The Market Rose Through Two Painful Historical Anniversaries

Excerpt from Louis Navellier's Marketmail - 09/18/2018

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Last week the S&P 500 rose every day of the week, closing up 1.16% despite two tragic anniversaries – the 9/11 observance and the 10th anniversary of the 2008 market crash. Like every 9/11 anniversary, I am relieved that there has not been another major terrorist attack on U.S. soil, but I must say that the financial media’s coverage of the cause behind the 2008 financial crash has been pathetic, since they fail to account for the government’s role in causing and then exacerbating the crisis. I did my best to name names and reveal exactly what happened in my white paper, “Did the Government Really Cause the 2008 Crash?” 

This report lays out the chain of events that triggered the collapse of Bear Stearns and Lehman Brothers as well as why Citigroup eventually was deemed “too big to fail.” Furthermore, this white paper discusses the biggest risk to financial markets since 2008, including the August 2015 intraday “flash crash.” 

Just click this link to read my white paper.

I sincerely hope that all of you in the Carolinas and nearby regions are safe from Hurricane Florence!


In This Issue of Marketmail (Click Here to Read)

Even though the media headlines are getting more negative by the week, the market seems to ignore the noise. Bryan Perry examines the under-covered trend of global financial assets pouring into the U.S. as a safe haven. Gary Alexander cites the epidemic of toxic headlines. The problem, he says, is that too many people believe this bad news and avoid the stock market altogether. Ivan Martchev returns to his New Year’s predictions that gold would go down this year, but Bitcoin would go down a lot more. Jason Bodner examines whether Technology is in the process of a ‘Tech Wreck’ or merely taking a much-needed breather. In the end, I’ll return to examine inflation and other recent indicators to determine whether the Fed will be hawkish or dovish in their statement after their FOMC meeting next week

Income Mail:  

The Capital Flight to U.S. Assets is Relentless

There’s No Place Like Home – The USA

 by Bryan Perry

  

Growth Mail:  

The Negativity in the Air is Getting Crazier by the Week

Headlines Tell Us What to Think – And We Mindlessly Obey

by Gary Alexander

  

Global Mail:  

Bitcoin: When Manias End

Update on the Gold/Bitcoin Ratio

by Ivan Martchev

 

Sector Spotlight:  

Change is All Around Us – But Which Direction Next?

Technology Still Holds the Key to Mankind’s Future

by Jason Bodner

 

A Look Ahead:  

Inflation Remains Subdued, Despite Oil’s Price Rise

The Other Economic News Should Cause the Fed to Be Cautious Next Week

by Louis Navellier

Despite September Fears, the Market's Best Season Approaches

Excerpt from Louis Navellier's Marketmail - 09/11/2018

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The S&P declined each day of the holiday-shortened first week of September, but it only fell 1% in all. That’s nothing to worry about, but the bears were out in full force warning about the potential of a September crash, especially in light of the upcoming 10th anniversary of the 2008 financial panic. We may indeed have a “flash crash” or a normal correction, but I expect we’ll see quarter-ending window-dressing and ETF rebalancing, which typically benefits stocks. At the same time, the Fed will likely raise rates on September 26th and then issue a “dovish” statement, which should boost the market as September ends.

Then, beyond September, we have the year’s strongest quarter to look forward to. October in the past 20 years has been seasonally strong. Furthermore, forecasted third-quarter sales and earnings are expected to remain strong, thanks to 4.4% estimated GDP growth, so “peak earnings momentum” has yet to arrive. I expect wave after wave of strong announcements to propel stocks higher in October. I also expect the market to rally after the mid-term elections in early November, regardless of the results, since most of the political distractions will finally be over. Finally, as Thanksgiving nears, typically an early “January effect” commences as small-to-mid capitalization stocks tend to end the year on a strong note.


In This Issue of Marketmail (Click Here to Read)

In Income Mail, Bryan Perry focuses on the Fed’s favorite yield curve measure, which indicates more shelf-life in this economic recovery and bull market. In Growth Mail, Gary Alexander looks at the added caution evident among most investors as well as “Gen-Z” youth in their savings after the trauma of 2008. Ivan Martchev returns to the precious metals market to examine the “great gold/silver divergence,” as well as the sagging mining stock sector. Jason Bodner’s Sector Spotlight contrasts the yin-yang of weak sectors winning in down weeks while strong sectors still dominate the year-to-date gains. Then, in the end, I’ll return with my answer to the latest doomsday theory, the coming “Great Liquidity Crisis.”

Income Mail:  

Bulls Find New Catalyst to Bankroll More Gains

A Better Interest-Rate Indicator Gives the Bulls a Green Light

 by Bryan Perry

  

Growth Mail:  

The Trauma of 2008 Created More Cautious Investors

Economic and Market Fundamentals are Still Strong

by Gary Alexander

  

Global Mail:  

The Great Gold/Silver Divergence Continues

What Mining Stocks are Telling Us

by Ivan Martchev

 

Sector Spotlight:  

A Week of Worries Assaulted Investors Once Again

Get Prepared Now for a Strong Fourth Quarter

by Jason Bodner

 

A Look Ahead:  

Are We Headed for A "Great Liquidity Crisis"?

Unlike 2008, We're Nowhere Near a Recession

by Louis Navellier

Reflections on What Happened 3 Years Ago and Its Impact on ETF Trading

by: Louis Navellier

Today marks the third year anniversary of an "intraday flash crash" that had devastating consequences. Specifically, on August 24, 2015, approximately 1,278 stocks "gapped down" more than 5% at the opening, so the NYSE stopped trading on those stocks. However, ETFs continued to trade; but without knowing the underlying value of how much the 1,200+ stocks would reopen at, the ETF specialists at the time abruptly dropped their bids on ETFs approximately 35%. The apparent reason the ETF specialists only dropped their bids 35% was back in the May 6, 2010 intraday 5-minute flash crash when all trades that dropped 40% or more were reversed as if they never happened. The ETF specialists knew that they should not cross that 40% threshold, so they just "picked off" everybody 35% intraday instead. The next two charts show the intraday carnage:

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The reason I showed the iShares Select Dividend ETF (DVY) being hit 34.95% intraday on August 24, 2015, is that I wanted to prove that a big, well-respected ETF, with high Morningstar Ratings as well as a nice dividend yield, was not immune to intraday Wall Street specialist shenanigans. Furthermore, a high dividend stock at the time, KKR, plunged 58.82%, apparently fuelled by intraday margin calls from investors that unwisely bought KKR and other high dividend stocks on margin.

The moral of the August 24, 2015 intraday flash crash is that Wall Street is only liquid at a deep discount and that stop loss orders cannot protect you from intraday ETF and stock price anomalies. The aftermath of the August 24, 2015 intraday flash crash triggered lots of interesting articles like the following:

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Ironically, if you go to Morningstar and key in DVY, it shows that currently iShares Select Dividend ETF (DVY) is a well-respected 5-star ETF. Furthermore, DVY's monthly Premium/Discount according to Morningstar is very low. In fact, in August 2015, the average discount was only -0.01%. So this implies that despite the 34.95% intraday drop on August 24, 2015, this price drop must have been an anomaly, since the average discount was only -0.01% during August 2015. 

As a quantitative analyst, the only way I can duplicate Morningstar's monthly Premium/Discount calculations is to calculate volatility based on closing day prices, which effectively mask the 34.95% intraday drop on August 24, 2015. However, when I do "full range" volatility based on all trades of DVY during August 2015, the 34.95% intraday discount reappears. In other words, based on my calculations, Morningstar is not doing its math correctly, since it appears that its monthly Premium/Discount calculations are based on an end of the day closing price, versus all intraday ETF trades during the day.

When you look at only ETF trades at the end of the day, it tends to show a very pretty picture of many ETFs. As an example, our friends at Bespoke recently published a fascinating research article (below) called "Fear the Day." Specifically, Bespoke's research pointed out that if you bought the biggest and most liquid ETF, namely SPY, at the opening and sold it at the close every day since January 1993, between January 1993 to January 2018 you would lose -11.9%. On the other hand, if you bought SPY at the close and covered it at the opening every day since January 1993, between January 1993 to January 2018 you would make 565%! This amazing 576.9% return differential is due to the fact that Bespoke's research proved that more than 100% of SPY's gains since 1993 happen after market hours. 

