Trump’s Tax Cut Plan

Trump’s Tax Cut Plan (and Positive Earnings) Lift the Market

by Louis Navellier

May 2, 2017

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

After the market closed last Tuesday, I was on CNBC for about 20 minutes to discuss the results of the current earnings announcement season based on our latest Navellier.com Earnings Scoreboard.  Clearly, positive first-quarter announcements and guidance are propelling the overall stock market higher, as the S&P 500 rose 1.53% last week, delivering a small (+1%) gain for the S&P 500 during the month of April.

Tax Cut Metaphor Image

President Trump’s tax plan has clearly lifted the market’s spirits.  Highlights include a maximum 15% corporate rate (down from 35%), no border adjustment tax, and just three individual tax brackets: 10%, 25%, and 35%.  The 3.8% Obamacare tax on investment income would be eliminated, as well as many itemized deductions, except for mortgage interest and charitable donation deductions.  The alternative minimum tax (AMT) and estate tax are also gone in Trump’s tax reform proposal.  The big surprise was that the state income tax deduction against federal taxes would be eliminated.  That could encourage folks to move to states with no state income tax, like Florida, Nevada, Texas, Washington, and Wyoming, while punishing high-tax states like California, Hawaii, Illinois, New York, and Oregon.  All in all, Trump’s tax plan would be positive for business and would be the biggest reform of income tax policies since 1986!

In This Issue

In Income Mail, Bryan Perry will expand on Trump’s tax plan and examine what income strategies that might work best now.  In Growth Mail, Gary Alexander uses portions of Warren Buffett’s annual letter to shareholders to gain a longer-term perspective on the market, while Ivan Martchev examines the commodities slump by looking at Chinese demand and the Australian dollar.  In Sector Spotlight, Jason Bodner sees hope for the market and key sectors from the late April rally, while I handicap the French election and tax policies in the end.

Income Mail:
Trump and His Tax Reform “Reality Show”
by Bryan Perry
Staying Clear of the Budget Battle with Blue Chip Income

Growth Mail:
The Winning Time Horizon is a Lifetime – Not a Month, Quarter, or Year
by Gary Alexander
Don’t “Sell in May” (or Go Away)

Global Mail:
Another Commodity Conundrum
by Ivan Martchev
The Down Under Effect

Sector Spotlight:
The Unintended Consequences of Cultivating Pet Hippos
by Jason Bodner
The Russell 2000 Roars Back

A Look Ahead:
What if Le Pen Prevails in France?
by Louis Navellier
Earnings are Growing Faster than Stock Prices!

Income Mail:

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

Trump and His Tax Reform “Reality Show”

by Bryan Perry

The latest polls indicate that the political environment in Washington is the top economic risk cited by every demographic category – by age, income, gender, racial/ethnic group, and political affiliation. This isn’t a stretch, given the fluidity of recent events. In the long run, stock prices will reflect whether Trump's policies create more disposable income, boost profits, and raise salaries. Cutting taxes helps in the short term, but the long-range goal is to beat inflation through higher income and growing retirement nest eggs.

Treasury Secretary Steven Mnuchin states Trump’s tax reform will create 1.7 million new jobs, save families $4,600 per year, raise wages 8%, and bring an end to corporate “inversions” by eliminating incentives to export profits and jobs and instead promote more U.S. manufacturing jobs. It all sounds good and the stock market has been in rally mode leading up to this pronouncement of the “Make America Great Again” tax plan that now has to work its way through Congress in order to be realized.

Critics are already fanning the flames over some perceived pitfalls of the Trump tax plan, stating that if it doesn't find a way to replace lost tax revenue in the early years, the government will have to borrow trillions to pay its bills. Granted, the new tax plan assumes the new incentives will result in a 4% rate of GDP growth that will drive organic tax receipts making the plan revenue neutral, but after the economy posted preliminary first-quarter GDP growth of only 0.7% in Trump’s first quarter in office, it’s no surprise the doubters of this grand stimulus scheme are making lots of noise.

First off, they warn that another $2 trillion of deficit spending – if not matched by revenues – will blow a hole in the bond market, meaning credit-rating reductions for U.S. debt, with weaker demand for Treasuries followed by soaring interest rates and inflation. But these are the same critics that refuse to tangle with the biggest and most threatening of all fiscal forces – entitlement spending that soaks up over 60% of every dollar of the federal budget (and rising), primarily for Social Security and Medicare:

Total Federal Spending Pie Chart

After seven years of modest declines, the federal budget deficit is projected to add nearly $10 trillion to the federal debt over the next 10 years, according to projections from the nonpartisan Congressional Budget Office if the current tax system is maintained. The numbers reveal the strain government debt will have on the economy even before President Trump proposes to slash tax rates and ramp up spending.

