Yellen Warns of “Potential Dangers”

Yellen Warns of “Potential Dangers” in “High Market Valuations”

by Louis Navellier

May 11, 2015

Last Wednesday, Fed chairwoman Janet Yellen said, “I would highlight that equity market valuations at this point generally are quite high,” and then she added, “There are potential dangers there.”  But she also went on to stress that any risk was “moderate” and that she did not see any asset bubbles forming.

Yikes!  Is Ms. Yellen becoming a market timer?  Is the stock market becoming a key indicator on her Fed policy “dashboard?”  The next morning, Thursday, the European markets opened down in the wake of Yellen’s comments. Ironically, she seemed to “prick” world stock markets to make sure that no bubble formed!  But then, on Friday, we saw a strong recovery (+1.35% in the S&P 500) on the U.S. jobs report.

Sunrise ImageIf there was any bubble forming last week, it was probably in the bond market, since German 10-year bund yields rose from their latest intraday low of 0.048% to an intraday high of 0.796% on Thursday over fears of a potential Greek default disrupting the euro-zone. U.S. Treasury 10-year yields also rose from 1.87% to 2.16% in the last few weeks on rising inflation fears due to a weaker U.S. dollar and rising commodity prices.  These rising yields may explain why dividend stocks have not been more resilient in recent weeks, but I noted that on Wednesday many high dividend stocks were firming up fast. Bargain hunters seeking higher yields could be returning to the stock market in search of potentially higher total returns.

Greece made a loan payment of 200 million euros (about $225 million) to the International Monetary Fund (IMF) on Wednesday, but they still owe the IMF a substantially larger payment today.  In a desperate attempt to raise more money, Greece imposed a surcharge on cash withdrawals.  Clearly, Greece is trying to comply with the IMF by restructuring its debt just enough to kick its debt problems a little further down the road; but I would not be surprised if there is another debt restructuring this week.

In the meantime, the rest of the euro-zone is doing well, especially Italy and Spain; so there is a good chance that Greece’s woes will not spoil the economic recovery now underway in the euro-zone.

In This Issue

In Income Mail, Ivan Martchev will examine the latest and somewhat conflicting trends in interest rates, with side trips into REITs and utilities, while Gary Alexander will look at the latest GDP growth statistics with a focus on seasonal trends and the bullish pre-election year market years since 1950. Then, I’ll return to take a closer look at Friday’s jobs report and the other leading economic indicators released last week.

Income Mail:
Lessons from the Bond Rout
by Ivan Martchev
Interest-Rate Sensitive Sectors Don’t Show Much Stress
Category Killers for Utilities and REITs

Growth Mail:
A “Goldilocks” Economy Handcuffs the Fed
by Gary Alexander
First-Quarter GDP Readings are often “Too Cold”
A Pre-Election Year “Bump” May Be Long Overdue

Stat of the Week:
The U.S. Economy Created 223,000 New Jobs in April
by Louis Navellier
Last Quarter’s Strong Dollar Fueled a Soaring Trade Deficit
Exports are declining in China, Too

Income Mail:

Lessons from the Bond Rout

by Ivan Martchev

It is rather strange to see a sell-off in the bond market and a sell-off in the stock market go hand in hand for several days in a row, as we saw last week. Capital usually gravitates from one asset class or sector to another, yet the persistence of a sell-off in sovereign bond markets around the world, particularly in developed nations, has been unusual. The German 10-year bund yield zoomed from 0.062% on April 20 to 0.77% last week, even though it is no higher than where it was in December of last year.

In the U.S., 10-year Treasuries stopped literally at their highest previous point in 2015 at 2.25%. (Their lowest point this year was 1.65%, dating from the end of January.)

Ten Year Treasury Note Yield Chart

Graphs are for illustrative and discussion purposes only. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Performance results presented herein do not necessarily indicate future performance. Please read important disclosures at the end of this commentary.

From a trading perspective, for the 10-year note yield to slam into a downward-sloping 200-day moving average over the past year (see chart) has meant a reversal point where the decline in yields has resumed. If we really are in a deflationary environment, one would expect that this was “it” for the sell-off in bonds.

Why would bonds sell off when the economic data in the U.S. has not been that great of late?

Last week the Commerce Department announced that the trade deficit widened massively to its highest level in seven years. A strong dollar is certainly to blame for surging imports and weaker exports, but this also means that we are looking at downward revisions to GDP. It is entirely possible that first-quarter GDP will be revised down from 0.2% to actually show that the U.S. economy contracted last quarter.