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So apparently, the moral of the story is that if you want to be a successful ETF investor you have to stop trading ETFs during the day! Well not exactly. If you can successfully buy or sell an ETF at or near its net asset value or what Morningstar calls Intraday Indicative Value, then go ahead and trade during market hours. However, as too many ETF managers have learned, moving big blocks of ETFs during market hours can be problematic, which is why my management company has stopped trading via many large model management platforms that insist on doing the ETF trading themselves, which raises the conflict that the ETF specialists can pick off ETF managers as the following article explained for one unfortunate ETF manager:

At my management company, we are currently proud to be the #1 ETF manager according to Morningstar Advisor out of the 469 GIPS certified managers in the past 3 & 5-years (see next page). However, if we signed up for many popular model management programs that financial advisors utilize, we would not be always be able to effectively execute our ETF trades, so you will not see Navellier & Associates' managed ETF portfolios in many of the big model management programs, since we do not want to lose control of ETF trading. In my opinion, the best model management program is led by Craig Love at Fulcrum EQ in Dallas, because his platform allows big "step out" trades with the ETF firms themselves. Essentially, when we have to move big blocks of ETFs, we have the option of calling the respective ETF firm and they help us move big blocks of ETFs with minimal premiums/discounts.

So the moral of this story is that much of our managed ETF success comes from (1) waiting to trade ETFs during orderly markets with minimal premiums/discounts relative to net asset value, (2) avoiding poor trading platforms that prohibit "step out trading" to more effectively move big ETF blocks, and (3) naturally buying great smart Beta ETFs, especially the AlphaDEX ETFs from First Trust. I should also add that so far in 2018, our ETF turnover has been low, since we remain in a very selective market that is favoring a few key sectors and more domestic small-to-mid capitalization stocks. ETFs that emphasize fundamentally superior stocks and are more equally weighted, like the First Trust AlphaDEX ETFs, remain crucial for our success in the current market environment.

 

Disclosure:

This information is general and does not take into account your individual circumstances, financial situation, or needs, and is not presented as a personalized recommendation to you. This is for informational purposes only and should not be taken as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in your investment making decisions. Individual strategies discussed may not be suitable for you, and it should not be assumed they were or will be profitable. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. All investing is subject to risk, including the loss of your principal.

Earnings Season Delivers Second-Straight Spectacular (24%+) Gains

Excerpt from Louis Navellier's Marketmail - 08/21/2018

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This week basically wraps up earnings season and it looks like it will be the second straight quarter of 24%+ earnings growth. On Thursday, NVIDIA (NVDA) announced better-than-expected second-quarter sales (up 39.9%) and earnings (up 91.3%!). NVDA is my largest holding and it has now exceeded analyst expectations for 12 straight quarters, which is truly amazing. Unfortunately, the company lowered third-quarter sales guidance to $3.19 billion, down from $3.32 billion previously estimated due largely to the fact that its crypto data mining sales are now immaterial. Although NVIDIA beat analysts' estimates in all other sales categories, there was an adverse reaction to the crypto news. Frankly, I never invested in NVIDIA for its ancillary crypto data mining sales so in my opinion the stock remains an outstanding buy! 

NVIDIA's stock should firm up fast, just like Home Depot (HD) did after briefly consolidating after its better-than-expected second-quarter results. Home Depot on Tuesday announced better-than-expected second-quarter sales (up 8.4%) and earnings (up 31%) while raising its 2018 guidance. Initially, Home Depot stock consolidated, but then it firmed up in subsequent days. The moral of this story is that better-than-expected sales, earnings, and guidance are working, even though it sometimes happens with a delay. 

The dollar is strong while the Turkish lira is collapsing, and the Chinese yuan continues to decline. In the past three months, the yuan is down 8% to the U.S. dollar. This has been unfortunate for the Chinese ADRs that I had recommended, so I have sold most of them, despite their continued strong sales and earnings.

Navellier & Associates owns Home Depot & NVIDIA in both managed accounts, a sub-advised mutual fund and in family accounts."


In This Issue of Marketmail (Click Here to Read)

Thursday is an important day, with U.S./China trade talks, the last large list of second-quarter earnings releases, and the Kansas City Fed's annual meeting in Jackson Hole, Wyoming. First, Bryan Perry digs deep into the "end game" strategies of the coming U.S./China trade talks, while Gary Alexander looks at history for clues that may emerge from the Jackson Hole talks. Ivan Martchev turns his attention to gold, in light of the negative correlation between gold and the strong U.S. dollar. Jason Bodner addresses the all-important question of price: Should we look for low-priced bargains or winners on the rise? In the end, I'll return to look at the China trade talks and the global economic outlook in light of the Turkey crisis.

Income Mail:  

Trump's Constrictor Strategy Begins to Pay Off  

Trump's Master Plan - To Destabilize and Weaken China?

 by Bryan Perry

  

Growth Mail:  

Market Clues Point to a Strong "Final Third" of 2018  

Watch China Trade Talks and Jackson Hole for Major Market Cues

by Gary Alexander

  

Global Mail:  

What's Behind Gold's Dip to $1,160?

The Broad Dollar Index is Much Stronger

by Ivan Martchev

 

Sector Spotlight:  

Does a Higher Price Mean Higher Value?

Weekly Winners Vary, But Long-Term Winners are Consistent

by Jason Bodner

 

A Look Ahead:  

China May "Blink" First in the Trade War Talks  

Germany and the U.S. Seem Untouched by the Turkey Crisis

by Louis Navellier

Earnings Season Begins Strongly, as the S&P 500 Nears Record Highs

Excerpt from Louis Navellier's Marketmail - 08/7/2018

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The daily oscillations in the stock market have been largely subdued due to stunning second-quarter results. Last week began with a flagship NASDAQ stock, Apple (AAPL), reporting better-than-expected sales and earnings on Tuesday. Many leading NASDAQ tech stocks are enjoying recurring service revenue from their cloud backup services, which continues to boost their sales and earnings. Although not all NASDAQ stocks pay a nice dividend or have predictable earnings, the fact that two NASDAQ companies - namelyAmazon.com and Apple - should each become $1 trillion market capitalization companies soon (Apple crossed $1 trillion last Thursday) is helping to boost investor confidence.

(Please note: Louis Navellier does not currently hold a position in Apple & Amazon. Navellier & Associates does not currently own a position in Apple & Amazon for client portfolios).

With the majority of stocks in the S&P 500 having announced second-quarter results, sales have risen at a 10.3% annual pace while earnings have risen at a 26.7% annual pace. Folks, this is stunning, because this means sales and earnings are running at 1.5% and 5.2%, respectively, above already-lofty expectations. Despite a currency headwind for many multinational companies, "peak earnings momentum" has not yet materialized. Although the remaining second-quarter S&P 500 earnings may decelerate a bit, there is no doubt that the second quarter will rival the first quarter as a record-high earnings announcement season.


In This Issue of Marketmail (Click Here to Read)

Bryan Perry takes a closer look at China and sees more than "currency manipulation" going on, perhaps some capital flight, which should drive China's leaders to the bargaining table. Gary Alexander looks beyond the monthly jobs report to two long-term trends - one positive, one negative - rising real wages and the disappearance of many prime-working-age males. From Bulgaria, Ivan Martchev weighs in on the emerging markets crisis, focusing on China and then Turkey. Jason Bodner signals the end of the Dog Days with a review of the rapidly-changing sector traffic patterns of summer, while I take a closer look at earnings trends and GDP in light of trade war rumors, along with an analysis of the latest ISM statistics..

 

Income Mail:  

Capital Flight Out of China - A Better Market "Tell"  

Is the Weak Yuan a Result of Manipulation or Something Structural?

 by Bryan Perry

  

Growth Mail:  

Ignore the Monthly Jobs Report: Look to Long-Term Trends Instead   

Where Have all the PWAMs (Prime Working Age Males) Gone?

by Gary Alexander

  

Global Mail:  

Welcome to the August Doldrums in Eastern Europe

The Dollar/Emerging Markets Empirical Test

by Ivan Martchev

 

Sector Spotlight:  

The "Dog Days of Summer" are Almost Over

Sector Rotations are More Rapid in the Summer Months

by Jason Bodner

 

A Look Ahead:  

Will Tariffs Help or Hurt (or Not Impact) Earnings and GDP?  