The deficit figures will be a major challenge to House Republicans, who were swept into power in 2010 on fears of a bloated deficit and who made controlling red ink a major part of their agenda under former President Barack Obama. Statutory caps imposed in 2011 on domestic and military spending helped temper the deficit, but those controls are likely to be swamped by Social Security and healthcare spending for an aging population – toxic political election-year fodder for the debate over any budget legislation.

Federal Debt Held by the Public Chart

Congressional leaders will now have to choose between the virtues of fiscal prudence and the demands of the new president, who wants to spend $1 trillion on infrastructure over the next 10 years, plus a surge in military spending and large tax cuts for individuals and corporations. Democrats are likely to oppose large tax cuts, but they will press Mr. Trump to make good on his promise to spend big on infrastructure.

Senate Democrats will likely go along with the $1 trillion plan to rebuild the nation’s roads, bridges, rails, transit systems, airports, sewer systems, and power grid. But in the words of Senator Chuck Schumer of New York, the Democratic leader, “We will not cut middle-class programs like education and health care to pay for it,” And so goes the conundrum for the Congressional budget committee for the next few months.

Staying Clear of the Budget Battle with Blue Chip Income

With these political realities in mind, we could see one of the greatest Congressional donnybrooks of all time shaping up, so what are income investors to do while Congress battles back and forth? To me, the logical answer can be to stay invested in a dividend growth strategy. Companies with strong and durable businesses that have the ability to double their dividends every six to seven years due to their pristine balance sheets and fiscal prudence should continue to benefit shareholders. The Trump tax plan also promises to greatly benefit corporations with robust stock buy-back and dividend policies, so it behooves investors to ride those coattails all the way to the bank.

Investors can also spice up their dividend growth portfolio by adding an effective covered-call strategy to possibly drive extra income that, when implemented properly, can increase the yield on an income generating portfolio. After ten years of incredibly low interest rates and phenomenal waves of refinancing of debt, S&P 500 balance sheets have never before in history been in such stellar condition. They are rock solid and may be a safer place to be invested than most global and domestic banks today that pay between zero and 1.25% for money markets and CDs. By comparison, many dividend-paying blue chip stocks are able to throw off dividend yields of about 3% or more that grow by 12% to 15% per year.

That’s a real life fiscal plan for how retirees can get an annual pay raise from their portfolios. For most investors, Trump’s tax plan has no changes for qualified dividends and long-term capital gains, both of which are taxed at a 15% rate. Taxpayers whose taxable income falls in the current top 39.6% ordinary tax bracket ($415,050 for single filers; $466,950 for married couples filing jointly or qualifying widowers in 2016) are taxed at the top capital gains tax rate of 20%.

Taxpayers with income below the 25% marginal bracket pay no federal tax on long-term capital gains. And with the proposed elimination of the Alternative Minimum Tax (AMT) and Obamacare tax of 3.8% on higher wage earners – along with the modifying of the tax brackets to just three – investors with sizeable portfolios consisting of blue chip dividend paying stocks stand to come out smelling like a rose.

Growth Mail:

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

The Winning Time Horizon is a Lifetime – Not a Month, Quarter, or Year

by Gary Alexander

At this time of year, I always enjoy reading the annual report of Warren Buffett’s company, since it contains so many life lessons from the most successful investor of our time.  This year, his love-fest for capitalists will be held May 6 in Omaha.  Buffett is 86.  His corporate partner, vice-chair Charlie Munger, is 93.  Two other board members are over 90: Thomas Murphy, 91 and David Gottesman, 90.  To some, this means they need to refresh their board.  Being old, I disagree.  Wisdom seldom has an expiration date.

I’ve never attended Buffett’s Woodstock for geriatric capitalists, but I devour his annual report each year.  For instance, check this out (from page 6 of his 2017 annual report): “Our nation’s wealth remains intact. As Gertrude Stein put it, ‘Money is always there, but the pockets change.’”  The nation’s founders, Buffett reminds us, “crafted a system that unleashed human potential, and their successors built upon it.  This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped…”

In the 20th century, Buffett, reminds us, the DJIA “advanced from 66 to 11497, a 17,320% capital gain, materially boosted by steadily increasing dividends.”  A similar percentage gain in the 21st century would bring us to 2,000,000 Dow by December 20, 2099.  All along, you can expect naysayers to “prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.”

