 (+5.25%).  Since 1932, there have been nine times in which the incumbent’s opposition Party won the election – as happened this year.  Here are the results:

Market's Most Positive Month is December Table

We’re also seeing quite a few positive economic statistics – as Bryan Perry and Gary Alexander have described above.  In addition, the Labor Department reported last Friday that 178,000 payroll jobs were created in November and the unemployment rate has declined to 4.6%, the lowest rate in nine years. Previously, on Wednesday, ADP reported that 216,000 private payroll jobs were added in November, well above the economists’ consensus estimate of 160,000, so the economy seems to be re-accelerating.

OPEC Made Their Promise, But Can They Keep It?

The other big news last week was OPEC’s announcement on Wednesday that non-OPEC producers were joining OPEC to curtail worldwide crude oil production.  The details of this production cut were scare and elusive, but OPEC said that it would impose a 32.5 million barrel ceiling, so crude oil prices surged to over $50/bbl on a “short squeeze” as many energy-related stocks surged on Wednesday.  However, there was an amazing lack of detail associated with the OPEC announcement.  Also interesting is that Indonesia’s OPEC membership has been suspended.  The fact of the matter is that OPEC has been a master at talking up crude oil prices in recent years, especially when prices typically decline as seasonal demand drops.

The current worldwide glut of crude oil can only be fixed by robust economic growth, which now seems to be brewing.  Additionally, by March, seasonal demand should resurface and crude oil prices will likely stabilize further.  Overall, it appears that OPEC has been very effective at manipulating crude oil prices during the seasonal downturn and related glut.  It will be safer to buy many energy-related companies in the New Year, especially since many companies announce positive year-over-year earnings results.


It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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