ISM Statistics Move Sharply Lower: Temporary or Worrisome?

by Louis Navellier

Markets Rise Strongly in Early July, Despite China Fears

Excerpt from Louis Navellier's Marketmail - 07/17/2018

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The S&P 500 is up over 3% in the first half of July and Nasdaq is at an all-time high, despite the ongoing tariff disputes with China. I believe the press has overblown the "trade war" story, but the overall market is waking up to the fact that the likely eventual outcome will be fewer tariffs and fairer trade in the end.

I'll believe there is a true trade war with China when I see most of the shelves at Best Buy and Wal-Mart empty, since the vast majority of their goods are made in China. China still has a huge trade surplus with us. For every dollar of U.S. exports to China, the U.S. imports $3.87 of Chinese merchandise, so China has a lot more to lose than the U.S. does. In the end, I expect that China will seek a truce on trade tariffs.

My global expert, Ivan Martchev, has been writing about China a lot lately. As he has pointed out, China and the U.S. are dependent on each other. As a result, the relationship President Trump has with Chinese President Xi Jinping is very important. I suspect that the Trump Administration will not try to publicly humiliate President Xi Jinping, like he has been doing to our Canadian and German allies. Instead, I expect that the tariff "war" between the U.S. and China will be resolved diplomatically. As a result, every market dip on trade concerns represents a buying opportunity for our recommended U.S. and global stocks.


In This Issue of Marketmail (Click Here to Read)

Bryan Perry compares the Shanghai and American stock indexes to demonstrate why China needs trade resolution more than America does. Gary Alexander shows how great earnings and other indicators trump the shrinking yield curve when it comes to predicting U.S. economic growth. Ivan Martchev turns his attention to zero-coupon Treasuries as the preferable bond play now, while Jason Bodner sees the same two or three sectors continuing to lead this market higher. I'll return with a few comments on German-American trade talk and the latest oil and inflation news, as well as some specific energy stock picks.

 

Income Mail:  

It's "Shanghai Noon" for the Chinese Stock Market

Broken Links in the Global Supply Chain are the Real Risk

 by Bryan Perry

  

Growth Mail:  

Let's "Make Earnings Great Again" (MEGA)

Is the Shrinking Yield Curve Signaling a Recession?

by Gary Alexander

  

Global Mail:  

U.S. Treasury Zeroes, the Contrarian Trade of the Century

The Yuan is the Weapon of the Sun Tzu Disciples

by Ivan Martchev

 

Sector Spotlight:  

When Predictions Don't Work...Change Your Mind!

The Same Leaders Are Driving This Market Higher

by Jason Bodner

 

A Look Ahead:  

German-American Language Differences

Higher Oil Prices Spark a New Wave of "Temporary" Inflation

by Louis Navellier

Stocks Open the Second Half of 2018 on a Positive Note

Excerpt from Louis Navellier's Marketmail - 07/10/2018

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The S&P rose 1.52% last week with the biggest surge (+0.85%) on Friday. NASDAQ did even better (+2.37%) while the Russell 2000 doubled the S&P 500 with a 3.10% gain. Earlier in the week, market oscillations were caused by air pockets that are common in the summer months and may continue in upcoming weeks. However, thanks to record stock buyback activity as well as dividend increases, the market continues to meander steadily higher. Whenever the market meanders higher on light trading volume, that is a very good sign, since it can potentially go up a lot more when trading volume rises when the second quarter announcement season begins.

If you drove a lot during the long holiday week, don't get mad about the high prices at the pump. Instead, you can profit from those higher gas prices. Refiners are expected to post very strong earnings from the highest "crack" spreads in approximately three years. Our stocks that receive a double-A grade ("A" in both Dividend Grader and Portfolio Grader) are dominated by refiners like Valero Energy (VLO), which should post exceptionally strong earnings from those spreads.

(Please note; Louis Navellier currently personally owns a position in VLO, Navellier currently owns a position in VLO for client portfolios)

I also bet that your weather has been sizzling hot lately! Not only is the US setting record-high temperatures, but so is Canada, Europe, the Middle East and Asia. This hot weather is helping boost natural gas demand, since much of the US has natural gas power plants designed to meet extraordinarily high air conditioning demand. That means the only weak energy commodity, natural gas, is now resurging, since the weather is expected to remain hot well into September.

Also, multiple "heat domes" around the world are creating tropical depressions, so it looks like this could be a record season for hurricanes, so re-insurance companies like Berkshire Hathaway may be at risk if we suffer more natural disasters, such as the new wave of fires out West.

(Please note; Louis Navellier currently does not own a position in Berkshire Hathaway, Navellier currently does not own a position in Berkshire Hathaway for client portfolios)


In This Issue of Marketmail

Overall, our authors deliver a side of the trade war story that you don't often hear, and our angle is beginning to resonate with investors who are tired of the scare stories that have dominated the press since January. Bryan Perry begins by showing how the bulls bought stocks big on the day the tariffs were added. Then Gary Alexander shows Trump's secondary goal of attacking product piracy as well as our trade deficits. Ivan Martchev shows how far more tariffs have been imposed than implemented, while Jason Bodner shows why America is still the best place for your stock money. I'll return to give you a media report on trade jitters, along with the latest jobs data.

 

Income Mail:  The Bulls Want to Bust Out of the China Shop  

Utilities: A Surprising Summer Sweet Spot

 by Bryan Perry

  

Growth Mail:  Of Doomsday Books and Articles, There Will Be No End  

Case in Point: Trump's Tariffs are Not "Smoot Hawley II" 

by Gary Alexander

  

Global Mail:  What the Goldman Sachs Indicator is Telling us Now
Business Cycle Statistical Distribution

by Ivan Martchev

 

Sector Spotlight:  When to Bet on "Impossible" Comebacks - In Sports and Stocks
Leading Sectors for First Half: Consumer Discretionary & Info Tech 

by Jason Bodner

 

A Look Ahead:  All the Scary Tariff Talk is Beginning to Backfire  

US Job Growth Soars, But We Need More Qualified Workers

by Louis Navellier

We're in the 2nd Longest Bull Market Run, EVER...

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original article from John Waggoner (InvestmentNews.com)

It's been said that “bull markets don’t die of old age; they die of fright.”

Usually, that fright doesn't come from high prices or panic in the market...it comes from external events: war, oil shortages, unexpected financial collapse, etc.

Here’s a look at the nine bear markets since World War II — and the events that precipitated them.

May 1946 — May 1947

Dow decline:  -23.2%

Cause: Sharp Winding Down of the War Effort

Stocks had soared starting in 1942, once victory in World War II seemed more likely. As the troops came home, however, government factory jobs ground to a halt, industrial production plunged and investors feared the return of the Great Depression.


December 1961 — June 1962

Dow decline:  -27.1%

Cause: Rising Cold War Fears, Labor Unrest

The failed Bay of Pigs invasion of Cuba in August 1961 stoked Cold War fears. Under pressure from President John F. Kennedy, unions negotiated modest salary increases. The president was furious when the industry promptly hiked prices $6 a ton. "My father always told me that all businessmen were sons of bitches, but I never believed it until now,” he said, sparking fears of an anti-business administration.


February 1966 — October 1966

Dow Decline:  -25.2%

Cause: The Costs of War

The “Go-Go” years hit a speed bump. The Federal Reserve warned in March 1965 that the economy was close to overheating. Treasury bill rates and the consumer price index began rising. The U.S. bombing of Hanoi marked a substantial increase in the Vietnam war effort.


December 1968 — May 1970

Dow Decline:  -35.9%

Cause: Political Turmoil

Race riots in Detroit in July 1967 were just a taste of what was to come in the next two years as the nation struggled with rioting after the murder of Martin Luther King Jr., the murder of Robert Kennedy and massive anti-war demonstrations. Inflation rose to 6% and Treasury bill yields headed north of 7%.


January 1973 — December 1974

Dow Decline:  -45.1%

Cause: Oil Embargo, Watergate

The Arab Oil Embargo started in October 1973, sparking long gas lines, price spikes and an 11.5% prime rate. The Watergate scandal helped push stocks down even more as President Richard Nixon resigned and President Gerald Ford pardoned him.


April 1980 — August 1982

Dow Decline:  -24.1%

Cause: Inflation Whipped

Paul Volcker became chairman of the Federal Reserve in July 1979, and set out to crush soaring inflation by raising rates to unprecedented heights. By December 1979, the prime rate hit 21.5%, and by August 1982, unemployment was at 10.5%.