“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy.  It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”

Two years ago here, I reported what Warren Buffett said in his 2015 annual report: “If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real per-capital U.S. output has sextupled. My parents could not have dreamed in 1930 of the world their son would see. Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one way ticket).  The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a smooth or uninterrupted manner; they never have.  And we will regularly grumble about our government, but most assuredly, America’s best days lie ahead.”  Amen, brother!

Here’s a memorable graphic representation of what Buffett has been saying about the last 200 years:

The World Represented as 100 People Over the Last Two Centuries Charts

Global prosperity has grown exponentially in the last 50 years, with a sharp reduction in poverty and infant mortality and a sharp rise in literacy, education, and vaccinations, along with more democracies.  Let the doomsday crowd have their orgy of negativity, but this chart represents the reality of our world.

Don’t “Sell in May” (or Go Away)

March went out like a lion, whipping up the waters in the bay
Then April sighed and stepped aside, and along came pretty little May.
May was full of promises, but she didn’t keep ‘em quick enough for some.
So a crowd of doubting Thomases was a thinkin’ that the rally’d never come.

--From “June is Busting Out all Over” by Rodgers & Hammerstein, with one word change (rally for summer)

March came in like a lion, with all-time highs on March 1.  April sagged but finally eked out a 0.9% gain for the month.  Year-to-date, the S&P 500 is up 6.43% and NASDAQ almost doubled that, at +12.34%.

After March and April failed to deliver their usual gains, should we now compound our pain and “sell in May and go away”?  After all, that was a winning formula, historically, from 1950 to about 2010.

Lately, the “Sell in May” formula hasn’t worked very well.  Two years ago, I wrote this opening headline in MarketMail (for April 29, 2013): “This Bull Market Has Legs: Don’t ‘Sell in May & Go Away.’”  In the following two years, the S&P gained an average 8.53% from May 1 to October 31 (the historically “bad” months), while it averaged only 5.3% from November 1 to April 30. This year fit the historical pattern a bit better – with small gains (3%) from last May to October and bigger gains (12%) since November 1; but over the last four full years, the average gains from May to October were 4.93%, which is very close to the six-month gains from November to April (+5.51%).  I’d call it a draw.

Six Months' Performance of Standard and Poor's 500 Index Table

The “sell in May” theory has another major flaw.  If you sell, when do you plan to re-enter the market? July is the #2 month in the last century, second only to December, according to Bespoke (see “May Seasonality,” April 27, 2017).  July is up an average 1.08% in the last 20 years.  Do you really want to exit stocks for just two months?  Most investors fail to get back in, foregoing most future market gains.

In addition, the much-ballyhooed “Trump Bump” is pretty unimpressive so far, in historical terms, leaving a lot of room for gains when his tax plan and other economic reforms get turned into law.

Standard and Poor's 500 Performance During the First 100 Days Bar Chart

The bulk of the Trump Bump came before he was sworn in – during what amounted to a post-election “honeymoon” before the dinner plates started flying right after the Inauguration.  A 5.5% gain in the first 100 days may be better than average (see chart above) but it’s nothing compared with the post-inauguration honeymoons which greeted the three Democratic superstars above – FDR, JFK, and BHO.

Markets always carry risk, especially late in a bull market and in historically weak months – like May – but that only means that wise investors will keep an eye out for relative value.

Global Mail:

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

Another Commodity Conundrum

by Ivan Martchev

While it is accepted wisdom that energy is the most important commodity complex, representing over 80% of the dollar volume of trading in commodity markets, there are dozens of important raw materials and soft commodities that also serve as important barometers of the global economy. Two of the major commodity indexes – the CRB Commodity Index and the S&P GSCI Commodity Index – seem to be performing a rather uncomfortable rollover after what seems to be a completed weak rebound off of a climactic low in January 2016. The “rollover” effect is clearly illustrated at the right end of this chart:

Commodities Research Bureau and Standard and Poor's 500 GSCI Indices Chart

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

This weakness in commodity prices comes in a seasonally strong time for commodity indexes, since oil and energy commodities comprise the majority of the S&P GSCI Commodity index (blue line) and March begins the seasonally strong part of the year for the energy complex. Instead, the S&P GSCI Index has “flatlined” and entered what looks to be a volatility squeeze, or a tight sideways trading range.

