First-Quarter Sales and Earnings Delivered Positive Surprises

Excerpt from Louis Navellier's Marketmail - 5/21/2019

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First-quarter announcement season is now more than 90% complete and I am happy to report that the S&P 500’s sales are up 5.9% and earnings are up 2.2%, which is a stunning surprise, since the analyst community had predicted negative earnings growth and 4% sales growth. Accelerating sales growth is a sign of overall GDP growth and a likely sign that we’ll see positive surprises in upcoming quarters, too.

Treasury rates dipped below 2.4% last week. The lower rates go, the more aggressive the corporate stock buybacks will likely be. On Thursday, The Wall Street Journal featured an excellent article entitled “Booming Buybacks Aren’t Likely to Wane Despite Market Volatility.” (Check it out, if you can.) In late May, after first quarter earnings announcement season ends, I expect to see many more stock buybacks.


In This Issue of Marketmail (Click Here to Read)

Most of our authors focus on the positive side of the U.S./China trade talk impasse. The U.S. holds the winning hand and China seems to be shooting itself in the foot. Bryan Perry focuses on the slowing growth rate in China and the opportunity in U.S. defensive blue-chip stocks paying high dividend yields. Gary Alexander disputes the assumption that inflation will return if high tariffs remain in place over time, while Ivan Martchev argues that China seems to use these latest tariffs as cover for a long-term strategy of yuan devaluation. Jason Bodner covers the sectors that have sold-off in the latest “controlled-burn” correction, while I argue that these trade tensions will not hurt the U.S. economy or the market, long-term.


Income Mail: No Plans to End the “Little Squabble” Any Time Soon 

           By Bryan Perry

Emperor Xi Has No Clothes 


Growth Mail: Will a Trade War Cause Soaring Inflation?

           By Gary Alexander

The CPI Overstates Inflation, Perhaps by 2% a Year


Global Mail: The Chinese Silver Bullet Is Yuan Devaluation

           By Ivan Martchev

Exchange Rate Manipulation is a Sun-Tzu-Style Maneuver


Sector Spotlight: Is This Correction a “Controlled Burn” or a Wildfire?

           By Jason Bodner

The Latest Selling is Focused on Specific Sub-Sectors


A Look Ahead: Trade Tensions Spook Wall Street – But the U.S. Holds the Winning Hand

           By Louis Navellier

The Economy Continues in “Goldilocks” Mode

Market Corrections Give Investors New Buying Opportunities

Excerpt from Louis Navellier's Marketmail - 5/14/2019

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After setting a new all-time high on April 30, the S&P 500 suffered some tough days but is still down only 4.5% from its peak. The stock market initially got up on the wrong side of bed last week when fears emerged that the Chinese trade negotiations may be breaking down. However, China sent a very large team to negotiate trade deal enforcement details, so the stock market recovered somewhat on Friday.

In the heat of last week’s market action, I recorded three podcasts. Here’s my latest podcast (yesterday).

Interestingly, the fear that the trade talks with China might be derailed, lowered Treasury yields, which in turn just makes stocks all the more attractive, especially as the post-earnings-season stock buyback surge heats up. As I have repeatedly said, I expect another big wave of stock buybacks in the upcoming weeks.


In This Issue of Marketmail (Click Here to Read)

Most of our analysts weigh in on the sudden eruption of renewed trade tariffs on Chinese goods. Bryan Perry focuses on the dangers to the Chinese housing bubble if this trade rift is not mended soon. Ivan Martchev agrees, since China can’t keep ignoring its epic debt bubble (300% of GDP) by one artificial intervention after another. Jason Bodner weighs in on how bugs in the China trade deal interrupted a fine earnings season (and Trump’s legal challenges). Meanwhile, Gary Alexander continues his series on how to interpret economic statistics from a variety of angles for better understanding, while I concentrate on two other major geopolitical hot spots – Iran and Venezuela – as well as the Chinese trade situation.

Income Mail: Trade War Threatens to Pop China’s Housing Bubble

     By Bryan Perry

Expect No Gain on Trade without Real Pain

Growth Mail: Media Myths Fuel Widespread Ignorance

     By Gary Alexander

Examples of Alternative Facts (or Alternative Explanations)

Global Mail: A Sino Trade Curveball

     By Ivan Martchev

A Hard Landing in China is a Matter of When, Not If 

Sector Spotlight: Trade Conflicts amid Earnings Season Disrupt Markets

     By Jason Bodner

Five Reasons for Buying Stocks on Dips

A Look Ahead: Geopolitics (in Iran and Venezuela) Dominate the News Again

     By Louis Navellier

Trade Talks Escalate to Cover Intellectual Property Protection

Earnings Surprises and Share Buy-backs Hold Promise for May

Excerpt from Louis Navellier's Marketmail - 5/7/2019

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It is starting to get bumpy, but I was encouraged by wave after wave of strong sales and earnings announcements last week. So far, the S&P 500’s annualized earnings are 5.6% above estimates.

We had an incredible April, which is a seasonally strong month that benefits from pension funding and the fact that some of the best earnings surprises tend to be released in April. However, in May, earnings surprises tend to be not quite as strong, so the overall market could get bumpy in the upcoming week. 

Last May was incredible, however, fueled by wave after wave of stock buy-backs. Specifically, companies suspend stock buy-backs in this “quiet period” (during earnings announcement season), but immediately after their first-quarter results are announced, they are free to commence more stock buy-backs. Since there were $227 billion in stock buy-backs in the first quarter and bond yields have since fallen, I expect stock buy-back activity to pick up in the second quarter, so May could be a great month, just like last year.

Speaking of buy-backs, Apple confirmed on Tuesday that it is boosting its stock buy-back program by $75 billion. Big multinational companies like Apple can issue debt at ultralow interest rates to buy back more shares. With rates so low, it appears that the second-quarter buy-back frenzy may be stronger than in 2018! 

Navellier & Associates owns AAPL in some managed accounts but not in our sub-advised mutual fund. Louis Navellier and his family own AAPL in personal accounts.


In This Issue of Marketmail (Click Here to Read)

Bryan Perry sees some “green shoots” of growth emerging in Europe and elsewhere around the globe, with a potential for high yields in selected European banks. Gary Alexander focuses on the misuse of economic growth statistics during the election cycle: Beware of bias, even by the “best and brightest.” Ivan Martchev sees the charts and the fundamentals pointing to a Dow heading for 30,000 (and the S&P to 3,250), perhaps this year. Jason Bodner follows the phenomenal growth story of semiconductors and software within the tech sector, while I cover the upbeat economic scorecard and the Fed’s latest meeting.

Income Mail: Economic Green Shoots in Europe Sparking Optimism

     By Bryan Perry

Fat Dividend Yields from European Bank Stocks Come with Elevated Risks

Growth Mail: Happy Birthday, Karl Marx…Now, Please Just Die!

     By Gary Alexander

How the Best and Brightest “Lie with Statistics”

Global Mail: The Dow Chart says It’s Going to 30,000

     By Ivan Martchev

Why the Fundamentals Support the Technical View

Sector Spotlight: Finding the Truth Amid the Noise

     By Jason Bodner

Semiconductors and Software Lead the Tech Charge

A Look Ahead: A Powerful Jobs Report Lifts the Market on Friday

     By Louis Navellier

The Fed (as Expected) Left Interest Rates Alone

Earnings May Eke Out a Small Gain in the First Quarter!

Excerpt from Louis Navellier's Marketmail - 4/30/2019

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The S&P and NASDAQ both reached all-time highs on Friday, but the big news last week is that there may be a switch in leadership in the social media space. Previously, investors seemed worried that Twitter (TWTR) was purging some users. However, last week Twitter posted better-than-expected first-quarter sales and earnings, due largely to the fact that advertisers and users appreciated the company’s attempt to curtail abuse from (1) disinformation, (2) fake news, and (3) bullying. The fact that Twitter is tackling social media abuse while boosting advertising revenue bodes well for Twitter surpassing Facebook as a social media leader. (It doesn’t hurt that President Trump is an active Twitter user.)

Meanwhile, negative 10-year yields in both Japan and Germany put downward pressure on U.S. Treasury bond yields, which promotes the “Goldilocks” environment that has fueled much of the stock market rally this year. So far, nearly half (46%) of the S&P 500’s announcements are in, and first-quarter sales are up at a 5.1% annual pace, and 77% of S&P companies have reported a positive surprise in earnings! The analyst community now expects the S&P 500’s first-quarter earnings to fall 0.6%, up from -3.9% just a month ago. It is now possible that the S&P 500 may eke out a small gain when all is said and done.


In This Issue of Marketmail (Click Here to Read)

Bryan Perry takes a closer look at the FAANG stocks, with a focus on Apple and its delayed entry into the 5G phone market. Gary Alexander compares April 30 to May 1 in history – both in the market sense (should we “Sell in May”?) and in the political arena. Ivan Martchev sees higher market highs by looking at comparative bond yields in the U.S., and by comparing the dollar to the euro and yen. Jason Bodner looks at “stealth buying” by institutional investors as another sign that this bull market has legs, while I examine America’s newfound power in energy independence and our global economic leadership.