August 1987 — October 1987

Dow Decline:  -36.1%

Cause: Rising Interest Rates

One of the greatest bull markets of all time was born in the wake of the 1982 bear market, buoyed by falling interest rates and Reagan-era tax cuts. Inflation jitters sent the bellwether 10-year Treasury note yield to 10.1% in October 1987 from 7% in January, sparking a flight to safety. The Dow plunged 22.6% on Oct. 19, 1987, still the sharpest one-day drop in history. (An equivalent drop today would take the Dow down nearly 5,000 points.)


March 2000 — October 2002

Dow Decline:  -38%

Cause: Insane Prices

Here’s a bull market that actually did die of fright. Stock prices gleefully soared to astonishing heights, and some of the highest fliers didn’t actually have earnings. Selling began in March 2000, tearing the technology-laden Nasdaq the hardest.


October 2007 — March 2009

Dow Decline:  -53.8%

Cause: Housing Market & Banking Collapse

For a brief time in 2006, all you really needed to buy a $1 million starter castle was a bright smile and a cowboy mortgage broker. Thanks to the miracles of Wall Street engineering, investors found that bundles of bad loans were just as bad as individual bad loans. The mortgage miasma sucked down some of the biggest institutions on Wall Street, from Countrywide bank to Lehman Brothers.

 

Mid-Year Review: A "Goldilocks" Investment Environment Continues

Excerpt from Louis Navellier's Marketmail - 07/03/2018

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In my podcast last week, I pointed out that the stocks being added to the Russell 2000 index were very firm. Furthermore, I named multiple stocks that would benefit from the quarter-ending smart-Beta realignment. The bottom line is that money is not leaving the stock market, it is merely being reshuffled.

I should add that so far this year, stock buy-backs have risen 42%. In the first quarter, stock buy-backs in the S&P 500 hit an all-time record of $137 billion and I expect that the second quarter figure will be even larger. It is important to point out that the stock market has not risen as much as earnings have risen this year, so price-to-earnings ratios continue to decline. Since companies with a high return-on-equity (ROE) and low forecasted price-to-earnings ratios love to buy their shares, this buy-back trend should continue.

I was also watching the bid-to-cover ratios during last week's Treasury auctions and there were a lot more bidders than buyers, so the bid-to-cover ratios continue to rise, and Treasury yields continue to moderate. Market rates remain soft, especially the 10-year Treasury bond. This will continue to take pressure off the FOMC to raise rates further, despite robust GDP growth. Overall, the current interest rate environment, combined with robust sales and earnings means that we remain in a Goldilocks investment environment.

 


In This Issue of Marketmail

Our authors agree that uneven trade barriers need fixing but talk of a "trade war" is overblown. Bryan Perry believes that Chinese and American leaders need to find a way to overcome their "language barrier" by next Friday or the market could undergo another "tariff tantrum." Gary Alexander looks beyond the media headlines to find an under reported story - this time, in European immigration and GDP reduction. Ivan Martchev looks at the trade war through the measuring rod of the Chinese yuan. He also surveys China's "ghost cities" to see where the Chinese credit bubble began. Jason Bodner's angle on the trade war is how the algorithmic traders keep generating new buying opportunities by creating mini-market quakes after every new tariff announcement. I'll close with a little wisdom from the auto makers I met in Alabama last week, plus late news on Sunday's Mexican election and the latest U.S. economic barometers.

 

Income Mail:  Is Tough Trade Talk Risking a New "China Syndrome"?  

Comparing American Apples and Chinese Oranges

 by Bryan Perry

  

Growth Mail:  After 242 Years, America is Still the World's #1 Safe Haven   

First Half Winners: Oil, Nasdaq & Small Stocks (Big Loser: Bitcoin)   

by Gary Alexander

  

Global Mail:  China's Empty Cities Sure Don't Come Cheap
Weaponizing the Yuan

by Ivan Martchev

 

Sector Spotlight:  Don't Mind the Small Market Quakes
The Ups and Downs of the Trade War Story 

by Jason Bodner

 

A Look Ahead:  Alabama Sees Through the Media's Scare Tactics

The Other Economic News Was Not So Exciting Last Week

by Louis Navellier

S&P 500 - Sector Change

S&P 500 SECTOR CHANGE ANNOUNCEMENT

Recently the GICS (Global Industry Classification Standards) Index Manufacturers, together with S&P Dow Jones Indexes, announced that they were re-aligning the Sectors of the S&P 500. The major changes include:

  • Renaming Telecommunications to Communications.
  • Repositioning 18 media and entertainment companies from Consumer Discretionary and adding them to Communications, including Netflix, CBS and Walt Disney.
  • Repositioning 5 entertainment and software services companies from Technology and adding them to Communications including Google and Facebook.
  • Repositioning EBAY from Technology and adding it to Consumer Discretionary.

In Summary, these changes will result in a 6% reduction in the size of the Technology Sector and a 3% reduction in the size of the Consumer Discretionary Sector. The updated Communications Sector will comprise about 10% of the S&P 500. The final Index changes are expected to be announced on July 1st and the official rebalance of the Index Sectors is expected to take place on September 24th.

The Cavalier Tactical Rotation Fund now incorporates the Communications Sector.  The Fund utilizes all 11 S&P 500 Sectors in the Tactical Rotation methodology.

The First Half of 2018 Should Close with a "Big Bang" in Small Stocks

Excerpt from Louis Navellier's Marketmail - 06/26/2018

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Even though a wave of tariff escalations sent the Dow Jones average down 2% last week, the truth of the matter is that the U.S. has the leverage, since China needs the U.S. because it is its biggest export market. 

This week marks the annual Russell realignment, so I expect to see many stocks surging higher as they are added to the Russell 1000, 2000, and 3000 indices (Note: The Russell 3000 index is composed of the Russell 1000 & 2000 indexes). Quarter-ending window dressing will also positively impact stocks this week, especially growth stocks with strong sales and earnings, Furthermore, the crisis in emerging markets is causing worldwide capital flight to the U.S. dollar. In 2017, most investment funds flowed into international stocks, including emerging markets and multinational stocks, but in 2018 that flow has been diverted to domestic stocks, propelling the Russell 2000 index higher. The critical path now is into domestic micro-, small-, and mid-capitalization companies with strong forecasted sales and earnings.

On my Tuesday podcast, I reiterated that the stock market is still the best place to be, since the S&P 500 yields approximately 1.9% and dividends are taxed at a maximum federal rate of just 23.8%. That means investors earn more staying in the stock market than by putting their money in a bank, where their interest income is taxed at a maximum federal rate of 40.8%. Furthermore, the 10-year Treasury bond yield has declined significantly since mid-June's Federal Open Market Committee meeting. This means the yield curve is "flattening," removing pressure on the Fed to hike key interest rates in upcoming months. This creates a 'nirvana' environment of moderate interest rates, 4% GDP growth, and strong company earnings

 


In This Issue of Marketmail

Bryan Perry sees the stars lining up for a second-half rally, particularly in dividend growth stocks. Gary Alexander takes time out to honor Charles Krauthammer, including some of his financial commentaries. Ivan Martchev expands on something I've long said about many ETFs - they act like a scam on small investors, and Jason Bodner gives us an example of how it often pays not to sell into a panicky market.

 

Income Mail: Setting Up for a Sizzling Second-Quarter Earnings Reporting Period

"FOMO" Will Make Domestic Dividend Growth Investing the Second-Half "Sweet Spot"  

by Bryan Perry

  

Growth Mail: R.I.P. Charles Krauthammer (1950-2018)  

Krauthammer's Common-Sense Solution to the Entitlements Crisis  

by Gary Alexander

  

Global Mail: The ETF Industry is Like a $3.6 Trillion Scam
A Practical Example of a "Bad" ETF

by Ivan Martchev

 

Sector Spotlight: Don't Let the Bad News Bewitch You into Selling
An Example of Not Selling into Bad News

by Jason Bodner

 

A Look Ahead: This "Trade War" Will Likely End with Fewer (and Lower) Tariffs   

Despite Negative Political News, "Positive Business Outlook" is at Record Highs  

by Louis Navellier

World Leaders Pose and Strut but Will Likely Cooperate in the End

Excerpt from Louis Navellier's Marketmail - 06/12/2018

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As we go to press, President Trump is meeting North Korean Supreme Leader Kim Jong-un in Singapore. Over the weekend, there was a lot of outraged reaction by G7 leaders to President Trump's appearance at the G7 meeting, but I expect that most countries will follow China, which offered last week to purchase nearly $70 billion of U.S. farm, manufacturing, and energy products in order to keep the trade flowing.

