Commentary

Fisher Investments Editorial Staff
Trade

Trump Executes TPP

By, 01/23/2017


It’s still too early to fear a torrent of protectionism. Photo by Elisabeth Dellinger.

Our political commentary is non-partisan and non-ideological. We favor no party or politician and believe partisan bias invites investing errors.

This morning, some unexpected breaking news rocked the world: The next Star Wars movie will be called The Last Jedi. Oh, and Donald Trump signed an Executive Order pulling the US from the Trans-Pacific Partnership (TPP), which would have been a free-trade deal among the US, Japan and 10 other nations if it were allowed to live. As markets go, it’s a non-event: The Obama administration declared TPP DOA last year, and both Trump and Hillary Clinton campaigned against it. Markets move most on surprises, and this was a foregone conclusion. Naturally, the move is giving rise to speculation there is more to come. But this is wildly premature. There is little evidence the global tide is turning toward protectionism, and none of Monday’s trade-related developments are reason to be bearish. 

Research Analysis

Ben Thistlethwaite
Reality Check

Infrastructure Isn’t Always Industrial Grade

By, 01/23/2017

In the wake of Donald Trump’s election, many attributed Industrials stocks’ rise to expectations for increased US infrastructure spending—one of Trump’s big campaign promises. However, that doesn’t make it wise to pile into infrastructure-related sectors solely based on Trump’s pledges. It’s still too soon to say exactly what the administration focuses on as the new president formally takes the reins, but expectations for an outsized infrastructure impact have likely outpaced reality.

Already moderating his promises a bit, Trump has lowered his infrastructure spending plan from the campaigned $1 trillion to $550 billion—roughly 3% of GDP. Now $550 billion worth of spending could be impactful if spent all at once (and presuming it didn’t crowd out private investment in the process). However, it’s likely spread out over many years—muting its stimulative power—and probably wouldn’t start until 2018, just in time for midterms. It’s also unrealistic to expect an infrastructure bill—or any bill— to pass through Congress undiluted or without bringing up other political landmines like raising taxes or deficit spending. In other words, there is a lot of potential for gridlock to get in the way.

Updating infrastructure has benefits, but the economy doesn’t need a massive infrastructure bill to keep growing—the private sector has done fine driving most of the growth this expansion. Past infrastructure spending bills haven’t moved the needle because they require years of planning, and spending typically gets bogged down across myriad national government agencies—not to mention conflicts with state and municipal needs. Consider the 2009 American Recovery and Reinvestment Act, which lacked readily available projects and drove little meaningful revenue for Industrials companies. And 2015’s five-year, fully funded (by the Fed’s dividends) $305 billion Highway Bill has thus far had a muted effect, going almost unnoticed.

Commentary

Fisher Investments Editorial Staff
Developed Markets, Across the Atlantic, Media Hype/Myths

The UK’s Brexit Wish List

By, 01/20/2017
Ratings484.270833

Will Brexit be hard, or will Brexit be soft? This question has dominated Brexit chatter since last June’s vote, and on Tuesday, Prime Minister Theresa May gave us an inkling of an answer: She intends to withdraw the UK from the EU’s single market, fitting the textbook definition of a hard Brexit. Then again, within the 12-point outline of her administration’s starting point and negotiating priorities were several provisions to soften the blow, illustrating the danger of relying on narratives and snappy jargon for your investing cues. Now, a speech isn’t a binding agreement, and talks—which have yet to begin—could always yield an unexpected result. However, May’s speech does add more information and clarity than we had before, and less uncertainty lets markets start pricing in the future.    

Much of May’s focus was sociological, from immigration control—a major theme during the referendum campaign—to protecting workers’ rights. Yet there were some notable items for investors, including May’s desire for new free-trade agreements, not only with the EU, but other countries as well. She also revealed Parliament would weigh in on the final deal, and the eventual agreement’s rollout would be gradual and deliberate to ensure a “smooth and orderly Brexit.” In other words, sudden, immediate surprises are unlikely, giving markets ample time to digest the actual rule changes.    

Because May stated the UK would forgo single market access, many outlets concluded Britain chose the “hard” Brexit path—scrapping what’s on the books and starting fresh—rather than the “soft” Brexit where the UK and EU reach a modified arrangement while keeping much of the status quo intact.[i] A blank slate inevitably means more unknowns, so many critics argue a hard Brexit would hurt the UK economy, since unknowns are apparently automatically bad (and, according to the narrative, presumably mean high trade barriers). The negative feedback is voluminous: Some say May “wants to have her cake and eat it” and her speech added more uncertainty. Others worry it will cause more corporate insolvencies and hurt the Brits more than their Continental counterparts.  Already, some experts assume long-term GDP figures will suffer based on straight-line math. The pound’s fall over the weekend before May’s speech allegedly signaled currency markets’ disapproval of a hard Brexit—so commence freak-out. 