While bonds were selling off, December 2015 Fed fund futures rallied to reach a contract life high of 99.69, indicating that the likelihood of a Fed funds rate hike has diminished. Right now the contract indicates a Fed fund rate of 31 basis points upon settlement in December 2015 (i.e., 100 less 99.69, the forecasted Fed fund rate). That translates to only one forecasted quarter-point rate hike by then. A little over a month ago, that same contract forecasted two rate hikes. If economic data keeps deteriorating, it would be very strange for the Federal Reserve to raise interest rates, even though they had previously been changing FOMC language to prepare the markets for such a move.

The weak economic data in the first quarter of 2015 in the U.S. may have been seasonal, exacerbated by a higher dollar. Over the past three years, the first half has generally been weaker than the second half of the year, which has commonly seen economic activity pick up. This trend is compounded by the ongoing economic slowdown in China, which officially is the second largest economy in the world. Therefore, based solely on the economic data, it is difficult to grasp why bonds have been selling off.

According to Bloomberg.com, one explanation that seems credible is that this sell-off in government bonds is a combination of vastly diminished liquidity in the bond market and increased leverage courtesy of low interest rates and the need to use more leverage to be able to capitalize on central-bank-depressed government bond yields. Liquidity from the bond market has disappeared. For years the depressed volatility has made it hard for traders to make money from swings in corporate or Treasury bonds. Regulators have also discouraged proprietary trading (where dealers trade for their own accounts), which results in much lower inventories of bonds.

Combine that with the need to use more leverage to capitalize on paltry yields and you have too many people leaning on the same side of the same trade. The money from unwinding leverage in bonds does not have to go into stocks, since most of it is not capital; it’s leverage. Based on economic data, I don't think this bond rout should continue. But based on leverage, who knows?

Ten Year Treasury Note - Monthly OHLC Chart

Source: Barchart.com

Graphs are for illustrative and discussion purposes only. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Performance results presented herein do not necessarily indicate future performance. Please read important disclosures at the end of this commentary.

The larger point is that long-term interest rates are mired in a downtrend that started in 1981, which means that the bull market in bonds may not be over. The 10-year note in January was 26 basis points (0.26%) away from its all-time low of 1.39% set in 2012. The 30-year bond yield made a fresh all-time low in January at 2.226%. Based on the global deflationary outlook, I still think that the chance for the 10-year note yield to make a fresh all-time low in 2015 is better than even.

Interest-Rate Sensitive Sectors Don’t Show Much Stress

I would think that if stock market investors were worried about a large spike in bond yields – larger than what we have seen already – their worries would show in interest-rate sensitive groups like utilities and REITs. There is a bit of a sell-off in both sectors, but nothing outside the confines of a normal bull-market correction, which has so far remained in the vicinity of their rising 200-day (40-week) moving averages.

Real Estate iShares NYSE Chart

Graphs are for illustrative and discussion purposes only. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Performance results presented herein do not necessarily indicate future performance. Please read important disclosures at the end of this commentary.

It is said that bulls live above a rising 200-day moving average while the bears live below a declining 200-day moving average. They meet in the middle, when that moving average flattens out, to battle it out. Those rising 200-day moving averages in both utilities and REITs have neither flattened out nor declined, so it may be fair to say that the many worries on the interest-rate front are not yet on stock investors’ minds.

In the case of REITs and utilities, as long-term interest rates have been falling the yields in the sectors have declined across the board as utilities and REITs have rallied. Still, there are wide variations in yields in the sector, so not all REITs are created equal. This variability comes with REITs, too, where rents are the primary drivers of yields. The largest shopping mall operator in the world, Simon Property Group (SPG), has different economic drivers than American Tower REIT (AMT), which rents space on cell phone towers for telecom companies to install their transmission equipment. SPG yields 3.6% while AMT yields 1.8%.

Category Killers for Utilities and REITs

Bricks ImageWe have been hearing for a while about how brick-and-mortar retail is dead and online retail companies will rule the New Economy. Then why are both online retailers and REITs (literally made of bricks and mortar) rallying at the same time?

I have difficulty seeing an internet-only retail economy. Many REITs have driven their quarterly payouts substantially over the past 15 years. In a bull market for bonds, high-yielding investments will do well with such growth in distributions. Online retailers overall do not make a lot of money. Sure, some of them are huge, but revenues are very different than earnings.