The truth of the matter is that the U.S. has the leverage, since it is typically the biggest buyer of exports. Countries with big trade surpluses, like China and Germany, do not want to jeopardize their lucrative trade relationships. President Trump's tariff threats are merely tactics to negotiate more favorable trade deals. It will be interesting to see how each country responds, but I expect the U.S. to prevail in the end.

The Fed is also meeting this week. New Fed Chairman Jerome Powell was reportedly hand-picked by Treasury Secretary Mnuchin to be more "market friendly." The Fed wants stable financial markets, since it is good for the banking industry, especially now that some major money center banks are under stress from troubled emerging markets and the flattest Treasury yield curve in over a decade. So again, I expect a relatively dovish FOMC statement that will continue to boost both the bond and stock markets.


In This Issue of Marketmail

In bringing the global headlines back to the world of investing, Bryan Perry favors covered calls on U.S.-based technology stocks. Gary Alexander also counsels focusing on domestic stocks, due in part to the rise in global conflicts - soon to be dramatized in the World Cup matches in Russia. Ivan Martchev sees problems in several emerging-market currencies as well as the deflating bitcoin bubble, while Jason Bodner compares sectors to sports teams (and stocks to sports stars) with Info Tech being the new sector "dynasty." In the end, I'll return with a look at small stock realignment and the Fed's meeting this week.

 

Now That's How You Beat The Algos!

Written by:  Rich Farr, Chief Market Strategist for Bluestone Capital Management and Jim McGovern, Market Strategist for Bluestone Capital Management
info@bluestonecm.com 

Bluestone Capital Management is the Sub-Advisor to the Cavalier Multi Strategy Fund

 

FAST FACTS ABOUT TODAY’S ECONOMIC DATA:

* Now we know who’s been buying the Italian government debt … the Italian government!

* ECB won’t have Italy’s back if Inflation remains elevated, but PPI today provides some relief.

* Wall Street continues to raise earnings estimates.   U.S. outlook remains strong.

* U.S. Factory Orders fell in April, but improved on Y/Y basis.

* Australian Retail Sales slow further … we are getting closer to declaring Aussie a problem.

ITALY BUYS ITS OWN DEBT BACK:

Who would have thought that the Italian government could manipulate the algorithms for its own benefit in a way that would make the fake news, some of the world’s largest hedge funds (no offense), and even Cambridge Analytica jealous?

But sure enough, at the same time Italy was scaring the markets that they were about to blow up all of Europe, the Italian Treasury was in the market bidding on its own bonds below par.   Genius we have to say.  Pure genius.   Wish we thought of it ourselves.  See here:  https://is.gd/AElF0X

All we have to say is don’t get too comfortable that the Italian Treasury has your back.  Italy bought back 2B Euros worth of debt, that’s 0.9% of the 223B Euros worth of debt it needs to refinance over the next twelve months.  Clearly, Italy is going to need the ECB to do some of the heavy lifting from here and it still seems likely that the ECB’s QE program is coming to an end in roughly 3 months.   This trickery can only last so long.

Not to mention, Italy’s new government seems set on blowing up the budget.  The new government wants to cut taxes via a flat tax that will cost the Treasury an additional 30B Euros (see here:  https://is.gd/dAAUX7).

And let’s not forget that the market was incredibly afraid when Paolo Savona was about to become Italy’s new Economic Minister.  Yet, somehow the market seems to have completely missed the news that he’s actually STILL part of Italy’s new government (rather he’s now Italy’s Minister of EU Affairs … we’re not sure how that’s to be viewed as more ‘market friendly’).   As for Italy’s other new appointees … well, some of them not only support Mr. Savona’s views, but they actually want Germany kicked out of the E.U. (yes, that was said over the weekend.  But hey, Savona isn’t Economic Minister, so let’s all get bullish and buy Italian debt then?  Hmm.  See here:  https://is.gd/3FKUO9).

We wish you good luck buying those Italian bonds.   At least you now know who the other buyer is when you need to sell in a hurry.

EURO AREA PPI UP +2.0% Y/Y IN APRIL:

Eurostat reported today that the Euro Area PPI was unchanged M/M in the month of April.  This follows eight consecutive monthly increases.  It should be noted that PPI slowed slightly to +2.0% Y/Y (versus +2.1% Y/Y prior).  Note that Durable Goods prices increased +0.1% M/M, Capital Goods prices increased +0.1% M/M, and Intermediate Goods prices increased +0.2% M/M; however, Energy prices fell -0.4% M/M.  Also, Eurozone PPI increased +0.1% M/M and +2.4% Y/Y (also +2.4% Y/Y prior).

WALL STREET CONTINUES TO UP ESTIMATES AS Q1 EARNINGS SEASON REACHES AN END:

As of May 31st, 493 of the S&P 500 Index companies have reported Q1 earnings, of which 376 have beaten earnings (76.27%) and 88 have missed (17.85%) earnings estimates.  Thus far, 62 out of 68 Tech companies have beaten their earnings estimates, while 49 out of 60 Health Care companies and 25 out of 31 Consumer Staples companies have beaten estimates.  On the other hand, only 51.52% of Real Estate companies has beaten Q1 earnings estimates.

Despite the earnings beats in Q1, Wall Street analysts have lowered their 2018 Q1 EPS estimates over the past two weeks by -$0.04/share to $36.37.  However, the street increased their full year 2018 EPS estimates by +$0.21/share to $157.30 and their 2019 EPS estimates by +$0.44/share to $174.51.  This implies EPS growth of +26.3% Y/Y and +10.9% Y/Y in 2018 and 2019, respectively.  We are still below those lofty forecasts but we still see decent growth for 2018 and 2019.   However, we must ask if lofty street estimates are both sustainable and realistic.  We have concerns about rising employee costs, commodity inflationary pressures, rising borrowing costs, the effect of instant depreciation on earnings, as well as, some deterioration we are picking up internationally, as well as, in our GDP model.

U.S. FACTORY ORDERS DOWN -0.8% M/M IN APRIL BUT ACCELERATE ON Y/Y BASIS:

The Census Bureau reported that U.S. Factory Orders declined -$3.995 billion M/M to $494.45 billion in April.  Thus, factory orders declined -0.80% M/M; however, orders are now up +9.37% Y/Y (+7.19% Y/Y prior).  Factory orders ex-transportation increased for the 10th consecutive month (20 out of the past 21 months), up +0.38% M/M and +8.67% Y/Y to $407.28 billion (+5.90% Y/Y prior).  Lastly, Nondurable Goods orders increased +0.06% M/M but Durable Goods orders declined -1.64% M/M.

AUSTRALIAN RETAIL SALES CONTINUE TO SLOW ON Y/Y BASIS:

With home prices now negative, and household debt levels a mile high, we have Australian on our macro risk “yellow card” list.  According to the Australian Bureau of Statistics, Australian Retail Sales increased +0.43% M/M(seasonally adjusted) in the month of April.  This is the fourth consecutive monthly gain; however, retail sales slowed to +2.62% Y/Y (versus +3.16% Y/Y prior).  In the month, Food store sales increased for the fifth consecutive month (+0.30% M/M), Restaurant sales rebounded +1.31% M/M, other Retailing sales increased +0.87% M/M, and Household Goods sales increased +0.69% M/M.  However, Department Store sales fell -0.90% M/M and Clothing sales fell -0.83% M/M.

AMERICAS:

U.S. GDP:  Our GDP model points toward 3% Real GDP growth through 2018, but sees slightly slower growth in 2019.   Note that our model doesn’t factor in potential stimulus from tax reform or other policy proposals, so GDP could outperform our model.

U.S. Inflation:  U.S. inflation remains in an upward trend, and we continue to believe that wage inflation should turn higher as labor slack (particularly in prime working age groups) continues to decline.    Note that the Fed’s preferred inflation metric, the Core PCE Deflator, increased to +1.9% Y/Y in March.

U.S. Federal Reserve:  We still believe two additional rate hikes will happen in 2018 and that the FOMC will become increasingly more data-dependent as the year progresses – but last week’s data increased the odds of 3 more hikes in 2018.  The Fed simply isn’t “dovish” folks.

