This weekly report presents insights from our Global Investment Management team.
Geopolitical pressures seem to keep falling back into the limelight for investors.
U.S. stocks were down going into last weekend due to rising tensions from the Korean peninsula. A failed missile test by North Korea over the weekend actually seemed to help abate market angst with the S&P 500 Index gaining 86 basis points on Monday before sliding 29 basis points in Tuesday trading hours.
Investors continue to concentrate on the most recent earnings reports to gauge how large U.S. companies are faring in the uncertain legislative environment. The heart of this earnings season is just around the corner and almost 60% of the 498 S&P companies will have reported by Friday next week. That will give a much better assessment of how this session will turn out and if earnings growth meets expectations.
Yesterday, U.K. Prime Minister Theresa May called for a surprise snap election to take place on June 8th in a ploy to strengthen the existing parliamentary majority. A victory in these early elections may help to unite sections of the U.K. government and could increase bargaining power when negotiating Brexit terms with the European Union. The British pound rose sharply yesterday on the news while the FTSE 100 Index, which tracks the largest 100 qualifying U.K. companies, plunged 2.46%. The first round of the French presidential election will be held over the weekend and will likely have a strong impact on Europe’s direction. According to Bloomberg’s own composite of French polls, Macron currently has a slight lead over Le Pen but it seems to be anyone’s game. A surprise win, particularly by candidates with more protectionist policies, could put a damper on trade and would raise the risk of France leaving the euro.
While politics top headlines in Europe, China’s economic data had a surprise in store. The country’s official GDP growth data has almost always been remarkably stable. As an example, according to the National Bureau of Statistics of China, the Chinese economy grew by 6.7% in each of the four quarters in 2016 and reflects relatively stable data historically. While the government set the target of approximately 6.5% growth for 2017, the world’s second largest economy grew by 6.9% in the first quarter due to government infrastructure spending accompanied by the recent soar in property values. The U.S. administration also seems to be working toward a trade deal with the Asian manufacturing powerhouse.
Our team is currently reviewing possible adjustments to our strategies after our most recent trade, which slightly reduced stocks and shifted equity positions in both domestic and international developed markets. Our expectation for interest rates continues to be a base case for Fed hikes in June and September to pave the way for an asset sale announcement in December this year. Like others, we are anxiously awaiting any tax reform progress; however, it may be delayed until Congress can pass an acceptable replacement for the Affordable Care Act. For now, we are keeping a watchful eye on election results in Europe.
Investing involves risk, including the possible loss of principal and fluctuation in value. Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. The information in this newsletter is for informational purposes only and is not intended to be investment advice or a recommendation. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance.
Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.
International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.
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