Income Mail: Apple’s Earnings are at the Core of Further Market Gains

           By Bryan Perry

Apple iPhones Will be Late to the 5G Party

Growth Mail: April Was Great, But Don’t “Sell in May” (or Go Away)

           By Gary Alexander

Do We Prefer Our Constitution (April 30) or Socialism (May 1)?

Global Mail: The U.S. Yield Curve Has Still Not Inverted

           By Ivan Martchev

Implications for the Stock Market 

Sector Spotlight: The Market Image I Can’t Un-see

           By Jason Bodner

What are the Big Buyers (and Sellers) Doing Now?

A Look Ahead: In Oil Markets, The U.S. is the “New OPEC”

           By Louis Navellier

The U.S. Economic Dashboard is Still “Under the Speed Limit”

Hopes for Greater 5G Internet Speed Lift the Market Higher

Excerpt from Louis Navellier's Marketmail - 4/23/2019

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The biggest news last week was that the Apple (AAPL) and Qualcomm (QCOM) settlement on Tuesday should help both companies move on and proceed to build great 5G products. There is no doubt that 5G, which brings cable modem broadband speeds to wireless products, will trigger a massive upgrade to phones, tablets, computers, and other products that utilize wireless broadband technology. Unlike a wi-fi network, 5G is supposed to be much more readily available and bring blazing speeds to wireless products. 

The next big 5G fight will be between Huawei (China) and America’s QualcommIntel(INTC), Marvell Technology (MRVL), and Xilinx (XLNX), all of which are developing 5G chipsets. The Trump Administration has made it very clear that it wants the U.S. to win the 5G war for worldwide market share, but Huawei is a formidable competitor. Essentially, whoever controls 5G is expected to control the Internet several years from now, so this is shaping up to be an epic fight between China and the U.S.

Navellier & Associates owns AAPL, XLNX and INTC in managed accounts and XLNX and INTC our sub-advised mutual fund. Louis Navellier and his family own XLNX and INTC via the sub advised mutual Fund only.


In This Issue of Marketmail (Click Here to Read)

Bryan Perry reminds us what he has been saying all along – before the crowd noticed – that the rest of the world has not stopped growing. Gary Alexander lauds the new “Fed Listens” program and urges they take a giant step further – to accept the maverick new board members (Moore and Cain) nominated by Trump. Ivan Martchev explains the now-broken correlation between the U.S. dollar and oil, with a new look at China’s miraculous 26-year escape from recession. Jason Bodner examines the latest sector waves, with a particular look at Health Care, which I will expand on in my closing comments. In short, it’s all politics!

Income Mail: Another Week – Another Global Growth Surge 

           By Bryan Perry

Global Blue Chips Sport Fat Yields 

Growth Mail: The Case for Adding Steve Moore & Herman Cain to the Fed Board

           By Gary Alexander

Some Questions for the Fed (If They’re Listening)

Global Mail: Odd Correlation Between Oil and the Dollar

           By Ivan Martchev

More Divergences in the Energy Space 

Sector Spotlight: Catch a Wave and You’re Sitting on Top of the World

           By Jason Bodner

Health Care’s “Pause for the Cause” (and Gauze)

A Look Ahead: Good Health Care Stocks are Out of Favor – Over Political Fears

           By Louis Navellier

Business Confidence is Picking Up in the Sprin

Corporate Stock Buy-backs Rise 59% in First Quarter

Excerpt from Louis Navellier's Marketmail - 4/16/2019

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Even though the S&P 500 is off to its strongest start in almost a decade, Lipper reported that stock mutual funds had outflows of $39.1 billion in the first quarter. Some of these outflows could have been attributable to ETFs capturing more market share, but another major reason for the market’s strength seems to be the fact that companies in the S&P 500 repurchased $227 billion of their outstanding shares in the first quarter, according to FactSet. In the first quarter of 2018, S&P 500 companies repurchased $143 billion, so stock buy-backs soared 59% last quarter, due in part to extremely low interest rates.

In this ultra-low interest rate environment, the S&P 500’s dividend yield of approximately 1.85% remains super-attractive. The S&P 500 is up strongly this year despite low earnings projections, but my favorite economist, Ed Yardeni, pointed out last week that many institutional investors may be looking beyond the first quarter’s lackluster earnings forecasts, since first-quarter sales growth is expected to be strong and earnings growth for the second-half of this year and into next year is anticipated to be relatively strong. 

Frankly, the analyst community has been so aggressive in cutting their first-quarter earnings estimates that we could be on the verge of another round of positive operating earnings surprises in the coming weeks.


In This Issue of Marketmail (Click Here to Read)

Bryan Perry opens by saying the market sees a lot of good news beyond the current growth malaise story, including strong tech growth over the next five years. Gary Alexander offers part 2 of his story on how the press misuses statistics in their effort to scare (even misinform) the general public, to increase ratings. Ivan Martchev revisits the currency markets to weigh the latest dollar strength against the euro and some submerging “emerging” market currencies. Jason Bodner covers the growth sectors that have led this recovery, with a special focus on why the Semiconductors are leading the way. Then, I’ll conclude with a look at the latest misguided QE policies in Europe and some misleading inflation statistics just released.

Income Mail: Markets are Levitating Amid All the Static

     By Bryan Perry

High-Tech REITs Offer Strong Growth and Juicy Yields


Growth Mail: How Partisans Misuse Statistics to Try to Mislead Us

     By Gary Alexander

Five Examples of How to Spot the Misuse of Statistics


Global Mail: The Trade-Weighted U.S. Dollar is Headed to All-Time Highs

     By Ivan Martchev

The Trade Deal’s Impact on the Dollar and Other Currencies 


Sector Spotlight: Tune Out the Noise, Tune into the Key Statistics

     By Jason Bodner

Why Software and Semiconductors are Leading the Charge


A Look Ahead: Negative Rates in Europe and Japan are Causing Capital Flight

     By Louis Navellier

Inflation Rates Seem High but are Skewed by an Energy Price Surge

We're Off to a Strong Start in April

Excerpt from Louis Navellier's Marketmail - 4/9/2019

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April is seasonally the third strongest month of the year, thanks in part to new pension contributions in conjunction with the April 15 tax deadline. The S&P 500 began April with a 1.15% gain on Monday and a 2.06% gain for the first week of April. Our friends at Bespoke Investment Group pointed out that when the S&P 500 rises at least 1% on the first trading day in April, historically the S&P 500 has risen by an average 4.25% in April, 12.2% in the second quarter, and 21.32% for the next six months (the second and third quarters), respectively, during the nine previous such occurrences that have happened since 1945.

As of last Friday, the S&P 500 has risen seven straight days, three straight weeks, and 13 of the last 16 weeks, with net gains of over 23% since Christmas Eve. I keep expecting a correction in this seemingly overbought market, but I’m not complaining! We remain in a “Goldilocks” economy of low inflation, slow but positive growth, and lower long-term interest rates (2.50% on the 10-year Treasury bond rate last Friday vs. 3.24% five months ago), so well-selected stocks remain the best place for our money.


In This Issue of Marketmail (Click Here to Read)

Bryan Perry brings us some good news about how the news of a “Global Slowdown” is not only wrong but a product of glaring media bias. Gary Alexander brings us Part 1 of a two-part series on how the media lies to us with statistics – it pays to be skeptical of how the numbers can be twisted. Ivan Martchev updates his Deutsche Bank/U.S. Treasury rate correlation, with added comments on the Brexit crisis. Jason Bodner reports on the power of Growth vs. Value right now, while his MAP ratio shows the market is no longer overbought. Then I’ll close with a closer look at the Fed and the latest economic scorecard.

Income Mail: The “Global Slowdown” Narrative is Losing Ground 

           By Bryan Perry

Less Whine and More Cheese Needed from France

Growth Mail: Don’t Trust Statistics – Except Mine, of Course

           By Gary Alexander

Polls “Push” the Answers They Want

Global Mail: Rampant Eurozone Deflation Creates a Bizarre Deutsche Bank Correlation

           By Ivan Martchev

Deutsche Bank Delivers 22 Cents on the Dollar


Sector Spotlight: Growth Trumps Value So Far in 2019

           By Jason Bodner

MAP Ratio Exits “Overbought” Condition

A Look Ahead: President Trump Wants to “Pack the Fed” With Allies

           By Louis Navellier

Most Economic Statistics Show a Slight Slowdown in 2019

Despite Wall Street's "Scare of the Week," Good Stocks Keep Rising

Excerpt from Louis Navellier's Marketmail - 4/2/2019

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A slightly-inverted yield curve continues to spook investors, but our friends at Bespoke Investment Group documented the fact that during the previous six yield curve inversions, the S&P 500 rose by an average 1.75%, 6.16%, and 8.13% over the next month, three months, and year, respectively. Even more dramatic, after the last four times the yield curve first inverted, the S&P averaged gains of 19% after 12 months.