U.S. Treasuries:  With inflationary pressures slowly building, and Real GDP trending toward +3.0%, we believe 10-year U.S. Treasury Yields will continue to trend higher and we would expect to see yields approach 3.25% by year end 2018.

U.S. Equities and Earnings:  S&P 500 operating earnings are rising materially, but the question remains, will the market put a 20 P/E multiple on forward earnings?  We think a 20 forward multiple is aggressive, but 18.5 may not be.   Our SPX target is for an 18.5x P/E on 2019 forward earnings of $162, bringing our 2018 SPX target to 3,000).  We prefer financials given expectations for economic growth and our expectation for an improving (steepening) yield curve.

Argentina:  Argentina’s overall economic condition appears to still be on an improving track, as Industrial Production increased +3.4% Y/Y and Retail Sales accelerated to +35.6% Y/Y.  However, Consumer Confidence slipped to 36.1 from 40.1, Exports slowed to +6.2% Y/Y, and Construction Activity slowed to +8.3% from +16.6%.  Any signs of weakness are a problem when you are dealing with 7.2% unemployment and 26.5% inflation.

Brazil:  Unemployment continues to remain elevated (12.9% in April), which raises some concerns.  However, the unemployment data is not seasonally adjusted and has been improving Y/Y.  Also, Retail Sales accelerated to +6.5% Y/Y in March and Personal Loan Defaults improved in March (to 5.0% from 5.1%).  Overall, Brazil’s data have been mixed in 2018, as PMI’s improve but Industrial Production slows.   Of all the major global bond markets, Brazilian 10-year bond yields are the richest in the world at 11.42% which is attractive given that tax receipts are up +10.8% Y/Y (so long as the money is coming in, they can pay the coupon).  As such, we remain bullish on Brazil 10-Year Sovereign Bonds.

Canada: Canada’s housing market has deteriorated further, as existing home sales and prices have been weakening alongside building starts.   However, Canada’s monthly GDP continues to increase (+0.3% M/M to +2.9% Y/Y), unemployment is still trending lower, Consumer Confidence remains at high levels, manufacturing PMI’s remain strong, and retail sales are elevated (+4.1% Y/Y in March).

Mexico: Mexico’s GDP has been in a slowing trend since Q1 2017 (+3.3% then, now +1.3% Y/Y), Unemployment Rate increased to 3.4% in April, Industrial Production is now down -3.7% Y/Y, and PMI’s slowed in May, thus Mexico remains on our macro risk watch.  The Mexican Central Bank has been increasing interest rates since late 2015 (mainly because of fear of dollar weakness).   Meanwhile, Exports accelerated to +17.0% Y/Y, Consumer Confidence improved in April, and Retail Sales improved to +1.2% Y/Y.

Venezuela: We will leave this as a placeholder in the event that Venezuela ever becomes an investible market again.  We are hopeful …

EMEA:

United Kingdom:  The U.K. economy has been reasonably resilient throughout the BREXIT process (PMI’s mostly better in April) and therefore the Bank of England has been raising rates.  But now inflation is slowing, Consumer Confidence has remained negative, Retail Sales have been weak, and home prices have begun to turn lower in London.  Nonetheless, Unemployment continues to improve (4.2% in March) and Industrial Production accelerated to +2.9% Y/Y in March.

European Union:  The stronger Euro may now be a problem for Mario Draghi as CPI has been in a slowing trend for several months (and PPI may have topped out, as we discussed earlier).   Not to mention, Industrial Production slowed to +2.9% Y/Y, Economic Sentiment is turning lower, and PMI’s have turned back from recent highs.   We think the idea of an ECB hike within the next year is basically out the window, and as such we remain bullish on the Euro STOXX 50 Index, as well as European Financials.

European Central Banks:  The ECB is slowly removing accommodation and will likely end its asset purchases by year end.  But Mario Draghi has given no indication about raising rates and the recent decline in CPI will give them even further pause for doing so.  We will watch to see if current ECB tapering has any meaningful impact on the economic outlook.

Eastern Europe: We continue to believe risks remain for Eastern Europe given high Debt/GDP levels, most notably Cyprus (104%), Croatia (88%, up from 66% at the end of 2013), and Slovenia (81%).   Yet, economic data have been robust this year across most of Eastern Europe.

South Africa:  Now that Zuma’s out, Confidence (Business and Consumer) appears to be on an up-swing, PMI’s have turned further positive, Retail Sales accelerated to +4.9% Y/Y, and Inflation has cooled.  But these improvements are going to need to get significantly stronger to crush unemployment (26.7% in Q4).

Turkey:  What a mess … the currency is deteriorating, inflation is accelerating, PMI’s turned negative, and Erdogan is blaming everyone but himself.

ASIA / PACIFIC:

Australia:  The RBA has cut rates twice in the past year and Australian data is mixed.  So far, the Unemployment Rate appears to be ticking up slight (to +5.6% in April), the value and number of home loan approvals have turned negative, and Consumer Sentiment has ticked slightly lower recently.  We remain neutral on Australia at this time, on concerns about China exposure but so far China is still posting strong data.

China:   With China cracking down on shadow banking, pollution, industrial overcapacity, and removing migrant workers from its cities, we expect China GDP to continue to trend lower and we are monitoring the situation closely.   Overall, China data have been mixed.  PMI’s continue to indicate solid growth, Industrial Production improved in April to +7.0% Y/Y (+6.0% prior), Industrial Profits accelerated to +15.0% in April, the jobless rate reportedly fell to +4.9% in April.  However, Retail Sales slowed to +9.4% Y/Y in April (was +10.1%) and Home Prices are up +5.3% Y/Y (half the rate of change from a year ago).

India:  Indian economic activity appears to have recovered nicely since the new Goods and Services Tax (GST) was implemented as Commercial Credit accelerated to +12.6% Y/Y, Exports rebounded +5.2% Y/Y, inflation appears to moderated, and PMI’s improved slightly in April. However, Industrial Production slowed to +4.4% Y/Y in March.

Indonesia:  Indonesia’s GDP and Private Consumption Expenditures have been stable at 5% Y/Y, Consumer Confidence has been stable, Manufacturing PMI has been stable in the 49-51 range for a year, Retail Sales are up +3.4% Y/Y, and Exports are up +9.0%.  However, Industrial Production is down -3.5% Y/Y.  Also, the Bank of Indonesia raised rates for the first time in four years in response to the US FOMC rate hikes and subsequent stronger US Dollar.

Japan:  Overall, we remain bullish on Japan given that Japan’s economic activity remains in an improving trend:unemployment remains low (2.5% in March), Industrial Production is up +2.5% Y/Y, Retail Trade is up +1.6% Y/Y, PMI’s improved in April (but consumer confidence slipped), and Exports are up +4.6% Y/Y.

RussiaThe Russian economy isn’t setting the world afire, but GDP came in at +1.3% in Q1 2018.  Overall, economic data continue to suggest economic growth, as Retail Sales were up +4.7% Y/Y in April, Real Wages are up +7.8% Y/Y, Unemployment is improving, Industrial Production is up +1.3% Y/Y, and exports are up +17.8% Y/Y despite sanctions.  Meanwhile, Core CPI is muted at +1.9% Y/Y, which has allowed the Bank of Russia to remain accommodative.   Russian equities remain among the cheapest in the industrialized world and we remain bullish.

South Korea:  While the world looks forward to peace on the Korean Peninsula, we are keeping an eye on trade data into China, which improved in March.   Overall, SK is beginning to show signs of slowing post-Olympics (imports are slowing, Industrial Production is only up +0.9% Y/Y, Retail Sales slowed to +6.6% Y/Y, and the Nikkei South Korea PMI has been below ‘50’ for three months in a row).