Another recent fad is home batteries which are supposed to store solar power at the expense of utilities. No one talks about the costs of the products and how much it also costs to install them. In the end, this is what decides if solar panels and batteries actually save you money.  My point is that all this new technology is fascinating and makes for great stories, but if it does not lead to profitable businesses then those high fliers will not be flying all that high when that realization comes.

Solar Panels ImageAs a practical example, I recently had to replace a natural-gas hot water heater, which is normal every 15 years, or 20 if you are lucky. The “new technology” tankless water heaters require much more natural gas pressure (and natural gas overall) in order to operate at a cost three times that of a normal heater with a water tank. However, most houses have a natural gas line to the old-style water heaters that cannot carry enough natural gas capacity for a tankless water heater; so one has to install new, bigger pipes that carry more natural gas. That puts the cost of installing a tankless water heater about five times that of installing a solid, basic model that has a tank. To me, that provides a great example of how the new technology will have a difficult time competing with the older, classic technology.

Growth Mail:

A “Goldilocks” Economy Handcuffs the Fed

by Gary Alexander

“U.S. stocks closed sharply higher on Friday as investors cheered a jobs report that showed economic growth but not enough, in the eyes of most, to warrant central bank tightening immediately.  Analysts called the April employment figures a ‘Goldilocks’ report because it was just right for gains in stocks.”

-- Evelyn Cheng, CNBC, Friday, May 8, 2015

According to Investopedia, a “Goldilocks Economy” is defined as “an economy that is not so hot that it causes inflation, and not so cold that it causes a recession.”  (Goldilocks is the protagonist of “The Three Bears,” in which one bowl of porridge is too hot, another is too cool, but the third bowl is “just right.”)

The Goldilocks tale was first applied to the U.S. economy in March 1992 by David Shulman of Salomon Brothers, who wrote an article entitled, “The Goldilocks Economy: Keeping the Bears at Bay.” The term gained further currency when there were only two short, shallow recessions in the 25-year period from late 1982 to late 2007.  The economy seldom overheated or turned too cool during that quarter-century, and the Dow rose from 777 in August 1982 to 14,198 in October 2007, a gain of 1,727% in 25 years.

Then came the crash of 2008-09, ending the first era of slow-but-sure (“Goldilocks”) growth:

Real Gross Domestic Product Growth Chart

Graphs are for illustrative and discussion purposes only. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Performance results presented herein do not necessarily indicate future performance. Please read important disclosures at the end of this commentary.

Due to moderate GDP growth over the last six years, the Fed has maintained a zero interest rate policy (ZIRP).  In hindsight, it looks like mid-2014 provided the Fed with a decent opening to raise rates (i.e., when the economy was “hot,” at 5% growth); but with the economy slowing down sharply in early 2015, that window for raising rates is less persuasive (to us). The Fed has said that they are “data dependent,” and the latest data reflects a decided economic slowdown since last summer’s super-hot 5% growth rate.

First-Quarter GDP Readings are often “Too Cold”

In the six years of this bull market, there have been some “too hot” growth spurts (like 4.8% growth in the middle of 2014) and some “too cold” quarters (like the first quarters of 2009, 2011, 2014, and 2015); but the average growth rate in the last six years is about 2% per year – a bit on the tepid side by historical standards, but clearly “warm” enough to dampen inflation and avoid recession over the last six years.

  Source: Bureau of Economic Analysis (BEA) and Statistica.com.  
  Year     Q1     Q2     Q3     Q4     Full year  
2009 -5.4% -0.5% +1.3% +3.9% -0.2%
2010 +1.7% +3.9% +2.7% +2.5% +2.7%
2011 -1.5% +2.9% +0.8% +4.6% +1.7%
2012 +2.3% +1.6% +2.5% +0.1% +1.6%
2013 +2.7% +1.8% +4.5% +3.5% +3.1%
2014 -2.1% +4.6% +5.0% +2.2% +2.4%
2015 +0.2%        
Average -0.3% +2.4% +2.8% +2.8% +1.9%

 

By listing GDP growth rates by quarter, I want to point out how slowly the economy has grown in many recent winters – averaging -0.3% in the first quarter of the last seven years.  The first half averaged just 1% growth vs. 2.8% in the second half, so Goldilocks’ porridge has been cold in winters and warm in summers.

