The market is consumed by the political rhetoric coming out of Washington. However, the most important overriding factors are still a vastly improving global economy and rising corporate earnings. This is ultimately the tide that shifts share prices.
In his infinite wisdom, President Trump has chosen to take the path of confrontation regarding global trade. It is clear that he has in mind to fulfill much, if not all, of his campaign promises. The commitment, though most honorable, is nevertheless fraught with all sorts of dangers whether by his style of negotiation or the usual unintended consequences...
For many professional money managers, 2017 was an extraordinary year, especially in contrast to the performance of the previous year...
As always, it is a case of the glass being half-full or half-empty. This is certainly true of the global geopolitical landscape as well as the economic picture. In Europe, in addition to Brexit, which implicitly is a very complex set of negotiations, we now have Catalonia and the age-old desires of many Catalonians to exit Spain and form an independent state...
We have been of the opinion that Chair Janet Yellen’s action late last year in terminating quantitative easing and signaling the return to a more traditional Fed policy in normalizing interest rates marked a constructive change for Fed policy. To us this also signaled an early indication of the major redirection for global financial markets. As much as Europe and Japan have followed the US in economic policy, Yellen’s actions do signal that an end to zero interest rates may be in sight on a global basis in the not too distant future. The US being the world’s largest economy may likely be the early indicator for global central banks.
We continue to be bullish on global markets given certain events materializing. For the US, the major hurdle continues to be the repeal of Obamacare. Now that it is half done, its completion by the Senate has to be quickly followed by the much anticipated tax cuts. At the end of the day it is how secure the GOP will be come the 2018 elections.
Geopolitics is the current prevailing driving theme for financial markets. Europe is preoccupied with Brexit and elections as well as financial issues for countries such as France, Greece, Italy and Germany. Rising tension with Russia with the current focus on Syria dominate Washington’s relationship with Moscow. With regard to the US’s relationship with China, much is up in the air since President Trump has threatened to label China a currency manipulator many times over and currently is using trade as a leverage for China to pressure North Korea on the nuclear issue. The US is sending an aircraft carrier battle group to the North China sea in anticipation of any further nuclear tests on the part of North Korea.
The statement by Chair Yellen last week confirmed our belief since late last year that the Fed has finally started to normalize interest rates. Yellen’s announcement virtually assures a rate hike later this month.
Even though the language continues to be relatively moderate, advocating a gradual rise in rates to calm the market it should nevertheless be viewed as a ploy. Until such time that the yield curve is normalized, interest rates will be steadily going up.
With the radical departure in Fed policy and an entirely new political/economic outlook, I have some additional insights I would like to share with you.
The US just went through one of the most contentious presidential elections in recent history. With the surprise win of Donald J. Trump, the nation and thereby the world is geared for radical changes and direction.