GLOBAL CENTRAL BANK SCORECARD:

MACRO TRADE IDEAS:

 

WEEK IN REVIEW – BEST & WORST PERFORMERS:

S&P 500 SECTOR PERFORMANCE:

Source: Bloomberg

 

BEST/WORST PERFORMING WORLD BOND MARKETS:

Source: Bloomberg

 

BEST/WORST PERFORMING GLOBAL STOCK MARKETS:

Source: Bloomberg

 

CURRENCIES PERFORMANCE:

Source: Bloomberg

 

COMMODITIES MARKET PERFORMANCE:

Source: Bloomberg

 

MAJOR GLOBAL STOCK MARKETS:

Source: Bloomberg

 

MAJOR GLOBAL BOND MARKETS:

Source: Bloomberg

Italy Now Infected by the Emerging Market Debt Crisis

Excerpt from Louis Navellier's Marketmail - 06/05/2018

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The emerging market crisis spread to Brazil and infected Italy this week. Even though Italy is not an emerging market, the country holds a disproportionate amount of emerging market debt. Furthermore, Italian President Sergio Mattarella blocked two anti-establishment parties, the 5 Star Movement & League parties, from taking power, effectively denying Italian voters their chosen political leaders from the March 4 election. These new political parties are not friendly to the European Union (EU), reflecting the fact that Italian voters are increasingly hostile to the EU leadership. However, on Thursday, the 5 Star Movement & League struck a deal to form a new government, raising hopes of forming a coalition. 

In the meantime, Carlo Cottarelli has been named Italy's new Prime Minister to lead a "caretaker" government if a coalition cannot be formed. Spain's leadership is also under siege, since Prime Minister Mariano Rajoy faces a no-confidence vote in Parliament. Between the chaos in Italy and Spain, the euro hit a six-month low against the U.S. dollar, which is causing the 10-year U.S. Treasury rates to retreat.


In This Issue of Marketmail

Our main theme this week is that the U.S. has become a safe haven in a world filled with turmoil. In addition to our dominant GDP, Bryan Perry looks at some numbers under the radar, including hot new earnings and GDP estimates, which imply a potential summer rally. If it's June, there must be a European crisis, says Gary Alexander, but the U.S. recovery keeps sailing along, now the second longest in history. Ivan Martchev covers ways to hedge against the dollar short squeeze, a byproduct of the emerging markets crisis, while Jason Bodner looks for clues of future long-term leadership in the early warnings system of the sector scoreboard. I wrap up with the implications of a strong dollar and strong economy.

 

 

News from Asia Whiplashes the Market... Unnecessarily

Excerpt from Louis Navellier's Marketmail - 5/20/2018

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The stock market got off to a strong start last week after China and the U.S. agreed not to impose tariffs on each other. Specifically, China's Vice-Premier Liu He said the two sides "reached a consensus, will not fight a trade war, and will stop increasing tariffs on each other." A joint statement issued in China and Washington said China would "significantly" increase its purchases of American goods, so in the end, the financial media overreacted to trade war talk, since these tariffs were used merely as negotiating tactics.

 Later on, the stock market sold off on Thursday due to news that the North Korean nuclear summit in Singapore in June had been cancelled (temporarily, as it turns out). The stock market usually rallies going into holiday weekends and last week was no exception, with the S&P rising 0.3% and Nasdaq up 1.1%. People are usually happy leading up to holiday weekends and that tends to rub off on investor sentiment.

We have a lot to be thankful for, such as the fact that the 10-year Treasury bond yield has fallen under 3% and the Fed's FOMC minutes revealed that any inflation fears are just "temporary." Furthermore, the fact that small-capitalization stocks in the Russell 2000 continue to exhibit tremendous relative strength is a good sign, since the breadth and power of the overall stock market is expanding. Traditionally, when the Russell 2000 leads, it is very bullish for the market, so June and July are shaping up to be very positive!


In This Issue of Marketmail

Bryan Perry will analyze an interesting new word from last week's Fed minutes, and what it implies for summer market performance. After his usual jaunt down memory lane, Gary Alexander looks at corporate liquidity for clues to the market's next big move. Ivan Martchev sees danger in the emerging markets and a delayed reaction to the dollar strength in the commodity markets. Jason Bodner advises us to watch the institutional traders more than the silly stories about news events which supposedly "move the market." In the end, I'll bring you a few more reasons to expect continued strong market performance in June.

Small Stocks are "Melting Up" in May

Excerpt from Louis Navellier's Marketmail - 5/22/2018

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As the first-quarter earnings announcements wind down, the announcement of new dividend increases, stock buy-backs and new acquisitions have put a strong foundation under many stocks. In addition, the amount of stock outstanding continues to shrink, so there are fewer shares to buy. The main switch in allocations over the last month has been caused by a resurging U.S. dollar, which is causing many institutional investors to cut their allocations in multinational stocks as they focus on domestic stocks. As a result, the small-cap Russell 2000 has risen by 5% so far in May vs. just 2.4% for the S&P 500.

The 10-year Treasury bond has risen decisively above the 3% level to the highest yield in seven years. However, thanks to strong buy-back activity and positive analyst community reports, there is persistent institutional buying pressure, so every dip should be viewed as a buying opportunity. Since computers and algorithms tend to sell without thinking, this opens up plenty of buying opportunities most weeks.


In This Issue of Marketmail

Bryan Perry examines the likely market impact of a new trifecta of economic concerns: a rising dollar, spiking oil prices, and rising interest rates. Gary Alexander examines the latest data to expose another false alarm in the recent concern over "peak earnings. Ivan Martchev examines the recent decline in gold and silver prices in light of a rising U.S. dollar and gold buying in China and Russia. Jason Bodner focuses on the once-weak, now-strong Energy sector. In the end, I'll also look at the energy fundamentals, along with hopeful signs for 2nd and 3rd quarter GDP growth based on the Leading Indicators and other data.

Here Comes the Deficit

Written by:  Rich Farr, Chief Market Strategist for Bluestone Capital Management and Jim McGovern, Market Strategist for Bluestone Capital Management
info@bluestonecm.com 

Bluestone Capital Management is the Sub-Advisor to the Cavalier Multi Strategy Fund

 

FAST FACTS ABOUT TODAY’S ECONOMIC DATA:

* Tax season ends and U.S. tax receipts tanked in early May.

 

U.S. TAX RECEIPTS DOWN -18% Y/Y IN 1H MAY:

Tax seasons is over folks and here comes the deficit spending.  We’re not sure why anyone would want to own U.S. Treasury Bonds when tax receipts are going down and federal spending is going up.   On that note, according to the U.S. Treasury, tax receipts are down -18.4% Y/Y through May 10th.  Furthermore, overall tax receipts slowed to +1.9% Calendar YTD (versus +3.6% at the end of April).  The decline in the month was led by Income Taxes, as Income and Employment Withholdings Taxes fell -16.7% Y/Y and slowed to +0.1% Calendar Y/Y (+1.8% Y/Y at the end of April).  Furthermore, Excise & Other Taxes declined -50.9% Y/Y and slowed to +29.4% Calendar YTD (versus +32.8% Y/Y at the end of April).  Conversely, Corporate Income Taxes increased +27.1% Y/Y but they are still down -18.3% Calendar Y/Y (-18.5% Y/Y at the end of April).

 

AMERICAS:

U.S. GDP:  Our GDP model points toward 3% Real GDP growth through 2018, but sees slightly slower growth in 2019.   Note that our model doesn’t factor in potential stimulus from tax reform or other policy proposals, so GDP could outperform our model.

U.S. Inflation:  U.S. inflation remains in an upward trend, and we continue to believe that wage inflation should turn higher as labor slack (particularly in prime working age groups) continues to decline.    Note that the Fed’s preferred inflation metric, the Core PCE Deflator, increased to +1.9% Y/Y in March.

U.S. Federal Reserve:  We still believe two additional rate hikes will happen in 2018 and that the FOMC will become increasingly more data-dependent as the year progresses.

U.S. Treasuries:  With inflationary pressures slowly building, and Real GDP trending toward +3.0%, we believe 10-year U.S. Treasury Yields will continue to trend higher and we would expect to see yields approach 3.25% by year end 2018. 

U.S. Equities and Earnings:  S&P 500 operating earnings are rising materially, but the question remains, will the market put a 20 P/E multiple on forward earnings?  We think a 20 forward multiple is aggressive, but 18.5 may not be.   Our SPX target is for an 18.5x P/E on 2019 forward earnings of $162, bringing our 2018 SPX target to 3,000).  We continue to favor the homebuilders, despite higher interest rates given the demographic tailwind and lack of inventory.   We also prefer financials given expectations for economic growth and our expectation for an improving (steepening) yield curve.

