The market’s turbulent week finished on a high yesterday boosted by a couple of factors.
Overnight, China’s commerce ministry announced new talks to be held with U.S. representatives next week, helping investors feel better about dwindling prospects for a full out trade war.
In addition, average hourly earnings adjusted 0.4% from November and 3.2% from the previous December, representing the best year-over-year gain since 2008.
Later in the morning, Fed Chairman Jerome Powell helped by saying mild inflation means the Fed will be “patient and flexible” when considering further interest rate increases in 2019. In a joint appearance with former Fed Chairs Ben Bernanke and Janet Yellen, Powell said the Fed will use all the tools available to it to support the economy.
This statement was important. Powell’s last press conference after the Fed’s meeting in December was a disaster.
Instead of giving investors the dovish statement they were looking for, Powell announced two more rate increases for 2019. The market dropped more than 300 points immediately after the press conference.
Everyone was watching Friday to hear what Powell had to say and how the markets would react.
Powell’s statement didn’t change anything about the Fed’s stance, but was a bit more dovish and seemed to be more in tune with what the markets were looking for.
So, when Powell said there was no preset path for policy, the markets took positive notice. “And particularly with muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves,” he continued.
The markets responded very positively to the fed chairman’s dovish statements, with the NYSE soaring above 750 points.
Even Apple, which had taken a beating the day before, saw positive movement. My colleague Jeff Remsburg explained why that’s important in yesterday’s Digest.
So, in view of all the markets will ups and downs, what should investors think now?
***Circumstances are still very positive for market gains
In a recent note to subscribers, legendary investor and editor of Growth Investor, Louis Navellier wrote that he believes the Fed is done raising interest rates in the near term.
The Federal Reserve cannot ignore falling Treasury yields forever. Market rates have fallen significantly recently, and the Fed never fights the tape. That’s because the Fed doesn’t want to invert the yield curve and hurt banks. So, for all practical purposes, it looks like the Fed is done raising key interest rates in the near term.
Louis is one of the top growth investors in the world and has well-earned reputation for making money in any market condition.
As such, advice from him on where to make money now carries a lot of weight.
And he is still bullish on this market.
Even with rising rates on bonds, he believes investors should stay in the markets.
The S&P 500 currently yields more than 2.2% and the 10-year Treasury’s yield is now around 2.75%. Considering that most stock dividends are taxed at the maximum Federal rate of 23.8% and Treasury interest is taxed at the maximum Federal rate of 40.8%, the stock market is clearly the best game in town.
The financial media refuses to report positive news, like falling interest rates, stunning corporate earnings and record stock buybacks. But, once Wall Street returns from their ski vacations, liquidity will improve, trading volume should rise and investor confidence should be restored. All of which will support higher stock prices.
This is all good news in the short term, but after so much volatility in the markets, what can investors expect in 2019?
***Louis Navellier’s predictions for 2019.
Louis recently shared some his predictions for 2019. Louis has a 20-year track record of helping his subscribers beat the market and he uses all that knowledge to provide some much-needed intelligence.
After reading his anlaysis I’m convinced it provides some important guidance for Digest readers for the next 12 months. His predictions start off with some important context:
There is one main factor that we need to be aware of: More difficult year-over-year comparisons. Earnings will be decelerating in every quarter of 2019. This isn’t too surprising considering the phenomenal earnings in 2018.
For the fourth quarter, the S&P 500’s earnings are expected to slow to an annual pace of 17.4%, down from 28.2% in the third quarter. After that, FactSet expects the first three quarters of 2019 to see single-digit earnings growth. So, the breadth and power of the overall stock market is expected to become increasingly narrow.
Specifically, in 2018, eight of the 11 industry sectors in the S&P 500 were exhibiting relative strength for much of the year. However, in 2019, I only expect four to five of the S&P 500’s 11 sectors to lead the overall stock market.
That’s important context. We’re going to see some changes, and a more narrow field for gains.
That doesn’t mean the market is just headed south. Luckily, Louis is willing to share which sectors he thinks will lead in the market.
The sectors with the best earnings will be integrated energy, specialty retail, healthcare/medical and cloud computing/cyber security.
Identifying the best stocks for growth is going to be more difficult. Louis provides his subscribers with a whole portfolio of growth stocks in these sectors but he is willing to share some of his favorites.
Some of my favorites include Burlington Stores (BURL), Intuitive Surgical (ISRG), Lululemon Athletica (LULU) and Fortinet (FTNT).
Detailed descriptions of why he likes these stocks, plus his other portfolio picks are part of his Growth Investor service.
Louis also provided some intelligence about an important overall market trend. Given how spooked investors are, where are they moving their money?
Another bucket of stocks that should lead the market in 2019 are dividend growth stocks. The dividend yield on the S&P 500 recently crossed over 2%.
Considering that the Fed squashed Treasury yields further this week with December rate hike and 2019 outlook, yield-hungry investors will continue to pour into dividend stocks. Our Elite Dividend Payers should be top picks, given their strategic blend of solid earnings and consistent (and increasing!) dividend payments.
Louis has created a presentation explaining where he thinks money is going now, and you can read his analysis here.
To a richer life…
Luis Hernandez, Managing Editor
and the research team at investorPlace.com