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: How to Read the Modern Financial News

By, 01/19/2017
Ratings273.462963

In this podcast, we talk to Content Group Manager Todd Bliman on how investors can navigate the modern financial news media.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths, Reality Check

There Was Never a Trump Rally to Trade

By, 01/18/2017
Ratings444.022727

With Trumpmania about to reach fever pitch as the greatest reality show on Earth makes its debut—and all the attention it garners (we can’t get enough!)[i]—the financial press unsurprisingly continues to connect every market gyration to the President-elect’s actions. We documented this phenomenon on the upswing and during the holiday interregnum. Now, with stocks flattening out in the wake of a much ballyhooed Trump press conference and the inauguration nearing, the narrative has flipped. Media is atwitter with fears the Trump Rally has reached its zenith! Hold. Your. Horses. The “Trump Rally” narrative always seemed to us to far exceed what the data supported, and stocks’ latest miniscule -0.2% pullback from January 6’s all-time high to date[ii] seems like markets being markets.

Trump Isn’t Responsible...

Seeing every market move through a Trump lens is an error. Considering his election wasn’t even a glimmer in pundits’ eyes when stocks rallied from February 2016’s correction low, it seems a stretch to presume the rally continuing after the election is all about him. The flat two weeks since a record high likely isn’t a Trump phenomenon either. The rally to new highs since the election could well have occurred if Hillary Clinton won. As we said all last year, the motivating force behind last year’s rally is falling political and economic uncertainty. While there is no counterfactual, it seems highly likely markets would have rallied no matter who won, even if it were Jill Stein, Gary Johnson or Evan McMullin. Maybe it would have been bigger!

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute, Personal Finance

Market Insights: A Heads-Up On Mutual Fund Tax Bills

By, 01/18/2017
Ratings474.234043

This Market Insights video explains how capital gains taxes often surprise mutual fund investors.

Commentary

Fisher Investments Editorial Staff
Developed Markets, The Global View

Foreign Opportunity

By, 01/13/2017
Ratings1014.212871

With the Obama administration on its way out and the Trump administration about to begin, most investors seem fixated on the US. However, America isn’t the world, and much is happening outside our borders—a lot of it positive. Heading into 2017, many foreign economies are in much better shape than investors appreciate, setting up a bullish surprise.  

Let’s start across the Atlantic. While sentiment has warmed some, investors still struggle with old euro crisis ghosts, from a shaky Italian banking system (hello, Monte dei Paschi!) to the rise of populists in France, Germany, the Netherlands and elsewhere. These fears have created an uncertainty fog, which not only weighs on sentiment but also shrouds a little-noticed fact: The eurozone has grown for two and a half years and has been gathering steam lately.

The 19-member bloc grew 0.3% q/q (1.4% annualized) in Q3, and it wasn’t just economic powerhouse Germany (0.2%).[i] Continuing its solid run of late, Spanish GDP grew a robust 0.7% q/q while Ireland grew 4.0%. (Gross National Product, a gauge many consider more telling for the Emerald Isle as it limits the skew from multinationals domiciled there for tax purposes, also rose a stellar 3.2% q/q.) Italy climbed 0.3%, and even Greece(!) rose 0.8%. Of the eurozone’s 19 nations, 18 grew in Q3—the exception being tiny Luxembourg, which contracted by less than 0.1% q/q. Recent purchasing managers’ index (PMI) data, which measure the breadth of growth, are good too: Markit’s December eurozone composite PMI reached 54.4, its highest reading since May 2011. (Reads above 50 indicate growing firms outnumber contracting firms). PMIs for the eurozone’s four biggest economies—Germany, France, Spain and Italy—all bested 50.

Commentary

Ken Liu
Reality Check, Interest Rates

Don’t Fret Debt

By, 01/11/2017
Ratings954.347368

With the Trump administration taking office in less than two weeks, folks may wonder about the US debt situation, particularly since President-elect Trump talked up fiscal stimulus on the campaign trail and will almost assuredly face a budget and/or debt ceiling debate this year. But beyond the political rhetoric, investors should take note: There is no sign US debt is at all problematic.

Don’t take our word for it. The largest and most liquid financial markets are unconcerned about US debt. Otherwise lenders to the US would be unwilling to fund the Treasury at historically low rates. If a prospective borrower wasn’t very creditworthy, a lender would demand higher rates to compensate for the risk of not getting their money back. This is clearly not happening.