Our friends at Bespoke also like to follow the “smart money” on Wall Street. They noted last week that in January and February these “smart” folks liked to buy during the last hour of trading (3-4 pm EST). But in March, Bespoke says, there has not been much buying pressure in the last hour. This has raised some concerns that these smart buyers may have turned into patient net sellers, implying a coming correction.

Either way, I think the evidence is clear that today’s stock market is getting much more selective, due largely to the anticipation of a rapid deceleration in corporate earnings for the next two or three quarters, so this is the time in a recovery cycle when we try to be super-selective in our stock portfolio selections.


In This Issue of Marketmail (Click Here to Read)

In a typical overreaction, market pundits are now calling for “immediate” rate cuts from the Fed. Bryan Perry says this is not in the cards. Next up, Gary Alexander, Ivan Martchev, and Jason Bodner defuse the scare-mongering of those who fear an “inverted yield curve,” with Ivan focusing on the junk bond signal and rising EPS later this year. Jason also marks the possible end to an “overbought” market condition last week. Then, I’ll close with an analysis of bonds vs. stocks and creeping deflation trumping inflation.


Income Mail: Are Calls for “Immediate” Rate Cuts Warranted? 

           By Bryan Perry

“Advice from the Ice” Goes a Long Way


Growth Mail: The Best Opening Quarter in 21 Years

           By Gary Alexander

The Latest Premature Tizzy-Fit – An Inverted Yield Curve


Global Mail: The Dichotomy Between Junk Bonds and Treasuries Continues

           By Ivan Martchev

Aggregate EPS Still Growing in 2019


Sector Spotlight: “Help Me (if you can), I’m Feeling Down”

           By Jason Bodner

Growth Sectors Lead (with One Exception)


A Look Ahead: Chaos in the Bond Markets Makes Stocks Relatively Attractive

           By Louis Navellier

Deflationary Forces are Building, Adding to Stocks’ Luster

Watch Out for Quarter-Ending "Window Dressing" This Week

Excerpt from Louis Navellier's Marketmail - 3/26/2019

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We’re closing out a wonderful quarter this week, but, as last Friday’s action demonstrated, we must watch out for any quarter-ending “window dressing” this week, as well as 90-day smart Beta ETF rebalancing.

The catalyst for the Friday sell-off was the U.S. Treasury yield curve inverting on Friday, as the 10-year U.S. Treasury bond yield declined to 2.44%, while the 1-month Treasury yield remained relatively steady at 2.49% after U.S. factory orders fell to the slowest growth rate in two years. This 5-basis point Treasury yield “curve inversion” spooked the stock market, since yield curves tend to precede recessions. 

At the same time, over in Europe German 10-year bund yields fell below 0% after the weakest purchasing managers’ index in six years was released for the Eurozone, so bond rates have been falling worldwide.


In This Issue of Marketmail (Click Here to Read)

There is a lot of drama unfolding in global markets “under the radar” of U.S. political news, centered on the Mueller report. First, Brian Perry covers the embarrassing “flip flops” of central bankers in the U.S. and Europe, as they are forced belatedly to admit the impotence of their policy tools. Gary Alexander examines the strange case of stock prices moving in inverse patterns to earnings growth (or shrinkage). Ivan Martchev looks at the revival of negative-yielding global debt, after a brief hiatus, indicating global deflation returning. Jason Bodner looks deeper into the evidence of unusual institutional buying and selling, indicating signs of more growth ahead. Then I’ll wrap up with a look at this narrowing market. We all agree that in this stage of the bull market, a far more selective stock-screening process is required.

Income Mail: Central Bankers “Flip Flop” Once Again 

     By Bryan Perry

Money is Moving into Quality Dividend Stocks

Growth Mail: The Yin and Yang of Stock Prices vs. Earnings Growth

     By Gary Alexander

After Last Friday – Should You “Catch a Falling Knife”?

Global Mail: $10 Trillion in Negative-Yielding Global Debt…and Rising 

     By Ivan Martchev

Fed-On-Hold Beneficiaries

Sector Spotlight: Does Friday’s Decline Mark an End to the Bull Run?

     By Jason Bodner

What Unusual Institutional Buy/Sell Activity is Telling Us Now

A Look Ahead: The Stock Market Narrows into a “Funnel” of a Few Good Stocks

     By Louis Navellier

The Fed Signals “All Clear” on Rate Increases This Year

Can the Decade-Long Bull Market Continue?

This is a Market Update from Julex Capital Management:

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It’s been over a decade since the S&P 500 Index bottomed at an intraday level of 666 on March 6th, 2009. It took four years from this bottom for the index to breach the high-water closing mark of 1,515 that it set in December 2007, and U.S. equities have rallied an eye-popping 318% (albeit with a few corrections along the way) since. This begs the question: can this bull market continue?

Following convention, we define bear markets as periods where the nominal price level of an equity index loses 1/5th of its value from a recent market peak. Table 1 shows the length and percentage of advances/declines for each market regime since 1872. On average, the 12 bull markets have lasted about 8.5 years and had a cumulative price return of just under 300%. This suggests that from a historical perspective, the recovery since the downfall of Lehman Brothers and Bear Stearns is not an outlier in terms of either length or scale. For comparison's sake, the market saw 516% appreciation over a 13-year period from the worst part of the 1987 crash to the onset of Y2K and the tech bubble, a run that trumps this rebound considerably.

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In examining the peaks of previous bull markets, it’s evident that oftentimes a spike in valuations coincides with a turn in the market. But stocks are getting cheaper in the U.S., not more expensive. Investors were paying over $21 for every dollar of company earnings in the lead up to Black Monday, almost $28 in the lead up to the tech bubble, and just under $26 prior to the subprime mortgage crisis. At the end of 2018, the P/E ratio of S&P 500 companies sat at just above 19 (using aggregate month-end pricing and earning data). While this is slightly higher than average, high PE multiples can normally be supported by low interest rates, and the late cycle fiscal stimulus can potentially keep economic expansion and earnings growth intact.

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Many investors are worried that any potential credit problem may derail the stock market rally since it was the root cause of the last financial crisis. So far, borrowing and debt do not appear to present significant risks. Figure 2 shows how debt was skyrocketing in the lead-up to 2008, and how consumers are now carrying debt levels commensurate with historical averages. This points to the continued ability for consumers to spend, which in turn mutes fears for a credit crisis.

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Based on historical comparisons, this bull market may still have room to grow. Earnings are likely to slow going forward, but stock prices are supportive of current corporate income levels. FactSet estimates 7% earnings growth in 2019. While the consensus estimate from analysts is a slow-down in domestic GDP growth, FOMC board members estimate growth between 1.8 and 2.3% in the coming years, hardly suggestive of a recession. Taken in aggregate, these realities suggest that it is not an unreasonable expectation this bull market can continue for a few more years.





Disclosures

Julex Capital Management is a SEC-registered quantitative investment management firm specializing in tactical and factor-based investment strategies. The firm offers a variety of tactical unconstrained investment solutions aiming to provide downside risk management while maximizing the upside potentials using its unique Adaptive Investment Approach.   In addition, Julex offers active equity strategies to deliver security selection alpha uncorrelated with the traditional risk factors like size, value or momentum using its TrueAlpha(TM) multi-factor sequential screening approach.

The information in this presentation is for the purpose of information exchange. This is not a solicitation or offer to buy or sell any security. You must do your own due diligence and consult a professional investment advisor before making any investment decisions. The risk of loss in investments can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.

The use of a proprietary technique, model or algorithm does not guarantee any specific or profitable results. Past performance is not indicative of future returns. The performance data presented are gross returns, unless otherwise noted.

 All information posted is believed to come from reliable sources. We do not warrant the accuracy or completeness of information made available and therefore will not be liable for any losses incurred. No representation or warranty is made to the reasonableness of the assumptions made or that all assumptions used to construct the performance provided have been stated or fully considered.

Louie Navellier Update - March 23, 2019

Hi Everybody,

The catalyst for the Friday selloff was that German 10-year bund yields fell below 0% on Friday after the weakest purchasing managers index in 6 years was released for the Eurozone.  Furthermore, the U.S. Treasury yield curve inverted on Friday as the 10-year Treasury bond yields declined to 2.44%, while 1-month Treasury securities yields remained relatively steady at 2.49%, after U.S. factor orders declined to the slowest pace in 2 years.  This 5 basis point Treasury yield curve inversion spooked the stock market, since yield curves tend to precede recessions, which I discussed in my Friday podcast … see link on column 1:
 
https://navellier.com
 
In our highly rated ETF portfolios (https://navellier.com/files/6215/5251/6700/MS_3yr_5yr_031319.pdf), we sold a major position in the iShares 7 -10 Year Treasury Bond (IEF) at an near-term high after the disappointing Brexit delay was announced that pushed the 10-year Treasury yields lower.  After locking in a nice profit in IEF, our ETF Portfolios then were reinvested in the strongest sector ETFs. 
 
Interestingly, the best performing sector ETFs are being influenced predominately by index buying pressure, primarily from the S&P 500 (SPY) and the NASDAQ 100 (QQQ), so there are only 3 to 4 sectors to invest in now depending on the ETF family (e.g., iShares and AlphaDEX).  As a result, 2019 is really now shaping up to be more of a stock picking year than a sector year, because the stock market is getting increasingly narrow.
 