The Fed has expressed a high degree of ambivalence about the temperature of Goldilocks’ porridge, as reflected in the FOMC’s statement following their April 28-29 meeting: “Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced.”

That sounds like the porridge is “just right” for the data-dependent Fed to further delay any rate increases.

In the first quarter of this year, we saw a disappointing 0.2% gain, but that low figure could be revised even lower by the end of June.  First-quarter GDP included sharply rising inventories, which is not a bullish trend, since inventories tend to rise when sales fall.  Real final sales fell 0.5% in the first quarter, vs. a $110.3 billion inventory gain, the most since mid-2010.  In addition, after the GDP report came out the Census Bureau said that imports rose 10.1% last quarter while exports rose only 0.3%.  This trend could push the first-quarter GDP into negative territory when later GDP recalculations are published.

A Pre-Election Year “Bump” May Be Long Overdue

Last weekend, we saw one of the first pre-election debates between Republican Presidential hopefuls in South Carolina.  While the election is 18 months away, the candidates know that campaign season is fast approaching; and this season of “hope and change” is one of the best historical times for the stock market.

Since 1928, the third Presidential year has gained almost as much as the other three years combined:

  *Since 1928: Source: Bespoke Investment Group  
  Presidential Year     S&P Change*     Percent Rising  
#1 +5.13% 54.5%
#2 +4.69% 59.1%
#3 +13.46% 81.0%
#4 +5.53% 71.4%
All Years +7.15% 66.3%

 

The third year of a presidential cycle has been up 18 times in a row, since 1943. Here is a list of gains in both the Dow Jones Industrials and the S&P 500 since 1950, i.e., in the last 16 Presidential cycles:

  Stocks Love the Third Year of the Presidential Term  
  Source: Almanac Investor  
  Year     Dow 30     S&P 500  
1951 14.4% 16.5%
1955 20.8% 26.4%
1959 16.4% 8.5%
1963 17.0% 18.9%
1967 15.2% 20.1%
1971 6.1% 10.8%
1975 38.3% 31.5%
1979 4.2% 12.3%
1983 20.3% 17.3%
1987 2.3% 2.0%
1991 20.3% 26.3%
1995 33.5% 34.1%
1999 25.2% 19.5%
2003 25.3% 26.4%
2007 6.4% 3.5%
2011 5.5% No change
Average: 16.95% 16.94%

 

Since 1950, both the Dow Jones Industrials and the S&P 500 have averaged nearly 17% gains in the third year of the Presidential cycle (the pre-election year). Through last Friday, the Dow is up 2.1% and the S&P is up 2.8% in 2015, so they seem to have a lot of catching up to do to match the historical averages.

Last week, we reached a major bull market milestone when the current bull market became the third longest bull market since 1928.  If this bull market lasts another year, it will become the second longest, and if the S&P 500 surpasses 2225, the current bull market will become the third strongest in history.

  The Longest Bull Markets Since 1928  
  Source: Bespoke Investment Group, using the S&P 500 index  
  Starting Date     Ending Date     Days     Years     Gains  
  December 4, 1987     March 24, 2000     4,492   12.31   582.15%  
  June 13, 1949     August 2, 1956     2,607   7.14   267.08%  
  March 9, 2009     May 8, 2015 (so far)     2,250   6.17   212.79%  
  October 3, 1974     November 28, 1980     2,248   6.16   125.63%  
  July 23, 2002     October 9, 2007     1,904   5.22   96.21%  
  August 12, 1982     August 25, 1987     1,839   5.04   228.81%  

 

In our opinion, the stock market will most likely follow earnings, and the latest earnings season was not as dismal as once feared. FactSet’s Jonathan Butters reported on Friday that earnings growth for S&P 500 companies turned positive last week for the first time since January (see chart, below). Of 447 S&P 500 companies reporting so far, 71% have beaten average earnings estimates. Butters summarizes the quarter just past:

“The aggregate amount by which companies are reporting earnings above estimates for Q1 (6.4%) is well above the 5-year average (5.4%). In fact, if 6.4% is the final surprise percentage for the quarter, it will mark the highest surprise percentage for a quarter since Q1 2011 (7.0%). Thus, the above average surprise percentage for Q1 is the main driver of the above average increase in the Q1 earnings growth rate since March 31.”