By comparison, the CRB Index caps oil and related commodities at 33% (see table, below). Note that natural gas – which is often a byproduct of oil drilling – is broken out in a different category and capped at 6%. The CRB Index is more balanced than the S&P GSCI Commodity index and is much weaker. It is clear from the black line, above, that the CRB Commodity index is lower and is “rolling over” more.

Commodity Index Weight Table

All this is fine and dandy but the most important question is why: Why is the CRB Index rolling over and the S&P GSCI Index flatlining the way it is? I can say with a high degree of certainty that the crash in the commodity markets that commenced in mid-2014 – a 50% decline in 18 months – was driven by the slowdown in the Chinese economy. This is because China is the #1 or #2 global consumer of most commodities in these indexes. If the Chinese economy is slowing down, there is a clear multiplier effect where demand for such commodities will fall much faster than the magnitude of GDP slowdown.

How then does one rectify weak or flat commodity indexes with Chinese economic data, which has shown improvement over the past year? This doesn't rhyme in my book. Chinese Manufacturing and Services PMI both declined at last count, but they have both shown improvement since mid-2016.

Chinese Manufacturing and Services Purchasing Managers Index Chart

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

Commodity markets are forward looking and it very well may be that the turn lower in Chinese PMI Indexes after a year of improvement may be the start of a weakening trend that has already shown itself in commodity indexes. Those are the demand considerations.

If the Chinese economy experiences a hard landing, the chances of which are much higher than consensus estimates, I think we are looking at a second leg lower for the major commodity indexes, similar to 1997-1998. The only difference is that Chinese GDP at $11.065 trillion is much bigger than the combined GDP of all countries involved in the Asian Crisis by a factor of two to three times. The present consensus forecast is that the Chinese economy will see accelerating GDP growth in the next couple of years and that the Chinese economy will top $12 trillion in GDP.

China Gross Domestic Product Annual Growth Rate Bar Chart

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

I think those accelerating GDP growth forecasts are pure baloney. I would watch for an acceleration of capital outflows out of China and the action of the USDCNY exchange rate, which is now being gently devalued by the People’s Bank Of China. Those two would be pretty good indicators of the evolution of the Chinese credit bubble unravelling, which may drive commodity prices in the intermediate term.

The Down Under Effect

While Chinese authorities can doctor their own economic data, they cannot doctor the price of globally traded commodities and it would be very hard for them to doctor the exchange rate of the Australian or Canadian dollars, which are major developed market currencies driven by commodity prices.

Standard and Poor's 500 GSCI Index versus the Australian Dollar Chart

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

It is not surprising to see a strong correlation between the CRB and the S&P GSCI commodity indexes vs. the Australian dollar as commodities are the main Australian exports. But in this case, we have a double-whammy effect, as China is the major export destination with 30.8% of exports going there – along with 22.6% of Australian imports coming from China. While this is not as close as the world's most intense trade relationship (between Canada and the U.S., where 76.7% of Canadian exports go to the U.S. and 53.2% of imports come from the U.S.), the trade relationship between Australia and China has evolved much faster as the Chinese economy has grown 11-fold since the turn of the century.

Australia's Trade and Investment Relationships Table

All that tells me that if the Chinese economy sneezes, Australia is likely to catch a cold. Which suggests to me that the present weakening of the Australian dollar should be closely monitored.

Australian Iron Ore Index Chart

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

Iron ore, which is Australia's main export, had an exceptionally weak month of April. I do not believe this is a fluke. There are two drivers of the price of commodities – supply and demand. There was no meaningful increase in the supply of iron ore in a month. That leaves demand to be the issue. The #1 consumer of iron ore is China. I know the U.S. is threatening legal action on the Chinese dumping of steel on the U.S. market, but I do not believe this is the driver here. It is more likely the Chinese economy.

Sector Spotlight:

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

The Unintended Consequences of Cultivating Pet Hippos

by Jason Bodner

In the 1940s, a poor Colombian farmer married a school teacher and they had seven children. Their third child, Pablo, was distraught at his family’s struggles and began selling stolen and sanded tombstones to smugglers. He then stole cars, fake lottery tickets, and other small-time scams. He got his big break when he kidnapped an executive and collected $100,000. With that, he moved into the world of cocaine.

