News for the Week of 09/19/2016 – 09/23/2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
1. NATO said a new force aimed at deterring Russian aggression in the Baltic area will be in place by May
2. India said four militants stormed an army base near the Pakistani border, killing at least 17
3. The first Iraqi families returned to Fallujah nearly 3 months after Islamic State was driven out
4. Clinton and Trump tangled in the aftermath of the bombings in NY as national security returned to the forefront of the campaign – because the security of citizens is partisan!?
5. The US and Russia wrangled over who killed aid workers in Syria as Washington pressed Moscow on a new plan to halt resurgent violence
6. The Pentagon is asking for as many as 500 more troops for Iraq ahead of a campaign to retake Mosul
7. Clinton proposed a 65% tax on the largest estates, an expansion of the tax increases she would impose on the wealthiest Americans. I wish politicians would only be allowed to say things that could ever really happen. This is such an incredibly stupid idea, but I won’t get on my soap-box yet, there’s no way this would ever pass anyway!
8. Trump proposed sweeping deregulation of natural-gas and coal production as part of an American-first energy plan. Again, another stupid idea by a politician. Did Trump never hear of Enron’s issues? Brought to you by…you guessed it, deregulation.
· Deregulation is like unions. Great in theory, terrible in practice. And I have history to prove me right
General Markets / Economic
1. OPEC members cooled expectations for an agreement this month to limit crude-oil output
2. The Fed left interest rates unchanged by signaling it still expected to raise them before year-end, after a policy meeting marked by dissent
3. The Bank of Japan set a target for 10-year rates in its latest bid to restart growth; a policy approach unseen in decades
1. GM workers at two Canadian plants will strike if the auto maker and union miss a Monday contract deadline, the union’s head said, possibly disrupting supplies of SUV engines
2. Koch is launching a carpet-cleaner line, its first foray into the US household-cleaning market
3. Bayer’s push into the US agrochemical market with its Monsanto deal could help offset strict EU rules
4. The SEC is officially investigating how Exxon values its assets in a world of increasing climate-change regulations
1. Those running for the presidency this year have climbed to over 1900 from 420 in 2012. Some candidates include: Satan, Lord of the Underworld Prince of Darkness for a Brighter Future; God; Luke Skywalker; Captain Crunch; The Ghost of Christmas Present; Mickey Mouse; and Francis Underwood.
2. A British man who lived in the Swiss Alps as a goat for three days wins one of this year’s IG Nobel Prizes
Commentary for the Week of 09/19/2016 – 09/23/2016
by David Abuaf, CFA
Investment Manager, RJFS
The Federal Reserve declined to lift interest rates last week, and that suited investors just fine. Stocks finished the week about 1% higher in mostly quiet trading. US economic data released last week, including data on home sales and manufacturing, revealed a continued trend of tepid economic growth; turns out that suits equity investors too, as it means the Fed probably will remain on a low glide path to hiking rates for a while.
Most asset classes rose last week on a Goldilocks assessment – that things aren’t too hot or cold, but just right, says Anwiti Bahuguna a portfolio Manager at Columbia Threadneedle. Bonds, in particular, had a big week, as the new estimate of future rate levels is looking to rise fairly slowly.
The market’s valuation prices in an improvement in second half earnings and an enormous rise in 2017 EPS for the S&P 500 (from $117.12 to $133.46). The Fed’s lower rate expectations have longer-term implications for defensive stock sectors, (e.g., utilities, telecoms, staples); funds have continued to flow out of fixed income assets and into these stocks, acting as a buoyancy for the equities market. According to Michael Yoshikami of Destination Wealth Management, “Dividend-paying stocks are the new long-term bonds.”
The market will soon exit its seasonally worst month – September – and move into a traditionally positive period for stocks. If September turns out to be a good month, history suggests the positive momentum should carry stocks through the end of the year. The next focus is going to be the beginning of the third quarter reporting period and the Nov 8 US election.
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services.
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