So essentially, we are now entering a “funnel” heading into next week’s quarter-end window dressing and smart Beta ETF rebalancing.  I fully expect that I will be holding 30% less stocks in the upcoming months as the stock market’s breadth and power decays after the 2019 pension funding season draws to a close and the first quarter announcement season commences.  This funnel should cause more money to flow into the stocks that post strong sales and earnings, while the overall stock market is struggling with more difficult year over year comparisons.  My quantitative grade in both Dividend Grader and Stock Grader locks in on institutional buying pressure, so as certain stocks fall in rank, they will be replaced by stocks rising in rank that are benefitting from institutional buying pressure.  Here is a link to Dividend Grader and Stock Grader:
 
https://www.navelliergrader.com
 
Currently, the S&P 500 yields about 1.93% and most of those dividends are taxed at a maximum federal rate of 23.8%.  Investors can get out of the stock market, but ironically, they may earn less, since interest income is taxed at a maximum federal rate of 40.8%.  As a result, money continues to pour into index funds, despite the fact that earnings will remain lackluster for the next three quarters.  

Interestingly, so far this year, the stock market seems to be taking its cue more from an accommodative Fed, especially as other central banks, like the European Central Bank (ECB) prepares to offer more stimulus to member banks.  Speaking of the Fed, its Federal Open Market Committee (FOMC) announcement on Wednesday was incredibly dovish.  Specifically, the FOMC announcement said that due to slower economic growth that no key interest rate increase is anticipated this year.  The FOMC also remains very sensitive to global events, like slowing growth in China and Europe, so the Fed clearly does not want to change its interest rate policy at the present time.  I should add that the Fed is anticipating 2.1% GDP growth in 2019, so it can afford to be “patient” moving forward.
 
As far as unwinding its balance sheet is concerned, the FOMC implied that it would reduce the monthly Treasury securities its sells from $30 billion per month to $15 billion per month, beginning in May 2019.  Furthermore, the Fed will have completed its selling of mortgage back securities by September 2019.  Eventually, the Fed plans to shrink its balance sheet to approximately $3.5 trillion in 2019.  Here is a link to Ivan Martchev’s excellent MarketWatch article on the Fed’s balance sheet reduction:
 
https://www.marketwatch.com/story/whats-really-at-stake-as-the-federal-reserve-unwinds-its-balance-sheet-2019-03-20
 
Overall, the dovish FOMC statement caused Treasury bond yields to decline to the lowest level in the past 12 months, which is very bullish for higher stock prices, especially dividend growth stocks.  The Fed has also been blessed by a lack of inflation in recent months, but that may be starting to change.
 
Specifically, crude oil prices hit a four-month high last week after the Energy Information Administration (EIA) on Wednesday reported a 9.6 million barrel drop in domestic inventories in the latest week.  This drawdown is normal in the spring when demand naturally rises as the weather improves.  Additionally, the “crack spread” between sour and sweet crude oil has tightened up due to the fact that the U.S. will no longer pay for Venezuela’s sour crude oil as long as President Maduro remains in power, which is expected to squeeze the earnings of many refiners.  Overall, the U.S. is producing more crude oil than ever before and is now in control of worldwide crude oil prices, so I would be surprised if crude oil rises too much, since U.S. crude oil production continues to steadily rise.
 
In summary, we remain in a “Goldilocks” environment with an accommodative Fed that has no intention of raising key interest rates any time soon.  Brexit has caused chaos in Europe and now many countries have negative interest rates.  Furthermore, the European Central Bank (ECB) is planning to provide even more stimulus, since negative interest rates is apparently not sufficient stimulus. 
  
In my opinion, an investor’s best defense is a strong offense of fundamentally superior stocks that are characterized by rising dividends, stock buybacks as well as strong sales and earnings momentum.  These fundamentally superior stocks are becoming increasingly scarce and the stock market is now entering a “funnel” that will become much more narrow in the upcoming months. 
 
The stocks that I expect to emerge as market leaders and the biggest winners will be our fundamentally superior dividend growth and conservative growth stocks.  The relative strength that our stocks have exhibited bodes well for next week’s quarter-end window dressing as well as 90-day smart Beta ETF rebalancing.  Overall, we are entering a stock picker’s market and I expect continued strong performance for our fundamentally superior stocks in the upcoming months!

Louie 



DISCLAIMER This email message is intended only for the personal use of the recipient(s) named above. This message may be privileged and confidential. If you are not an intended recipient, you may not review, copy or distribute this message. If you have received this communication in error, please notify us immediately by email and delete the original message. Navellier & Associates Inc.'s outgoing and incoming emails are electronically archived and may be subject to review and/or disclosure to someone other than the intended recipient. The SEC suggests that clients compare the accuracy of portfolio statements provided by Navellier & Associates Inc. to statements provided to clients by their custodian Navellier & Associates, Inc. 1 East Liberty, Ste. 504 Reno, Nevada 89501 info@navellier.com Visit us on the web at: http://www.navellier.com

After a Rapid Recovery, Stock Selection is Very Important

Excerpt from Louis Navellier's Marketmail - 3/19/2019

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The S&P 500 has now risen 20% since its Christmas Eve low and the VIX (volatility index) is now at its lowest level since early October, when the stock market peaked, and ETF arbitrage spun out of control. 

The Wall Street Journal had an interesting article last week entitled, “Riskier Stocks Are Paying Off.” The article concluded that companies with weaker earnings are outperforming those with steadier profits. If you have any questions about your stocks, I urge you to use my Dividend Grader and Stock Grader databases, which are not experiencing the same issue, probably because my Quantitative grade measures include persistent institutional buying pressure, which sometimes transcends the traditional fundamentals. The bottom line is that the fundamentals are working, especially for stocks with high Quantitative grades.

Our friends at Bespoke Investment Group also pointed out that the smallest stocks in the S&P 500, based on market capitalization, continue to substantially outperform the overall S&P 500. This bottom 10% (50 stocks) is more domestic-oriented, less adversely impacted by a strong U.S. dollar that continues to negatively impact large multinational companies that are being hurt by a global economic slowdown.


In This Issue of Marketmail (Click Here to Read)

With the market rising again, our authors take a Spring Break with some valuable market tutorials. Bryan Perry looks at rising second-half 2019 earnings forecasts and a 5-point checklist on why the market seems so optimistic. Gary Alexander hearkens back to the roots of our crippling federal entitlement programs and the first war between the Fed and the President in the 1960s. Ivan Martchev addresses common myths about QE and the “excess reserves” vs. inflation and “printing money,” while Jason Bodner expands on his 30-year long-term indicator for overbought vs. oversold markets, using red, green, and yellow bands. Then, I’ll return to present-day events with an analysis of Brexit and the latest U.S. economic indicators.

Income Mail: Earnings Pendulum Expected to Swing Higher 

     By Bryan Perry

Making a Second-Half Global Rebound Checklist

Growth Mail: When Presidents and Fed Chairs REALLY Went to War

     By Gary Alexander

“How Are We Ever Going to SPEND All This Money?”

Global Mail: The Mystery of the Credit Multiplier

     By Ivan Martchev

How the Fed Increases Liquidity Without Fueling Inflation

Sector Spotlight: The S&P 500 in 2019 is Like a 20-to-1 Longshot that Paid Off

     By Jason Bodner

What the Red, Green, and Yellow Bands Tell Us

A Look Ahead: 10 Days Until Brexit Explodes into “No Deal” No Man’s Land

     By Louis Navellier

Fed Chairman Powell Has Learned to “Watch His Language”

Are We About To Enter an "Earnings Recession"?

Excerpt from Louis Navellier's Marketmail - 3/12/2019

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The bulk of fourth-quarter earnings have been announced and the average stock has posted a 5.7% sales increase and a 14.3% earnings increase – the fifth straight quarter of double-digit earnings growth.

Despite that great news, the S&P fell 2.16% last week as CNBC kept warning about a coming “earnings recession.” They are referring to the analyst community’s forecast that first-quarter 2019 S&P 500 earnings could decline 2.9%, due largely to more difficult year-over-year comparisons. Specifically, FactSet is expecting that only four of the 11 S&P sectors will post positive earnings growth in the first quarter, namely Healthcare (up 5.4%), Utilities (+3.9%), Industrials (+3.1%), and Real Estate (+1.9%). 

However, 2018 was a year of 24% earnings growth and a 6% decline in the S&P 500, so a year of flat earnings may not impact the market that much. Maybe the late 2018 correction reflected the anticipated drop in 2019 earnings growth, so the market may now look forward to 2020 earnings more than 2019.


In This Issue of Marketmail (Click Here to Read)

We finally had a down week in 2019, so the doomsday stories have dominated the media. First, there’s the very real threat of Brexit and a European recession, but Bryan Perry doesn’t think this will impact the U.S. market much. Then there’s the political nonsense of the Green New Deal and the latest “end of the world” rhetoric in America, which Gary Alexander debunks. Ivan Martchev revisits the China “miracle” of a levitating market with deteriorating fundamentals, which can’t go on forever. Jason Bodner has been warning of a correction in this “overbought” market and is glad it has arrived, but history tells him to look for higher prices ahead. Then I’ll close with a look at the U.S. vs. Europe. Bottom line, there are problems in Europe and China, but the U.S. remains the oasis – with a strong currency, stock market, and economy.