Pablo Escobar ended up being the biggest drug dealer in the world. His story is both horrifying and fascinating. His wealth was shocking. At his peak, Wikipedia shows that he was bringing in an estimated $420 million per week by supplying 80% of the cocaine shipped to the U.S. Annually this was $21 billion. He “wrote off” 10% a year in spoilage, or $2.1 billion, due to rot as storing his cash in warehouses made it susceptible to rats chewing on some of his money. He was a Robin Hood of sorts, giving money to communities to build schools, soccer fields, and other services. He was once on the run with his family, and when his daughter had hypothermia, he burned $2 million to keep her warm. But before you give him father of the year kudos, he hid Monopoly money all over his living room, so he could cheat when he played against his kids. His material possessions were vast and exotic. He even arguably helped shape Colombian ecology: At the time of his death in 1993, his four hippos were left alone, as authorities didn't know what to do with them. There are now nearly 50 hippos roaming the Colombian countryside due to Pablo Escobar.

Pablo Escobar and his Pet Hippos Image

There is still debate over what kind of person Escobar was. To many he was a ruthless murderer and thug who dealt in absolutes. He offered a “silver or lead” policy: Take a bribe or take a bullet. Yet to the poor, some of whom he helped lift up, his contributions were welcome, so he was hailed as a savior of sorts.

Looking at the rise of the market since Trump took office, it would be convenient to attribute the rally to the president, but that is also subject to debate. While that debate surely animates many cocktail parties, the earnings numbers have presented a more plausible reason for the health of the stock market.

The Russell 2000 Roars Back

I have been cautious of this market for some time now, due to indications of slowed institutional buying and increased selling. On February 21 here, I wrote that the market was “overbought” and I expected to see a pullback. While I'll admit that the S&P 500 saw only moderate retracement, the growth-heavy Russell 2000 index moved down roughly -4.6% by mid-April, a fairly good-sized correction.

Russell 2000 Index Chart

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

The Russell 2000 has since rallied back to its late-February high, so it appears that the time to be a doubter of this rally has ended. The information I look at monitoring unusual institutional buying and selling has swung firmly back to buying. It happened swiftly, in the matter of on week. I believe this move is data driven – from earnings reports which are largely positive. As of Friday April 28th, the blended (reported and yet-to-reported) earnings growth rate for the S&P 500 for the first quarter is 12.5%, well above the estimated earnings growth rate of 9.0% as of the quarter’s end, March 31. Should this trend persist after all companies report, it would be the highest year-over-year earnings growth since Q3 2011! Upward revisions to estimates and surprises are contributing to the rise and five sectors are driving this growth: Industrials, Financials, Health Care, Information Technology, and Consumer Discretionary.

Industrials and Financials have been the biggest portion of the rise in earnings growth for the quarter. According to FactSet (see table below), these two sectors account for 44% of the increase in earnings for the S&P 500 since March 31. We have also seen the smallest cuts to Q2 estimates in the S&P 500 since 2014. What this information signals is that earnings are widely working and growth is returning to the market. For this reason, buying can have higher conviction, and institutions are stepping in to provide ballast to the next leg up of this bull market. This is how the sectors shaped up this past week, 3 months, and 6 months:

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

According to FactSet (see tables below), Health Care, Industrials, Information Technology, and Materials have more than 80% of reporting companies beating estimates. Financials is just behind with 78%. In fact, eight of the 11 sectors have more than 70% of reporting companies beating estimates. Reporting companies in Materials, Health Care, Industrials, and Real Estate see more than 70% beating sales estimates. Energy is surprising by the widest margin with a 24.7% earnings surprise for Q1 2017.

Standard and Poor's 500 Earnings and Revenues Bar Charts

Who is ultimately responsible for the visible boost to public companies is not relevant. What is relevant is that they are beginning to thrive like Colombia’s blossoming hippo population. When such unlikely and unexpected benefits are born out of such negativity, it seems fitting to remember the words of Napoleon Hill, who said, “Strength and growth come only through continuous effort and struggle.”

Napoleon Hill Comment Image

A Look Ahead:

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

What if Le Pen Prevails in France?

by Louis Navellier

The stock market rose last week after the results of the preliminary French election came in, based on the belief that France will not be leaving the European Union.  That is because the market currently assumes that the more moderate Emmanuel Macron will defeat the nationalist candidate Marine Le Pen in the May 7 runoff election for President – just like the polls showed that Brexit would fail and Trump would lose!

Macron is an interesting candidate in that he seems to want to please everyone, but no one seems to know what he stands for.  In other words, Macron is a skilled politician who may be able to build a coalition. However, Macron is horrible in debates and is a bit odd in that he married his high school teacher after professing his love for her when he was only 17 – even though she was married and had three children! What might be frowned on in the U.S. is dismissed in France, but if Macron becomes too closely scrutinized, or appears weak in upcoming debates, the more decisive and assertive Le Pen could win.