Currently, to borrow money for 10 years, the US Treasury must pay lenders about 2.4% a year.[i] While this is a full percentage point higher than the record-low 1.4% notched last July, it’s still lower than almost any point since 1962 (see Exhibit 1). Rates could rise another full percentage point and still be low by historical standards.

Commentary

Fisher Investments Editorial Staff
Personal Finance

A How-To Guide for Portfolio Review

By, 01/10/2017
Ratings1513.725166


Where to begin? With this article. Photo by Julia_Sudnitskaya, iStock.

With their champagne hangovers having worn off,[i] many investors are now turning to more serious matters: Evaluating the past year. You might be doing the same! However, perhaps you’re stuck on how to approach this task. What should you look at? What should you not focus on? Here are several tips to help frame your review as you weigh your investments for 2017 and beyond.

Assess Asset Allocation

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths, Reality Check

CAPE (Nothing to) Fear

By, 01/05/2017
Ratings1024.215686

Well, that didn’t take long: Mere months (and only 3.7%)[i] after the S&P 500 finally broke out of a lengthy flat stretch, pundits warn stocks have come too far, too fast, and high P/E ratios signal an overvalued market and unrealistic hopes for 2017 earnings. Many point to the Cyclically Adjusted P/E Ratio (CAPE, or Shiller P/E), which is currently at levels last seen before major crashes, as evidence trouble lurks. Yet, as is typical when valuations hit the headlines, there are several flaws in this reasoning. Some valuations can signal sentiment when they’re at extremes—which they aren’t today—but overall, they are poor predictors of stock returns. Nothing about today’s valuations suggests stocks are overvalued.

Yes, the CAPE is the highest it has been since 2007, 2000 and 1929, when major bear markets began. But coincidence doesn’t make the CAPE a valid timing tool or predictive in any way, shape or form. Conceptually, the CAPE has problems. Its denominator is the 10-year average of bizarrely inflation-adjusted[ii] earnings. That is supposed to adjust for economic cycles, but it doesn’t tell you anything about stocks’ future earnings streams, which is what you’re buying. Never mind the fact it is really, really odd to leave the economic cycle out of your projection for stocks. Moreover, the CAPE doesn’t work. Exhibit 1 shows the CAPE, its average (orange line) since 1881 and one standard deviation (yellow line) above the average, which just means 16% of observations lie above it. So although the current reading is among 16% of the most expensive “outliers,” it has been there pretty darn frequently in recent years.

Exhibit 1: No CAPEs!

Commentary

Ken Liu
Reality Check, Interest Rates

Don’t Fret Debt

By, 01/11/2017
Ratings954.347368

With the Trump administration taking office in less than two weeks, folks may wonder about the US debt situation, particularly since President-elect Trump talked up fiscal stimulus on the campaign trail and will almost assuredly face a budget and/or debt ceiling debate this year. But beyond the political rhetoric, investors should take note: There is no sign US debt is at all problematic.

Don’t take our word for it. The largest and most liquid financial markets are unconcerned about US debt. Otherwise lenders to the US would be unwilling to fund the Treasury at historically low rates. If a prospective borrower wasn’t very creditworthy, a lender would demand higher rates to compensate for the risk of not getting their money back. This is clearly not happening.

Currently, to borrow money for 10 years, the US Treasury must pay lenders about 2.4% a year.[i] While this is a full percentage point higher than the record-low 1.4% notched last July, it’s still lower than almost any point since 1962 (see Exhibit 1). Rates could rise another full percentage point and still be low by historical standards.

Commentary

Fisher Investments Editorial Staff
Personal Finance

A How-To Guide for Portfolio Review

By, 01/10/2017
Ratings1513.725166


Where to begin? With this article. Photo by Julia_Sudnitskaya, iStock.

With their champagne hangovers having worn off,[i] many investors are now turning to more serious matters: Evaluating the past year. You might be doing the same! However, perhaps you’re stuck on how to approach this task. What should you look at? What should you not focus on? Here are several tips to help frame your review as you weigh your investments for 2017 and beyond.

Assess Asset Allocation

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths, Reality Check

CAPE (Nothing to) Fear

By, 01/05/2017
Ratings1024.215686

Well, that didn’t take long: Mere months (and only 3.7%)[i] after the S&P 500 finally broke out of a lengthy flat stretch, pundits warn stocks have come too far, too fast, and high P/E ratios signal an overvalued market and unrealistic hopes for 2017 earnings. Many point to the Cyclically Adjusted P/E Ratio (CAPE, or Shiller P/E), which is currently at levels last seen before major crashes, as evidence trouble lurks. Yet, as is typical when valuations hit the headlines, there are several flaws in this reasoning. Some valuations can signal sentiment when they’re at extremes—which they aren’t today—but overall, they are poor predictors of stock returns. Nothing about today’s valuations suggests stocks are overvalued.

