News for the Week of 02/06/2017 – 02/10/2017
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
- The Senate confirmed Betsy DeVos as education secretary after Vice President Pence cast a historic tie-breaking vote
- Iran’s Supreme Leader leveled his harshest criticism for far at Trump, saying the president had showed the US’s real face
- Nuclear safety inspectors described management weakness at France’s Areva, a key industry supplier
- The White House is considering executive actions to label Iran’s Revolutionary Guard and the Muslim Brotherhood as terror groups
- The Greek government is split over how to break a deadlock with creditors that has revived bond market jitters
- An appeals court unanimously ruled against Trump’s executive order on immigration and refugees, saying such a travel ban shouldn’t go into effect while courts consider whether it goes too far in limiting travelers to the US
General Markets / Economic
- China’s currency reserves dropped below $3T in January, the lowest level in almost 6 years
- The SEC’s acting head signaled the agency would review requirements that firms disclose the pay gap between CEOs and their employees
- Some manufacturers are plowing ahead with plans to move operations to Mexico despite Trump’s vow to keep jobs in the US
- Loan refinancing by US companies is surging, fueled by expectations of rising interest rates
- Foreign buyers, led by China, are taking a smaller slice of the debt issued by the US and other major economies
- Scientists said Mars’ early atmosphere likely lacked enough CO2 to keep the planet warm enough for liquid water
- Anthem’s plan to acquire Cigna was blocked by a federal judge, who said the deal violated antitrust law – I called it!
- Twitter outlined strategy changes amid a struggle to cash in on its growing popularity, as the firm said quarterly revenue rose just 1%
- Kids in Spain are loving it! Bad weather in Spain has caused a famine of broccoli, zucchini, cauliflower, and lettuce
- Whoops. I’ve seen a bunch of stories about this lately, but apparently more and more people are climbing into random cars believing them to be their Uber driver. While this is funny, in-itself, it’s also drastically concerning – only because people must be really stupid. Uber tells you what car, what color, WHAT LICENSE plate your driver is. Do people not look at this stuff?
Commentary for the Week of 02/06/2017 – 02/10/2017
by David Abuaf, CFA
Investment Manager, RJFS
Chart from Barrons
It may not be chocolate and peanut butter, but a dose of healthy earnings reports and pro-business comments from the Donald was enough to send the major indexes to all-time highs last week.
While it didn’t look that way at first, with the market barely moving on Monday, Tuesday and Wednesday, Thursday resulted in Trump promising a “phenomenal” tax plan – and the stocks were off to the races (call me a grammar-ist, but the Donald’s use of superlatives is phenomenally disappointing – and only one of us used it correctly, me!). It’s no secret that the market has reveled in Trump’s pro-business comments, even though he has offered few details, notably on this tax plan! Though Mike O’Rourke at Jones Trading says to not expect the market reaction to change, “until we have substance and a framework, we will see this kind of reaction to noise.” My cynical question is at what point will the market react tepidly to the Donald’s comments; that’s not an assumption that he won’t deliver, rather it’s a presumption that not everything he touches turns to gold!
But stocks are also reacting to something more fundamental: corporate earnings. Fourth quarter earnings are on pace to grow by 8.4%, according to Thomson Reuters (just last week it was only 8% expected growth) – that’s nearly double the 4.3% gain reported during the third quarter!
Stronger earnings growth is particularly important because the S&P 500 rose 9.5% last year, despite little to no earnings improvement, says Daniel Chung, CEO of Alger fund management. That meant stocks were rising last year simply due to increase in valuations and not fundamentals – that’s like saying you found the food more delicious because there was more of it, not because it tasted any better! According to Chung, “with earnings turning positive, we have a solid catalyst for 2017 turning out to be a good year.”
If it’s earnings you want, it may be time to look to Europe. Merrill Lynch strategist Ronan Carr notes that earnings growth in Europe could be faster than in the US this year AND next, after lagging behind by 76% since 2009!
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services.
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