This weekly report presents insights from our Global Investment Management team.
U.S. stocks paused after a 6-day climb as disappointing earnings from Walmart and increased geopolitical tension were digested by markets. The retailer fell over 10% on Tuesday after missing its earnings-per-share estimate by almost half.
As a whole, earnings for S&P 500 companies have been remarkably strong this quarter. For the 425 companies that have reported, average sales growth reached almost 8% and earnings have grown 14.98% since last quarter, according to Bloomberg aggregation data. The energy sector continues to show the largest growth numbers as it recovers from notable weakness in prior periods, but is the only sector to miss estimates so far this season.
News over the potential tampering in the 2016 U.S. presidential election returned to the spotlight on Friday after 13 Russian nationals and three Russian entities were indicted on charges of defrauding the United States, according to the Department of Justice. Additionally, U.S. Special Counsel Robert Mueller is focusing on two former Trump campaign aides to cooperate in the probe. The developments will likely raise concerns for investors and the general public alike over the future of fiscal and international policy.
President Trump is reviewing additional tariffs after enacting taxes on solar panels and washers in January. The U.S. Commerce Department recommended steep tariffs or quotas on steel and aluminum in the interest of national security on Friday, concluding an almost year-long study prompted by the president in early 2017. China’s Commerce Ministry called the report “baseless” and stated it would take necessary actions to protect its interests, while South Korea will appeal to the World Trade Organization on parallel issues. Based on data from the Commerce Department, China was not a top 10 supplier of U.S. steel imports last year, but South Korea was the third largest – behind Canada and Brazil. Trump will likely respond to the reports by their deadlines in April.
The heads of global monetary policy may shift significantly over the next few years. In the U.S., Jerome Powell quietly took office as Chair of the Federal Reserve on February 5 as Janet Yellen stepped down. While policy is widely expected to remain status quo under Powell, who seems to have fairly similar views on policy as Yellen, unexpected changes in the economy or effects from reducing the balance sheet may force action. Nineteen of Powell’s counterparts in the Eurozone gathered on Monday to appoint Spain’s Minister of the Economy Luis de Guindos as the next Vice President of the European Central Bank, who was the sole candidate after a withdrawal from Ireland. Mario Draghi will be ending his term as president of the central bank in 2019, which may push the European Council to select a more hawkish member.
We continue to be positive on stocks over the near term despite volatility creeping its way back into financial markets. Our strategies maintain a slight overweight to equities and are underweight bonds and approximately neutral on alternative investments. Our team believes our strategies are positioned well for the current environment, but we may make adjustments as price momentum shifts abroad.
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.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
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