Income Mail: Recession Inertia is Building in Europe 

     By Bryan Perry

European Growth Forecast – “Look Out Below!”

Growth Mail: The Sky is Falling…Again

     By Gary Alexander

Is Today Really “The Most Divided” America Has Ever Been?

Global Mail: The Trade Deal is a Trigger to Sell China 

     By Ivan Martchev

The Economic Cycle Cannot Be Eliminated

Sector Spotlight: This “Overbought” Market Finally Corrected

     By Jason Bodner

The First Week of Lower Prices in Most Sectors in 2019 

A Look Ahead: Can We Sustain 3% GDP Growth in 2019?

     By Louis Navellier

In Contrast, Europe is Struggling

Louie Navellier Update - March 9, 2019

Hi Everybody,

The bulk of the S&P 500’s fourth quarter results have been announced and the average stock has posted a 5.7% annual sales increase and a 14.3% annual earnings increase.  This represents the fifth quarter in a row of double-digit earnings growth for the S&P 500.
 
In the meantime, CNBC keeps talking about an “earnings recession,” which is starting to spook many investors.  The analyst community is now forecasting that the S&P 500’s first quarter earnings will decline at an annual pace of 2.9% due largely to more difficult year over year earnings comparisons.  FactSet is expecting that only 4 of the 11 sectors in the S&P 500 will post positive earning growth in the first quarter, lead by Healthcare (up 5.4%), Utilities (up 3.9%), Industrials (up 3.1%) and Real Estate (up 1.9%). 
 
Severe winter weather has week impacted much of the U.S. in recent weeks, so this is a good time to remind investors that first quarter GDP is frequently adversely impacted by the weather.  The Atlanta Fed is now expecting just 0.5% annual GDP growth for the first quarter, which is not too bad, since first quarter GDP is often negative when there is severe winter weather.
 
Interestingly, the final fourth quarter GDP is expected to be revised a bit lower, since on Wednesday, the Commerce Department announced that the U.S. trade deficit soared 18.8% to the highest level in a decade to $59.8 billion in December, as U.S. exports declined 1.9% to $205.1 billion, while imports rose 2.1% to $264.9 billion.  I should add that some economists believe that imports soared in December because businesses were trying to build inventories, just in case tariffs were increased.
 
Speaking of tariffs, there has been a lot talk about a favorable resolution to the U.S. and China trade spat.  Specifically, the U.S. is prepared to remove tariffs on $200 billion of Chinese goods in exchange for China lowering tariffs on U.S. auto, chemical, farm and other products.  Furthermore, China would buy $18 billion in natural gas from Cheniere Energy and would not retaliate by bringing recent U.S. tariffs in a formal complaint before the World Trade Organization.  A signing ceremony between President Trump and President Xi is expected in the next several weeks.  In the meantime, China’s exports plunged 20.7% in February compared to a year ago, which is a sign of weak global growth, so I suspect that China wants to get rid of U.S. tariffs as soon as possible to further boost its exports.
 
There was a lot of positive economic news last week.  On Tuesday, the Institute of Supply Management (ISM) announced that its non-manufacturing, service index surged to 59.7 in February, up from 56.7 in January, which was substantially above economists’ consensus estimate of 57.4.  The ISM components for new orders and business activity were especially robust at 65.2 and 64.7, respectively.  Additionally, all 18 ISM components rose in February, so this was truly a spectacular report for the ISM service index!
 
The Commerce Department on Tuesday reported that new home sales rose 3.7% in December to an annual rate of 621,000.  For all of 2018, new home sales declined by 2.4%.  Interestingly, median sales prices for new homes in December were $318,600, which is 7% lower than a year ago.  At the current annual sales pace, there is now a 6.6-month supply of new homes for sale, which is high, so median home prices may remain under pressure.  Overall, this was a very positive report for both new home sales and moderating home prices.  Now that home and rental prices are finally moderating, the Fed will be much less likely to raise key interest rates.
 
The Commerce Department announced on Friday that new housing starts surged 18.6% in January to an annual pace of 1.23 million.  Residential building permits rose a much more modest 1.4% in January to a 1.345 million annual paces.  Both new housing starts and building permits came in at a much higher pace than expected, since economists were expecting new housing starts to rise 9.5% and building permits to decline 2.7%.  Overall, it appears that the supply of housing will increase, which should further help median home prices to stabilize.
 
On Wednesday, the Fed released their Beige Book survey, where 10 of the Fed’s 12 districts saw “slight to moderate” growth, while St. Louis and Philadelphia reported “flat economic conditions.”  Interestingly, the Beige Book survey had a surprisingly somber tone and noted that six Fed districts note slower economic activity due to the partial federal government shutdown that adversely impacted auto sales, retail sales, tourism, real estate, restaurants, manufacturing and staffing services.  As a result, the Beige Book survey reported that retail sales were “mixed.”  Also interesting is that the Beige Book survey cited the higher cost of credit as a reason for weak auto sales.  Only the labor market was cited as a bright spot in the Beige Book survey.  There is no doubt that the Fed will remain “data dependent” and is not likely to raise key interest rates anytime soon.
 
The big surprise last week was that on Thursday, the European Central Bank (ECB) stunned central bank observers by unveiling plans to stimulate the Eurozone economic growth.  This was a major policy reversal, since not only did the ECB say that they would hold interest rates steady for the remainder of 2019, plus announced low cost loans to banks to help shore up their capital base.  The first batch of ECB loans will be offered in September with a two-year maturity.  The ECB slashed its 2018 GDP forecast to 1.1%, down from 1.7% back in December.  ECB President, Mario Draghi, said “The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment.”  Draghi also added that the probability of a Eurozone recession was “very low,” but clearly the uncertainty surrounding Brexit on March 29th is a wild card that must be taken into consideration. 
 
On Friday, it was announced that German factory orders declined 2.6% in January, which was substantially below economists’ consensus estimate of a 0.5% increase and the biggest monthly decline since last June.  Orders outside the Eurozone were especially weak, which is consistent with China’s plunging exports.  Domestic orders also fell, so if Germany follows Italy into a recession, the ECB will have to get much more aggressive, especially since Brexit is causing so much uncertainty.
 
Here is the U.S., job growth maybe starting to slow down.  On Wednesday, ADP reported that 183,000 private payroll jobs were created in February, which was slightly better than economists’ consensus estimate of 180,000, but this was the slowest monthly pace since last November.  However, the January ADP private payroll report was revised up to an impressive 300,000, up from 213,000 previously estimated.  ADP continues to be the most reliable payroll report.
 
The Labor Department reported on Friday that 20,000 payroll jobs were created in February, which was substantially below analysts’ consensus estimate of 180,000 and the weakest report in 17 months.  Despite this disappointing payroll report, the unemployment rate plunged to 3.8% in February, down from 4% in January.  There is no doubt that the partial federal government shutdown distorted unemployment rate as well as some big snowstorms in February.  Additionally, the proportion of the workforce that was part time declined to 7.3% in February, down from 8.1% in January, as jobs in construction, mining and retail declined.  Interestingly, the December and January payroll reports were revised up to 227,000 (up from 222,000) and 311,000 (up from 304,000), so I would not be surprised if February’s payroll report is revised higher in the upcoming months.  The best news was the February payroll report average hourly earnings rose by 0.4% or 11 cents per hour to $27.66 per hour in February and have risen an impressive 3.4% in the past 12 months.
 
Interestingly, this wage growth has not been inflationary, since the U.S economy continues to boost its productivity.  Specifically, U.S. productivity in the fourth quarter rose at an annual rate of 1.9% and in the past 12 months grew at a robust 2.2% pace.  In the past decade, productivity has risen at a 1.3% annual pace, so the acceleration in productivity in the past 12 months, seems to be driven partially by increased automation due to ongoing labor shortages for skilled workers.
 
Overall, we remain in a “Goldilocks” environment with accommodative central banks and moderating interest rates due to slowly global growth and serious Brexit concerns.  There is no doubt that there is a global economic slowdown underway due to plunging Chinese exports and German factory orders, so the ECB has decided to provide new stimulus to try to avoid a Eurozone recession. 
 
