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News for the Week of 10/31/2016 – 11/04/2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
1. The FBI disclosure that it is taking a new look at Clinton emails ahead of the election reveals tension inside the bureau and Justice Department over the probe
2. Texas polls show a surprisingly tight race between Trump and Clinton, amid a surge in registered voters
· Clinton is in a dead heat with Trump in Florida and leads by six points in North Carolina
3. Undecided voters lean more Republican as a group than Democratic
4. State election officials are carrying out final tests on voting machines as concern grows about hacking
5. Beijing and the Vatican reached a compromise on who selects Catholic bishops for China
6. A Dutch politician went on trial for discrimination and inciting hatred over remarks about Moroccans
7. Greece blocked EU sanctions on an Iranian bank accused of financing terrorism, defying the US and European allies
General Markets / Economic
1. Inflation has begun to stir, though it remains below the Fed target. Core inflation reached a two-year high of 1.7%, while wages rose 2.4%
2. Consumer spending rose in September, a sign of resilience amid middling US economic growth
1. GE is nearing a $30B deal to combine its oil and gas business with Baker Hughes
2. CenturyLink said it has reached a cash and stock deal to buy Level 3 for roughly $25B
· That means CenturyLink will give Level 3 shareholders a set amount of cash and a certain number of their shares for each Level 3 stock. Typically, mergers involving shares are more volatile because the value of the acquiring company’s share price can change according to stock moves!
3. DraftKings and FanDuel are discussing a merger of the two fantasy-sports companies as legal and regulatory problems mount. Whoa! Somebody make sure that I’m not dreaming. This is like Coke merging with Pepsi, let’s see if the Department of Justice let’s this one pass
· Iceland increased its parliamentary presence from three seats to 10 for the Pirate Party, described as “a collection of anarchists, hackers, libertarians, and Web geeks.” As someone who identifies with libertarian ideals (just not Gary Johnson), I take offense!
Commentary for the Week of 10/31/2016 – 11/04/2016
by David Abuaf, CFA
Investment Manager, RJFS
Chart from Barrons
US stocks skidded lower on the week ahead of US elections. Investors fretted about a presidential race whose outcome appears much tighter than previously thought, raising the odds of a contest with no clear winner. The major indexes fell 2% in mostly uninspired trading.
For the past two weeks, there has been growing market fear of a victory by Trump, whose antitrade and anti-immigration policies are anathema to capital markets. Lost in the electoral anxiety were third quarter earnings reports that were generally good, albeit against lowered expectations. FactSet Research says that with 85% of the companies in the S&P 500 index reporting, 71% beat earnings per share estimates, with third quarter aggregate growth in per share earnings currently at 2.7%, which would be the first quarterly rise since March 2015.
Also ignored was the Federal Open Market Committee meeting last Wednesday; the Fed left monetary policy on hold, with a quarter point hike in the Fed Funds rate expected on December 13-14.
Many investors decided to play it safe ahead of the vote by moving from stocks to cash or to short term Treasury bills, says Mohit Bajaj, director of exchange traded funds for WallachBeth Capital. Sentiment is hanging on the election says Mark Heppenstall of Penn Mutual Asset Management. Per Mark, the market wants a Clinton victory with republicans holding on to Congress to rein in Democratic spending. However, “if there’s no clear winner, that’s a problem.”
After the surprise UK vote in June to exit the European Union, investors are hypervigilant about an unexpected outcome, says Jake Dollarhide of Longbow Asset Management. A Trump victory would lead to weeks of heavy volatility and seesaw action, he adds.
For investors with the longer view, there’s some solace from past performance: the November to April period has been the best time to be in stocks over history.
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services.
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