Standard and Poor's 500 Earnings Growth Chart

Graphs are for illustrative and discussion purposes only. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Performance results presented herein do not necessarily indicate future performance. Please read important disclosures at the end of this commentary.

First-quarter EPS growth is 7.7% without the energy sector, which could turn around if oil prices keep rising. In addition, we can take some solace from the fact that investors are far from euphoric, despite the near-record high levels of many market indexes.  The overall bullish sentiment in the weekly survey of American Association of Individual Investors (AAII) dropped to 27.06% last week from 30.8% the week before.  This is the 9th straight week in which the AAII bearish sentiment has been below the long-term bull market average, and it is the lowest percent since April 2013.  This doesn’t mean the bulls are turning bearish.  The biggest category is neutral, currently at 46.1%.  The number of fence-sitters has been above 45% for five straight weeks, the longest since early 1988 (just after the traumatic October 1987 crash).

There are no guarantees, of course, but rising corporate earnings in a slow-growth “Goldilocks economy” could support higher stock prices and a Federal Reserve that keeps finding reasons to keep rates low.

Stat of the Week:

The U.S. Economy Created 223,000 New Jobs in April

by Louis Navellier

The Bureau of Labor Statistics reported last Friday that nonfarm payroll employment rose by 223,000 jobs in April vs. a downwardly-revised 85,000 jobs in March.  The unemployment rate reached a new cyclical low of 5.4%. (The Federal Reserve views “full employment” as being in the 5.0% to 5.2% range.)

Interest Rates ImageThe bad news is that wages grew by an anemic 3-cents per hour and the average work week remains at only 34.5 hours due to all the temporary jobs. In addition, U.S. productivity declined in two straight quarters for the first time since 2006.  In the past four quarters, worker productivity has risen by a scant 0.6%.  Although falling productivity can be good for job creation, it is not good for wage growth, since businesses do not want to pay workers more for being less productive.  Since Fed Chair Janet Yellen said that she does not want to raise rates before there is sustainable wage growth, the weak wage market and declining productivity is just another reason why I think the Fed will not be raising interest rates this year.

The service sector is creating most of the jobs in the U.S.  The Institute of Supply Management (ISM) reported last week that its non-manufacturing index rose to a robust 57.8 in April, up from 56.5 in March, well above economists’ consensus estimate of 56.5 and a pleasant surprise.  Overall, as long as the service sector continues to expand, payroll job growth should continue to improve in the upcoming months.

Last Quarter’s Strong Dollar Fueled a Soaring Trade Deficit

Container Ship ImageOn Tuesday, the Commerce Department announced that the trade deficit soared to $51.4 billion in March, up from $35.9 billion in February, reaching the highest level in seven years (since 2008).  Imports surged 7.7% in March to $239.2 billion, while exports only rose 0.9% to $187.8 billion.  The West Coast port slowdown contributed to lower U.S. exports in March.  Additionally, a strong U.S. dollar undoubtedly hindered U.S. exports.  Since the preliminary first-quarter GDP estimate of 0.2% growth did not include the March trade data, virtually all economists now expect first-quarter GDP to fall to zero, or lower.

Exports are declining in China, Too

Elsewhere around the globe, China announced on Tuesday that its exports declined 6.4% in April, following a 15% decline in March.  The Chinese New Year is no longer a valid excuse for this dramatic drop in exports.  Instead, a strong Chinese yuan and weak global demand are now being cited as the primary reasons for the dramatic drop in exports.  Meanwhile, China’s imports declined 16.2% in April, following a 12.7% decline in March, so there is growing concern that China’s domestic economy is faltering.  China’s GDP is growing at the slowest pace in six years and its central bank is now embarking on an aggressive stimulus program, so it will be interesting if overall economic growth perks up soon.

The Reserve Bank of Australia cut its benchmark interest rate to an all-time low of 2% from 2.25% last week, so China may follow Australia with an interest rate cut to boost overall economic growth.

On the positive side, HSBC’s China services purchasing managers index (PMI) rose to 52.9 in April, up from 52.3 in March, the fourth straight monthly rise.  New orders and the employment components were especially strong within the HSBC services PMI.  I should add that China’s official non-manufacturing PMI slipped slightly to 53.4 in April, down from 53.7 in March.  Since any reading over 50 signals an expansion, it appears that China’s services sector is now leading its overall economic growth.


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.

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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.

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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.

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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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