The key for investors in the upcoming months will be to concentrate on dividend growth stocks as well as conservative growth stocks that are still forecasted to post strong earnings momentum in a decelerating earnings environment.  Our A-rated (Strong Buy) & B-rated (Buy) stocks in both Dividend Grader and Stock Grader are expected to remain an oasis for investors and should continue to benefit from persistent institutional buying pressure in an increasingly narrow stock market environment.  See link:

https://www.navelliergrader.com

Louie 



DISCLAIMER This email message is intended only for the personal use of the recipient(s) named above. This message may be privileged and confidential. If you are not an intended recipient, you may not review, copy or distribute this message. If you have received this communication in error, please notify us immediately by email and delete the original message. Navellier & Associates Inc.'s outgoing and incoming emails are electronically archived and may be subject to review and/or disclosure to someone other than the intended recipient. The SEC suggests that clients compare the accuracy of portfolio statements provided by Navellier & Associates Inc. to statements provided to clients by their custodian Navellier & Associates, Inc. 1 East Liberty, Ste. 504 Reno, Nevada 89501 info@navellier.com Visit us on the web at: http://www.navellier.com

SMART Portfolios - February Performance Recap

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SMART Growth Portfolios
 
    MTD YTD 1YR 3YR 5YR
All Tactical
    -7.30% -11.54% -11.54% 4.23% 3.75%
American Funds Core
    -7.11% -7.63% -7.63% 7.13% 5.71%
iShares ETF Core
    -5.31% -7.37% -7.37% 5.67% 4.58%
Oppenheimer Funds Core
    -7.04% -10.86% -10.86% 5.21% 4.00%
S&P Target Risk Index - Aggressive
    -3.78% -5.69% -5.69% 5.29% 4.21%
             
SMART Balanced Portfolios
 
    MTD YTD 1YR 3YR 5YR
All Tactical
    -4.92% -5.83% -5.83% 4.87% 3.72%
American Funds Core
    -4.04% -4.38% -4.38% 5.93% 4.86%
iShares ETF Core
    -3.34% -4.13% -4.13% 5.12% 3.95%
Oppenheimer Funds Core
    -4.49% -5.57% -5.57% 5.04% 4.00%
S&P Target Risk Index - Growth
    -2.03% -3.72% -3.72% 4.41% 3.31%
             
SMART Income Portfolios
 
    MTD YTD 1YR 3YR 5YR
All Tactical
    -1.88% -0.50% -0.50% 5.10% 3.25%
American Funds Core
    -3.06% -2.51% -2.51% 5.56% 4.13%
iShares ETF Core
    -1.96% -2.35% -2.35% 4.44% 3.32%
Oppenheimer Funds Core
    -2.04% -2.46% -2.46% 4.37% 3.30%
S&P Target Risk Index - Conservative
    -1.15% -2.73% -2.73% 3.95% 2.93%
                         

Past performance is no guarantee of future results.

©2019 Information and recommendations contained in Smart Portfolio market commentaries and writings are of a general nature and are provided solely for the use of Cavalier Investments' Smart Portfolio, its clients and prospective clients. This content is not to be reproduced, copied or made available to others without the expressed written consent of Cavalier Investments' Smart Portfolio. These materials reflect the opinion of Cavalier Investments' Smart Portfolio on the date of production and are subject to change at any time without notice. Due to various factors, including changing market conditions or tax laws, the content may no longer be reflective of current opinions or positions.

Past performance does not guarantee future results. Where data is presented that is prepared by third parties, such information will be cited, and these sources have been deemed to be reliable. However, Cavalier Investments' Smart Portfolio does not warrant the accuracy of this information. The information provided herein is for information purposes only and does not constitute financial, investment, tax or legal advice. Investment advice can be provided only after the delivery of Cavalier Investments brochure and brochure supplement (Form ADV Part 2A & B) and once a properly executed investment advisory agreement has been entered into by the client and Cavalier Investments. All investments are subject to risks. Investments in bonds and bond funds are subject to interest rate, credit and inflation risk.  For more information about Smart portfolio, contact us today.

Cavalier Investments, LLC is a Registered Investment Advisor.  Cavalier's research creates portfolio models that combine strategic, opportunistic and tactical holdings designed to provide performance that meets or exceeds relevant benchmarks.  Portfolios are structured based on risk of loss assessments and categorized as Growth, Balanced or Income.  Portfolio allocation models are provided without any additional fees other than management and other fees that are contained within each mutual fund or exchange traded fund included in the portfolio allocation model. 

An investment in a Smart Portfolio is subject to investment risks, including the possible loss of some or the entire principal amount invested.  There are no assurances that the portfolio will be successful in meeting its investment objective. Each underlying holding has its own investment risks.  Before purchasing any portfolio holding, the investor should review the Fund’s prospectus carefully.

Performance data assumes that holdings are maintained throughout the year and do not recognize potential costs of trading, platform fees, commissions or advisory wrap fees.  Portfolio performance and costs assumes utilization of the institutional or “no load” share class.  Dividends and capital gains are assumed to be reinvested. Users that make the decision to utilize the portfolios for investment accounts do so at their own discretion.  Data is compiled using Morningstar Direct Software; performance and cost data is assumed to be reliable.  

None of the mutual fund or ETF advisers, distributors, or their respective affiliates makes any representations regarding the advisability of investing in the Smart Portfolio Models.Past performance is no guarantee of future results.

©2019 Information and recommendations contained in Smart Portfolio market commentaries and writings are of a general nature and are provided solely for the use of Cavalier Investments' Smart Portfolio, its clients and prospective clients. This content is not to be reproduced, copied or made available to others without the expressed written consent of Cavalier Investments' Smart Portfolio. These materials reflect the opinion of Cavalier Investments' Smart Portfolio on the date of production and are subject to change at any time without notice. Due to various factors, including changing market conditions or tax laws, the content may no longer be reflective of current opinions or positions.

Past performance does not guarantee future results. Where data is presented that is prepared by third parties, such information will be cited, and these sources have been deemed to be reliable. However, Cavalier Investments' Smart Portfolio does not warrant the accuracy of this information. The information provided herein is for information purposes only and does not constitute financial, investment, tax or legal advice. Investment advice can be provided only after the delivery of Cavalier Investments brochure and brochure supplement (Form ADV Part 2A & B) and once a properly executed investment advisory agreement has been entered into by the client and Cavalier Investments. All investments are subject to risks. Investments in bonds and bond funds are subject to interest rate, credit and inflation risk.  For more information about Smart portfolio, contact us today.

Cavalier Investments, LLC is a Registered Investment Advisor.  Cavalier's research creates portfolio models that combine strategic, opportunistic and tactical holdings designed to provide performance that meets or exceeds relevant benchmarks.  Portfolios are structured based on risk of loss assessments and categorized as Growth, Balanced or Income.  Portfolio allocation models are provided without any additional fees other than management and other fees that are contained within each mutual fund or exchange traded fund included in the portfolio allocation model. 

An investment in a Smart Portfolio is subject to investment risks, including the possible loss of some or the entire principal amount invested.  There are no assurances that the portfolio will be successful in meeting its investment objective. Each underlying holding has its own investment risks.  Before purchasing any portfolio holding, the investor should review the Fund’s prospectus carefully.

Performance data assumes that holdings are maintained throughout the year and do not recognize potential costs of trading, platform fees, commissions or advisory wrap fees.  Portfolio performance and costs assumes utilization of the institutional or “no load” share class.  Dividends and capital gains are assumed to be reinvested. Users that make the decision to utilize the portfolios for investment accounts do so at their own discretion.  Data is compiled using Morningstar Direct Software; performance and cost data is assumed to be reliable.  

None of the mutual fund or ETF advisers, distributors, or their respective affiliates makes any representations regarding the advisability of investing in the Smart Portfolio Models.

A Strong Start Usually Leads to a Strong Year

Excerpt from Louis Navellier's Marketmail - 3/05/2019

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Our friends at the Bespoke Investment Group issued a report last Tuesday that showed that the S&P 500 is off to a great start this year, with 27 up days (73%) in the first 37 trading days. Since 1961, only eight other years have begun this strongly. In those eight cases, the S&P 500 rose by an additional average of 10.35% for the remainder of the year, with the smallest increase (2012) being 4.43% and the largest gain (1995) being 26.5%, so let’s hope history repeats itself with an additional 10% or greater rise this year.

It is important to remember that the U.S. remains an oasis of safety. China’s GDP growth has slowed, while Britain and the European Union (EU) are teetering on a recession. This is one reason why the U.S. dollar remains strong. Big multinational companies are being paid in eroding foreign currencies, so their earnings are being impacted by a massive currency headwind. However, domestic companies, especially many small-to-mid-capitalization stocks, are largely immune to any significant currency headwind.


In This Issue of Marketmail (Click Here to Read)

Bryan Perry profiles the new realities in the energy sector with some specific high-yield recommendations in the LNG field. Gary Alexander wishes a happy 10th birthday to this bull market, along with a profile of the terrible gloom that accompanied its birth. Ivan Martchev profiles the U.S. Treasury market as the most attractive in the developed world with yields likely to rise even higher. Jason Bodner covers the growth-oriented sectors that take turns (Healthcare last week) leading the market surge in 2019. Then I return to review Tesla and other trendy stocks vs. the more mundane business of picking long-term winners.