Argentina:  Argentina’s overall economic condition appears to still be on an improving track, but data came in weaker recently as Industrial Production slowed to +1.2% Y/Y (from +5.3%), Consumer Confidence slipped to 40 from 43.8, and Construction Activity slowed to +8.3% from +16.6%.  Any signs of weakness are a problem when you are dealing with 7.2% unemployment and 25.4% inflation.

Brazil:  Unemployment has been steadily picking up in 2018 (13.1% in March versus 11.8% in December), which raises some concerns.  However, the unemployment data is not seasonally adjusted and has been improving Y/Y.  Also, Retail Sales accelerated to +6.5% Y/Y in March and Personal Loan Defaults improved in March (to 5.0% from 5.1%).  Overall, Brazil’s data have been mixed in 2018, as PMI’s improve but Industrial Production slows.   Of all the major global bond markets, Brazilian 10-year bond yields are the richest in the world at 10.07% which is attractive given that tax receipts are up 6.7% Y/Y (so long as the money is coming in, they can pay the coupon).  As such, we remain bullish on Brazil 10-Year Sovereign Bonds.

Canada: Canada’s housing market is still on the radar, as building permits and housing starts weaken but Canada’s monthly GDP rebounded in February (+0.4% M/M to +3.0% Y/Y).  Unemployment is still trending lower, Consumer Confidence remains at high levels, manufacturing PMI’s remain strong, and retail sales are elevated (+3.5% Y/Y in February).

Mexico: Mexico’s GDP has been in a slowing trend since Q1 2017 (+3.3% then, now +1.2% Y/Y), Industrial Production is now down -3.7% Y/Y, and PMI’s slowed in April, thus Mexico remains on our macro risk watch.  The Mexican Central Bank has been increasing interest rates since late 2015 (mainly because of fear of dollar weakness).   Consumer Confidence has been trending slightly downward since September (although improved in April).  Meanwhile, Exports are up +12.5% Y/Y, Retail Sales improved to +1.2% Y/Y, and unemployment improved to 2.9%.

Venezuela: We will leave this as a placeholder in the event that Venezuela ever becomes an investible market again.  We are hopeful …

EMEA: 

United Kingdom:  The U.K. economy has been reasonably resilient throughout the BREXIT process (PMI’s mostly better in April) and therefore the Bank of England has been raising rates.  But now inflation is slowing, Consumer Confidence has remained negative, Retail Sales have been slowing, and home prices have begun to turn lower in London.  

European Union:  The stronger Euro may now be a problem for Mario Draghi as CPI has been in a slowing trend for several months.   Not to mention, Industrial Production slowed to +2.9% Y/Y, Economic Sentiment is turning lower, and PMI’s have turned back from recent highs.   We think the idea of an ECB hike within the next year is basically out the window, and as such we remain bullish on the Euro STOXX 50 Index, as well as European Financials. 

European Central Banks:  The ECB is slowly removing accommodation and will likely end its asset purchases by year end.  But Mario Draghi has given no indication about raising rates and the recent decline in CPI will give them even further pause for doing so.  We will watch to see if current ECB tapering has any meaningful impact on the economic outlook.

Eastern Europe: We continue to believe risks remain for Eastern Europe given high Debt/GDP levels, most notably Cyprus (104%), Croatia (88%, up from 66% at the end of 2013), and Slovenia (81%).   Yet, economic data have been robust this year across most of Eastern Europe.

South Africa:  Now that Zuma’s out, Confidence (Business and Consumer) appears to be on an up-swing, PMI’s have turned further positive, Retail Sales accelerated to +4.9% Y/Y, and Inflation has cooled.  But these improvements are going to need to get significantly stronger to crush unemployment (26.7% in Q4).

Turkey:  What a mess … the currency is deteriorating, inflation is accelerating and PMI’s turned negative. 

ASIA / PACIFIC:

Australia:  The RBA has cut rates twice in the past year and Australian data is mixed.  So far, Unemployment Rate remains at 5.5%, Retail Sales increased +3.1% Y/Y in March, PMIs indicate solid growth, Auto Sales are up +6.7% Y/Y in December, and business and consumer confidence have been strong.    Conversely, we are starting to see mixed data in the housing market (although private sales were down -6.1% M/M, building approvals were up +2.6% M/M).  We remain neutral on Australia at this time, on concerns about China exposure but so far China is still posting strong data.

China:   With China cracking down on shadow banking, pollution, industrial overcapacity, and removing migrant workers from its cities, we expect China GDP to continue to trend lower and we are monitoring the situation closely.   PMI’s continue to indicate growth, but are now in a clear slowing trend as backlogs and new orders weaken, Industrial Profits slowed to +11.6% in March, and Durable Goods Orders fell 12% M/M in February.  Home Prices are up +5.4% Y/Y (half the rate of change from a year ago). However, CPI slowed to +2.1% Y/Y in April, Retail Sales are up +10.1% Y/Y, and Industrial Production is up +6.0% Y/Y thus far in 2018.  We are watching for further signs of stress within China’s credit and housing markets.

India:  Indian economic activity appears to have recovered nicely since the new Goods and Services Tax (GST) was implemented as Commercial Credit accelerated to +12.6% Y/Y, inflation appears to moderated, and PMI’s improved slightly in April. However, Industrial Production slowed to +4.4% Y/Y in March and Exports are down -0.7% Y/Y.

Indonesia:  Indonesia’s GDP and Private Consumption Expenditures have been stable at 5% Y/Y, Consumer Confidence has been stable, Manufacturing PMI has been stable in the 49-51 range for a year, Retail Sales are up +3.4% Y/Y, and Exports are up +6.1%.  However, Industrial Production is negative and CPI ticked higher in March.

Japan:  Overall, we remain bullish on Japan given that Japan’s economic activity remains in an improving trend: unemployment remains low (2.5% in March), Industrial Production is up +2.2% Y/Y, Retail Trade is up +1.0% Y/Y, PMI’s improved in April (but consumer confidence slipped), and Exports are up +1.8% Y/Y.

RussiaThe Russian economy isn’t setting the world afire, but GDP came in at +1.5% in 2017, despite Q4 being weaker than expected at +0.9% Y/Y, Services PMI jumped to 55.5 in April, and manufacturing PMI remains in an improving trend (+0.7 points to 51.3 in April).  Overall, economic data continue to suggest economic growth, as Retail Sales were up +4.2% Y/Y in March, Real Wages are up +6.5% Y/Y, Unemployment is improving, Industrial Production is up +1.0% Y/Y, and exports are up +21% Y/Y despite sanctions.  Meanwhile, Core CPI is muted at +1.3% Y/Y (weekly CPI as of May 7), which has allowed the Bank of Russia to remain accommodative.   Russian equities remain among the cheapest in the industrialized world and we remain bullish. 

South Korea:  While the world looks forward to peace on the Korean Peninsula, we are keeping an eye on trade data into China, which improved in March.   Overall, SK is beginning to show signs of slowing post-Olympics (imports are slowing, Industrial Production is negative, Consumer Confidence has been declining since November, and the Nikkei South Korea PMI has been below ‘50’ for two months in a row).

GLOBAL CENTRAL BANK SCORECARD:

MACRO TRADE IDEAS:

WEEK IN REVIEW – BEST & WORST PERFORMERS:

S&P 500 SECTOR PERFORMANCE:

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CURRENCIES PERFORMANCE:

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COMMODITIES MARKET PERFORMANCE:

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MAJOR GLOBAL STOCK MARKETS:

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Market Mood Turns Up Despite News that Once Seemed "Bad"

Excerpt from Louis Navellier's Marketmail - 5/15/2018

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Last week, my headline was "The Best Earnings in 7+ Years Deserve a Better Market Than This!" and the market must have been reading what we wrote. The Dow rose seven days in a row, rising 2.34% for the week. The S&P 500 rose 2.41%, the Russell 2000 rose 2.63%, and NASDAQ rose 2.68% last week.

First-quarter announcement season is winding down and the S&P 500 has so far posted 25% average annual earnings growth and 8.3% average annual sales growth. First-quarter S&P 500 earnings have been an average 7.1% better than analysts' consensus expectation, so it has been a stunning earnings season.

On Tuesday, President Trump announced that the U.S. was pulling out of the nuclear inspection deal with Iran. The market initially fell, but then quickly resumed rising. No matter what other "bad" news came out, the market kept rising. With the underlying sales and earnings growth of the stock market so strong, I wonder what the financial media will cook up next to try to spook investors into selling stocks..