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

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

Subscribe to Marketmail

 

Screen Shot 2018-07-03 at 7.44.30 AM.png

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