IIncome Mail:  Liquified Natural Gas is a Mega Theme for 2019

           By Bryan Perry

U.S. Exports of LNG Set to Surge


Growth Mail:  Happy 10th Birthday to the “Most Unloved Bull Market in History”

           By Gary Alexander

The Power of “Reversion to the Mean”


Global MailWhy the 10-Year Treasury is Likely Headed to 3%

           By Ivan Martchev

U.S. Rates are the Highest in the Developed World 


Sector Spotlight:  Sometimes a “No Brainer” Can Backfire

           By Jason Bodner

Healthcare Was King Last Week


A Look Ahead:  High-Flying “Fad” Stocks do not Reflect the Real Market

           By Louis Navellier 

The U.S. Remains the Oasis of the Investing World

Louie Navellier Update - March 2, 2019

Hi Everybody,

Our friends at Bespoke issued a good report last week that showed that the S&P 500 is off to a great start this year with more than 73% up days in the first 37 trading days.  Since 1961, there have been 8 similar strong starts to the year like this year.  On average, the S&P 500 rose an average of 10.35% for the remainder of the year the other 8 times, with the smallest increase being 4.43% (2012) and the largest gain being 26.5% (1995).  So let’s hope that history repeats.

In the meantime, CNBC keeps talking about an “earnings recession,” which is starting to spook many investors.  It is important to remind all investors that even though China’s GDP growth has slowed, plus Britain and the European Union (EU) are teetering on a recession, the U.S. remains an oasis, which is why the U.S. dollar remains so strong.  Big multi-international companies, like Caterpillar, are being paid in eroding foreign currencies and their earnings are being impacted by a massive currency headwind.  However, domestic companies, especially many small to mid capitalization stocks, are largely immune to any significant currency headwind and remain an oasis.  In summary, if you just focus on FAANG stocks or other stocks that have been “hyped” by financial media, the stock market can be scary.  Fortunately, the silver lining and critical path to now follow are clearly domestic stocks, especially small to mid capitalization stocks.

As an example of a “hyped” stock that is now struggling, Tesla was definitely impacted by the SEC request in federal court to hold Elon Musk in contempt over recent tweets that were supposed to be pre-approved.  Specifically, Musk’s February 19th tweet that “Tesla made 0 cars in 2011, but will make around 500k in 2019” conflicted with the official guidance that the company provided in a January 30th shareholder letter that as many as 400,000 vehicles would be delivered in 2019.  Interestingly, on February 19th, Musk hours later clarified his tweet by saying that he “Meant to say annualized production rate at end of 2019 probably around 500k, i.e., 10k cars/week” and then added that “Deliveries for year still estimated to be around 400k.”  The SEC said that Mr. Musk “did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people.”  Musk subsequently tweeted that “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k” and then added “How embarrassing ...,”  Yikes!  This will be an interesting case in federal court, since normally, a defendant is not suppose to publicly mock a regulator, especially on Twitter! 

In the meantime, Elon Musk confirmed on Thursday that Tesla is not expected to make money in the first quarter due to one-time charges and other financial commitments.  Specifically, Musk said “Given that there is a lot happening in Q1, and we are taking a lot of one time charges, there are a lot of challenges getting cars to China and Europe, we do not expect to be profitable. We do think that profitability in Q2 is likely.”  Tesla’s stock remains volatile, due to erratic quarterly results and the probability of an unfavorable federal court ruling.

A much more important federal court case is the fact that the NYSE, NASDAQ and the CBOE recently sued the SEC in a federal appeals court to stop the Transaction Fee Pilot, which the SEC approved in December.  This legal confrontation is unprecedented, since after seeking public comment, the SEC ignored the objections from the plaintiffs and proceeded anyway to limit the fees that they can charge for trading.  The Transaction Fee Pilot is supposed to start in late 2019 and has perturbed the NYSE, NASDAQ and the CBOE, because it undermines a widely used system of fees and rebates called “maker taker” when the exchanges pay rebates to brokers for some orders as well as charging fees for other orders. 

In defense of the SEC, critics of the maker-taker system say that it harms investors by encouraging brokers to send their clients’ orders to the exchange that pays the biggest rebate, rather than the exchange that gives clients the best result.  The Transaction Fee Pilot, which could last up to two years, would slash the fees that exchanges can charge for trades in hundreds of stocks and effectively forcing them to cut rebates for stocks as well.  

Now in defense of the NYSE, NASDAQ and the CBOE, in their complaint they say that the Transaction Fee Pilot would widen “bid-ask spreads.”  Furthermore, the exchanges have also voiced concern that trading would shift to off-exchange “dark pools” and private trading platforms run by some big banks.  According to the CBOE, almost 40% of U.S. stock trading volume occurs outside of the exchanges, so that percentage would likely rise under the Transaction Fee Pilot.  In the past, the D.C. Circuit Court has in the past vacated SEC regulations after finding the agency did not adequately consider their impact on capital raising or competition.  Overall, this will be a fascinating case, since the exchanges clearly do not want to lose more trading volume and control over stock trading.

Assuming that the SEC ultimately prevails in federal court and the Transaction Fee Pilot is implemented later this year, there will be a risk that the stock market’s liquidity may become more erratic.  I do not want any investors to worry, since my Quantitative grade calculates something called “residual variance” or “unsystematic risk,” which is the random risk associated with trading.  In other words, if unsystematic risk rises, then stocks will naturally have a lower Quantitative grade as volatility rises.  As a result, this is a good time to remind all investors that as risk rises, both Navellier's Dividend Grader and Stock Grader databases will naturally adapt to market volatility.  See link:

https://www.navelliergrader.com

Speaking of regulators, Fed Chairman Jerome Powell appeared before Congress last week and did a good job explaining how the Fed is striving to promote steady economic growth.  Specifically, in his prepared testimony to Congress, Powell said “While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals.”  Key words like “conflicting signals” that justify a “patient approach” regarding future key interest rate changes, clearly signaled that the Fed Chairman is dovish.  What I find especially interesting is that Powell continues to be influenced by global events, since he said “growth has slowed in some major foreign economies, particularly China and Europe.”  I should also add that the Fed’s favorite inflation indictor, the Personal Expenditure Consumption (PCE) index rose only 0.1% in December and decelerated to an annual pace of 1.7% in 2018, so as long an the PCE remains below the Fed’s target of 2%, the Fed is expected to remain accommodative.

As I have recently said, Brexit is expected to be a major event, since companies, like Honda, are increasing fleeing Britain due to uncertainty over tariffs and the underlying business environment.  Yet, despite this uncertainty, both Britain and the European Union are now seeking to delay the March 29th Brexit deadline.  Specifically, Prime Minister Theresa May has promised that Parliament will have a chance vote to extend the Brexit deadline on March 12th.  However, Prime Minister May does not want to delay Brexit beyond March 29th, so this vote in Parliament seems to be more about appeasing rebellious lawmakers and ministers that believe a “no deal” exit would be a disaster.

The EU is hoping for a Brexit extension, but remains divided on the timeline.  Overall, it is apparent that politicians are doing what they do the best, which is to “kick the can down the road,” which is shaping up to be a disaster for both Britain and the EU.  The business community cannot properly plan amidst all this Brexit uncertainty, so both the British pound and euro remain weak, plus impending recessions for Britain and the EU look inevitable.

In the meantime, Venezuela remains a humanitarian disaster.  The fact that the Venezuelan military violently blocked trucks with food and medical aid on both the Brazilian and Columbia borders is expected to cause more desertions.  Columbia has reported on Tuesday that 320 soldiers deserted in a span of four days.  There are an estimated 200,000 troops in the Venezuelan military, so there are not mass defections yet.  However, many of the soldiers are also hungry due to acute food shortages, so it appears that it is just a matter of time before the military sides with the Venezuelan people, even though the Generals have gotten rich from the Maduro regime.

Last week, Vice President Mike Pence and Venezuelan opposition leader Juan Guaido agreed on a strategy to tighten the noose around President Maduro and his generals.  Specifically, Pence announced more sanctions against Venezuela and $56 million in aid for neighboring countries with Venezuelan refugees.  The detention of Univision’s Jorge Ramos and the seizure of his crews cameras after Ramos asked Maduro about “videos of some young people eating out of a garbage truck” is expected to help increase the international pressure to oust Maduro.  Ramos and his Univision crew were then subsequently deported from Venezuela.  Overall, Pence said regarding Maduro that “We hope for a peaceful transition to democracy but President Trump has made it clear: all options are on the table” and then added that President Trump is “100%” in support of Juan Guaido.

The economic news last week was largely positive.  On Tuesday, Case-Shiller reported that its 20-city index home prices rose 0.2% in December and 4.2% in the past year.  Twelve of the 20 cities surveyed actually posed home prices declines, with San Francisco posting the biggest decline of -1.4%.  Interestingly, homes in high tax states were experiencing the biggest declines, so the new federal tax policy that is limiting state income and property tax deductions is may be adversely impacting homes with high property taxes in high tax states.  Nationally, home prices are now appreciating at the slowest pace in over four years (since November 2014), so median home prices are expected to continue to stabilize in the upcoming months.  This is great news for the inflation statistics and will help convince the Fed to not raise key interest rates in the upcoming months.

The exciting news on Tuesday was that the Conference Board announced that its consumer confidence index surged to 131.4 in February, up from a revised 121.7 in January.  This was truly a big surprise, since economists were expecting the consumer confidence index to come in at 124.7.  The expectations component soared to 103.4 in February, up from 89.4 in January.  There is no doubt that the end of the federal government shutdown boosted consumer confidence.  Improving weather in the spring also tends to boost consumer confidence, so I expect that consumer confidence index will hit an 18-year high in the upcoming months.