French Election Button Image

If Le Pen prevails and surprises all the political pundits to become the next French President, the stock market might stumble at first but it would likely not stay down for long, since Treasury bond yields would likely fall in conjunction with the capital flight out of the European Union.  I remain amazed that Treasury bond yields have plummeted, even though inflation has moderated as energy prices have declined in recent months.  These low bond yields are expected to boost stock buy-back activity, since many companies will likely continue to sell bonds to buy back their outstanding shares.

Earnings are Growing Faster than Stock Prices!

Meanwhile, America remains in what I call a “Goldilocks” environment where interest rates remain accommodative, so yield hungry investors continue to turn to dividend growth stocks for better total returns.  Under Trump’s proposed tax plan, bond investors will likely continue to favor high-dividend stocks as an income alternative.  Since dividends are largely taxed at a maximum federal rate of 23.8% (or 20% under Trump’s proposed tax plan), while Treasury bond investors have to pay maximum federal tax of 43.4% on interest income (35% under Trump’s proposed tax plan), dividend stocks should retain their massive after-tax advantage for wealthy investors.  As a result, anytime the 10-year Treasury bond yield gets near the S&P 500’s dividend yield, stocks are attractive.  The 10-year Treasury bond now yields 2.29%, which is only 34 basis points above the S&P 500’s annual dividend yield of 1.95%.

Furthermore, on April 5th, Fox Business reported that the corporate earnings environment is the strongest in over five years and is expected to get even stronger in the upcoming quarters.  On April 30th, CNBC reported that the first-quarter earnings announcement season is going well, with the average stock posting almost a 12% annual earnings growth. However, I must remind you that good earnings tend to be released early, so the stock market could get bumpier in May.  When all the numbers are in, the S&P 500’s first-quarter operating earnings are expected to rise 9.1%, with energy and technology leading the way.  Looking farther out, I expect the earnings environment to get progressively stronger and may even reach 20% annual growth if corporate tax reform is passed in the upcoming months.

Many technology stocks have posted better-than-expected earnings, pushing NASDAQ over 6,000 for the first time.  Through April 30, the S&P is up 6.53% -- not bad – but NASDAQ is up almost twice as much, 12.43%.  The biggest-capitalized “A” list NASDAQ stocks – Apple (AAPL), Alphabet (GOOG), and Amazon.com (AMZN) – are up 24.35%, 17.27%, and 24.31% (ytd), respectively.  Since the S&P and NASDAQ indexes are cap-weighted, they may seem to be a bit “cap heavy” due to the lofty performance of these leading technology stocks, but our friends at Bespoke reported on Friday April 28th, that the S&P 500, on both a cap-weighted and equally-weighted basis, closed April the same – just 0.52% below all-time highs.

*(Please note: Louie Navellier does not currently hold a position in AAPL, GOOG, or AMZN but has previously. Navellier & Associates does currently own a position in AAPL, GOOG, or AMZN for any client portfolios).

Putting these numbers together, the stock market is not going up as much as corporate earnings, so price-to-earnings ratios are actually contracting – even as the market rises.  The big fear, however, is a slowing economy.  On Friday April 28th, the Labor Department released its flash estimate of first-quarter GDP growth at an annual pace of 0.7%, down from a 2.1% rate in the fourth quarter and below economists’ estimate of 0.9%.  A drop in government spending (-1.7%) and an abrupt deceleration in consumer spending (falling from 3.5% to only a 0.3% annual pace) were the primary reasons why first-quarter GDP growth slowed.

The fact that tax refund checks were delayed clearly hindered consumer spending, since retail sales declined in February and March.  Furthermore, on April 28th, New York Times reported that a slowdown in vehicle sales and other big-ticket items also impacted first-quarter GDP growth.  First-quarter GDP calculations are often distorted by seasonal adjustments, but economists are expecting second-quarter GDP growth to grow by at least a 3% annual pace. In the meantime, the good news is that the slow first-quarter GDP growth will likely help to keep Treasury bond yields artificially low, which should help support higher overall stock prices.

The bears that are calling a market top at these levels neglect to discuss the strong earnings environment and the fact that Treasury bond yields remain remarkably low, so please dismiss the fear mongers and the fake news that plagues Wall Street and Main Street.  As always, a best defense is a strong offense of fundamentally superior stocks, so please continue to enjoy this positive earnings announcement season!


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.

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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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