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News for the Week of 11/07/2016 – 11/11/2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
1. The US is set to launch a probe into whether Chinese firms are shipping steel through Vietnam to avoid US import tariffs
2. The FBI said a review of new evidence gave it no reason to reverse its recommendation that Hillary Clinton not face charges related to her email practices while secretary of state
3. US backed Kurdish and Arab forces began an offensive against Islamic State’s de factor capital in Syria
4. China’s top legislative body effectively barred two Hong Kong politicians from taking office as local lawmakers
· This is key because when China regained control of Hong Kong they promised to keep out of Hong Kong politics and let the area govern itself
5. Iran plans to sign a preliminary deal with France’s Total to help develop a gas field, an agreement that would mark the first Western energy investment there since sanctions were lifted
6. Talk about irony of epic proportions. British Prime Minister Theresa May, in a visit to India, said she wants Britain to be the most passionate advocate of free trade around the world. Does she not know what Brexit was!?
7. The electoral gains by Trump on Tuesday evening spurred a sharp decline in US stock futures and a broad flight to safety around the globe, with government bond yields sliding aggressively. Then, of course, the Dow Jones market turned up Wednesday and ended on a 900-point gain for the week.
· I bring this up not to recount last Tuesday’s presidential outcome, but rather to highlight the importance in the financial markets of “lack of surprises.” The markets and citizens knew Hillary’s policies, but not so much with Donald. Thus, the global marketplace saw falling equity and currency prices, with rising “safe-haven” asset prices (gold, government bonds). My opinion is that the markets will be volatile into Trump’s presidency (think 3-6 months). The reason for this is that Trump can say whatever he wants now until his oath, but the markets still do not know what he’ll do. And when he finally does take the oath, he can’t make all his changes immediately, rather we’ll have to wait for the State of the Union and other events to see what path he wishes the US to go down.
8. South Africa’s Zuma survived his second no-confidence vote this year
General Markets / Economic
1. Beijing is considering allowing Wall Street firms to run their own investment banking businesses on the mainland
2. A Chinese aluminum firm is evading US trade sanctions, the government said, as it tries to rein in a flood of cheap metal imports
3. Bank stocks continued to rise, buoyed by the prospect of looser regulation, economic growth and higher rates
4. The UAW president said he sees common ground with Trump on trade
· The World Trade Organization (WTO) said government measures that restrict trade continue to rise around the world
1. California regulators have discovered fresh software installed on some of VW’s Audi models that appear to have allowed the cars to cheat emissions tests
2. Tesla will stop providing unlimited free access to its fast charging stations for new buyers of its vehicles
3. Walgreens sued Theranos, alleging that its former laboratory-testing partner breached a contract between the two companies
4. Amazon could be in the crosshairs of Europe’s taxman, and the stakes for the online retailer are high
5. GM will cut shifts at two US plants early next year, idling 2,000 workers
1. Sometime in the middle of the night on Election Day, the Canadian government’s website crashed; may have been too many people logging on to find out how to emigrate there and get citizenship! – Thanks to CNN for that tidbit
· All those celebrities that promised to move out of the country if Trump won….apparently were “just kidding”
2. McDonald’s is suing Florence (Italy) for 18m Euros after McDonald’s was blocked from opening a restaurant on one of the Italian city’s most historic plazas – the Piazza del Duomo. McDonald’s is saying it was discriminated against. This is the second high- profile spat over an Italian location this year for McDonald’s. last month it was reported that cardinals at the Vatican had been angered by plans to open a branch in a piazza next to Saint Peter’s Square.
3. Paralyzed macaque monkeys with major spinal cord injuries were able to walk again less than six days after suffering their crippling lesions, thanks to a new system called a brain-spine interface. Using strategically placed electrical implants, the new technology bypasses the damaged region of the spine, allowing signals to travel between the brain and the legs.
Commentary for the Week of 11/07/2016 – 11/11/2016
by David Abuaf, CFA
Investment Manager, RJFS
Chart from Barrons
A Donald Trump victory in the presidential election was supposed to cause a mass selloff in stocks, even a market panic. Instead the Dow Jones Industrial Average had its best week since 2011. Talk about getting it wrong. While all the pre-election focus was on the downside of a Trump victory – the protectionism, the score-settling, and the divisiveness – the president-elect, in his victory speech, dialed back the belligerence and struck a conciliatory tone. At the same time Republicans walked away with control of Congress, putting an end to Washington gridlock (one can only hope) and creating a clearer path for Trump’s massive stimulus plans – more than $4 trillion in spending and tax-cuts, according to Daniel Clifton at Strategas, “[despite the initial selloff in the futures market], the market saw an opportunity and it jumped.”
The gains, however, weren’t spread evenly cross the market. Health care, which had been the worst performing sector in the S&P 500, surged 3.3% as the market bet that Trump would focus less on drug pricing and other forms of regulation than Hillary Clinton would have. Technology stocks, which entered the election as the market’s third best performing sector, tanked in the days after Trump’s victory (mainly due to expectations on immigration).
Dubravko Lakos-Bujas of JPMorgan, says that Trump’s win reinforces, and even accelerates factor in play since mid-year: rising bond yields. Trump’s win adds the possibility of real growth to the mix, and that caused the 10-year Treasury to reach its highest level since January. The jump in yields gave a further boost to certain stocks, while punishing those dependent on yields staying low in perpetuity, according to Lakos-Bujas, “there’s now a chance of a growth injection.”
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services.
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