On Wednesday, the National Association of Realtors announced that pending home sales surged 4.6% to 103.2 in January, which was substantially higher the economists’ consensus estimate of a 1% increase.  Despite this good news, in the past 12 months, pending home sales declined 2.3%, which is the 13th straight month than pending home sales have declined on a trailing 12-month basis.  Now that both home prices and mortgage rates have moderated, pending home sales may steadily improve, especially as the weather improves in the upcoming months.

On Thursday, the Commerce Department announced that GDP rose at an annual pace of 2.6% in the fourth quarter, which was substantially above analyst consensus estimate of a 1.9% annual pace.  For all of 2018, GDP rose at an impressive 2.9% annual pace, which matches 2015 as a strongest year in the past decade.  GDP growth decelerated from a 4.2% annual pace in the second quarter and a 3.4% annual pace in the third quarter.  The Commerce Department noted that “The deceleration in real GDP growth in the fourth quarter reflected decelerations in private inventory investment, PCE, and federal government spending and a downturn in state and local government spending.”

Overall, we remain in a “Goldilocks” environment characterized by a lack of inflation, moderate interest rates, a dovish Fed and a strong U.S. dollar.  There is no doubt that the U.S. remains an oasis amidst the impending Brexit chaos and concerns about global GDP growth.  The biggest challenge that investors have is identifying stocks that will sustain strong sales and earnings momentum in a decelerating environment.  Fortunately, thanks to both Dividend Grader and Stock Grader, Navellier has the computing power to data mine thousands of stocks and identify the crème a la crème.
 
Louie



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Is Economic Growth a Driver of Earnings?

This is a Market Update from Julex Capital Management:

Screen Shot 2019-02-27 at 2.29.59 PM.png

Many economists expect a slowdown in U.S. growth during 2019. The FOMC projected 2.3% growth for the year back in December, which is a reduction from the 3% growth observed in 2018. Meanwhile, Wall Street analysts have widely lowered their earnings estimates. According to FactSet, analysts are projecting earnings growth to be 4.5% this year, much lower than the 21.7% growth in Q3 2018.

Intuitively, earnings should be reflective of economic growth since the United States is a consumer-driven economy. Over the long haul, there is a clear positive correlation between the two metrics. Taking the average of the trailing 80 periods (20 years) of quarterly data, since 2009, it’s expected that every 1% increase in GDP will add 1.65% to aggregate corporate earnings (see Figure 1).

Screen Shot 2019-02-27 at 2.30.23 PM.png

But the relationship between earnings and GDP might not be so straightforward. In fact, GDP growth has been a poor indicator of earnings growth on a period-by-period basis. Going back to 1989 and ignoring two outliers during the financial crisis, quarterly corporate earnings are essentially independent of quarterly economic growth (correlation of just 0.26, see Figure 2). There are a couple of reasons to explain why this meaningful long-term trend has poor short-term predictive value, namely the increase in overseas sales and the rise in corporate profits relative to GDP.

Screen Shot 2019-02-27 at 2.30.43 PM.png

Currently, about 30% of the sales of S&P 500 companies come from overseas. This quantity is obviously tremendously influential to a domestic company’s bottom line, but it doesn’t factor into GDP calculations. Higher GDP growth rates, especially in emerging markets countries, could disproportionately aid companies with extensive international exposure.

Another point to keep in mind is the high growth of corporate earnings in relation to GDP. Not only has earnings growth drastically outpaced economic growth on an indexed basis, it has also been much more volatile (see Figure 3). Put another way, the scale of GDP makes it less sensitive than earnings to short-term factors like interest rates, currency fluctuations, tax policies, and demand/supply seasonality. For example, the December 2017 signing of the Tax Cuts and Jobs Act slashed the corporate tax rate from 35% to 21% and drastically affected corporate profitability, yet only slightly improved GDP growth.

Screen Shot 2019-02-27 at 2.31.13 PM.png

In summary, short-term earnings growth behaves very differently from GDP growth, though they have a robust positive relationship in the long run. In 2019, we expect earnings growth to fall close to its long-term equilibrium level since the impact of tax cuts has faded. Assuming 2-3% GDP forecast for this year, a 4-6% increase in earnings would seem like a reasonable estimate.







Disclosures

Julex Capital Management is a SEC-registered quantitative investment management firm specializing in tactical and factor-based investment strategies. The firm offers a variety of tactical unconstrained investment solutions aiming to provide downside risk management while maximizing the upside potentials using its unique Adaptive Investment Approach.   In addition, Julex offers active equity strategies to deliver security selection alpha uncorrelated with the traditional risk factors like size, value or momentum using its TrueAlpha(TM) multi-factor sequential screening approach.

The information in this presentation is for the purpose of information exchange. This is not a solicitation or offer to buy or sell any security. You must do your own due diligence and consult a professional investment advisor before making any investment decisions. The risk of loss in investments can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.

The use of a proprietary technique, model or algorithm does not guarantee any specific or profitable results. Past performance is not indicative of future returns. The performance data presented are gross returns, unless otherwise noted.

 All information posted is believed to come from reliable sources. We do not warrant the accuracy or completeness of information made available and therefore will not be liable for any losses incurred. No representation or warranty is made to the reasonableness of the assumptions made or that all assumptions used to construct the performance provided have been stated or fully considered.

Cavalier Investments and Julex Capital Management are separate and unaffiliated and are not responsible for each other’s products, services or policies.  The views expressed by Julex are their own and may not necessarily be reflective of the views of Cavalier and should not be construed as such

The Market is Overbought and Likely to Deliver Slower, More Selective Gains

Excerpt from Louis Navellier's Marketmail - 2/26/2019

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I hate to be a party pooper, but I have to tell you that the stock market is grossly overbought. According to our friends at Bespoke Investment Group, 70.8% of the stocks in the S&P 500 are now overbought, which is the highest level in nearly three years (since March 2016). This 70% overbought threshold has only happened eight times in the past decade, according to Bespoke, and the S&P 500 has usually kept rising – by a median 2.1% and 5.6% in the next month and three months, respectively. So, the good news is that, based on historical parallels, the S&P 500 may continue to move higher, but at a slower pace.

Essentially, the stock market is entering a “funnel,” which I expect to become progressively narrower, with fewer stocks showing leadership. First-quarter 2019 S&P 500 earnings are expected to “hit a wall” due to more difficult year-over-year comparisons. Furthermore, due to a strong U.S. dollar, multinational stocks that account for about 50% of the S&P 500’s sales are fighting a strong currency headwind. 

As a result, companies that post strong sales and earnings momentum in a slower earnings environment – like my A-rated dividend growth and conservative growth stocks – should continue to exhibit relative strength and emerge as market leaders. Here are links to my Dividend Grader & Portfolio Grader services.


In This Issue of Marketmail (Click Here to Read)

This week, President Trump may negotiate a denuclearization deal with North Korea and a trade deal with China in the same week – after former Presidents have failed to make progress on either front. Bryan Perry covers the China deal and Ivan Martchev writes about North Korean investment options. In between those columns, Gary Alexander writes about media bias when covering stock markets, with media silence greeting this historically rapid recovery. Jason Bodner covers the phenomenal 8-week recovery in growth stocks, while I close with a look at Brexit, Europe, and what looks like Maduro’s final days in Venezuela.

Income Mail: The March 1 Trade Truce Extension is Looking Like a Done Deal 

     By Bryan Perry

Dealing with China’s Hyper-Growth Cyber Crime Network 

Growth Mail: The Market is Getting Boring – and That’s Great News

     By Gary Alexander

No News is Good News

Global Mail: How to Invest in North Korean Denuclearization

     By Ivan Martchev

Investment Surrogates Are Not Created Equal

Sector Spotlight: Growth Has Been Leading Us Out of the Ashes

     By Jason Bodner

Don’t Fight a Rising Market!

A Look Ahead: Brexit Problems Overshadow a Brewing European Recession

     By Louis Navellier

U.S. Energy Production Aids in Policing Venezuela and Other Dictators

Upcoming Webinar 3/6

Tactical Economic Portfolio

“Tactical Investing in a Late Stage Bull Market”

The Tactical Economic Portfolio seeks long term growth of capital with low to moderate downside volatility. The strategy is a quantitative ETF model that generates signals for an allocation between Growth, Balanced, and Defensive positions. The portfolio has a moderate growth risk tolerance and is intended to be suitable for investors who want a dynamic approach to asset allocation and for investors who desire active risk management for downside protection.

What we'll cover in this webinar:

• Is a late stage bull market the right time to implement a tactical strategy?

• Learn how the Tactical Economic portfolio may protect client assets in a bear market.

• Summary performance: GIPs verified and over 8 year performance history since inception.

• Strategy continues to manage drawdowns through recent market volatility. Portfolio moved to Balanced equity and fixed income in Q4 2018.

• Portfolio typically experiences low single digit volatility and low portfolio drawdowns.