Yes, the CAPE is the highest it has been since 2007, 2000 and 1929, when major bear markets began. But coincidence doesn’t make the CAPE a valid timing tool or predictive in any way, shape or form. Conceptually, the CAPE has problems. Its denominator is the 10-year average of bizarrely inflation-adjusted[ii] earnings. That is supposed to adjust for economic cycles, but it doesn’t tell you anything about stocks’ future earnings streams, which is what you’re buying. Never mind the fact it is really, really odd to leave the economic cycle out of your projection for stocks. Moreover, the CAPE doesn’t work. Exhibit 1 shows the CAPE, its average (orange line) since 1881 and one standard deviation (yellow line) above the average, which just means 16% of observations lie above it. So although the current reading is among 16% of the most expensive “outliers,” it has been there pretty darn frequently in recent years.

Exhibit 1: No CAPEs!

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

False Fears Roundup—2016 Edition

By, 01/05/2017
Ratings773.928571

A new year has dawned, and with it a fresh list of Very Bad Things people fear will roil markets over the next 12 months. Some are new(ish), like the OECD’s warnings of a looming global property crash. Others—Chinese bonds, foreign outflows from US Treasury markets, the advent of President Trump, European populists—are retreads with a fresh twist. It rather reminds us of this time last year, when everyone was sure a crashing China, plunging oil prices, negative rates and Italian banks would derail the bull market. None did. Neither did Brexit, Trump or any of the other big fears that plagued investors as the year wore on. Every year in every bull market is packed with false fears—plausible-sounding stories that dominate news coverage and frighten investors, until reality proves them wrong or folks move on. 2016’s big fears proved false, and stocks rose past them, showing the importance of staying patient and critically assessing today’s scary headlines.[i]

China

Chinese stocks crashed hard as the year began, and investors freaked as officials appeared to devalue the yuan for the second time in five months. Weak manufacturing PMIs triggered another round of “hard landing” worries. As capital controls relaxed, over half a trillion dollars flowed out, weakening the yuan and (many feared) China itself.[ii] As the year closed, some argued “mindless Chinese stimulus” was inflating a corporate bond bubble, as China’s total debt-to-GDP ratio hovered around 300%. Yet for all the chatter, China did fine. GDP growth stayed near the government’s target, most recently hitting 6.7% y/y in Q3, and monthly economic data stayed firm. The yuan’s gradual slide has been carefully managed—Chinese authorities aren’t about to risk social upheaval by permitting sudden, deep depreciation. As for the much-feared debt, which features on 2017’s “scary things” list, a good chunk of that supposedly[iii] $30 trillion in debt is bank loans. Troubled bank loans, perhaps, but the government has experience with recapitalizing banks. Corporate bonds held by private investors are a much smaller, manageable segment of the market. And whether it’s struggling manufacturers or financial firms, the government seems willing to spend portions of its $3 trillion in foreign exchange reserves on limiting or cushioning defaults. But above all else, hard landing fears have swirled since 2011. Markets are well aware, sapping surprise power.

Commentary

Fisher Investments Editorial Staff
Others

Auld Lang Syne

By, 12/30/2016
Ratings1254.48

Photo by Muenz/iStock.

As the curtain closes on a topsy-turvy 2016, we want to take a brief moment to thank all our readers for taking the time to visit our site. We know you have lots of options and limited time and we appreciate you spending even just a little bit of it with us. Hopefully, you have found something on these pages this year that made you think, laugh, critique popular narratives or perhaps—and this may be a stretch—was useful in your approach to investing.

Commentary

Fisher Investments Editorial Staff
Interest Rates

The Year in Fixed Income: A Tale of Two Halves

By, 12/29/2016
Ratings684.117647

2016 was a tale of two halves in the bond market. When uncertainty swirled early in the year, 10-year US Treasury rates fell in July to what Global Financial Data reports was the lowest since 1786. Bond prices and yields move inversely, so given the falling rates, Treasury prices surged. However, as the year progressed, uncertainty gradually fell and rates rose. This changed everything in bonds, leading to Treasury underperformance and corporate bond outperformance. Here is a look back at the year in interest rates, and a few forward-looking lessons we can draw from it.

To flash back, in early 2016 we noted 10-year Treasury yields would likely end the year little changed from the 2.24% they began at, though we expected volatility along the way. We counseled readers not to buy forecasts of four Fed hikes, particularly given the election, which incentivized inactivity on short-term rates. While the magnitude and scope of rates’ decline by July was perhaps bit bigger than we envisioned, with two trading days left, rates have rallied and are slightly up on the year. Moreover, the Fed hiked exactly once this year, after the election. That is in keeping with our expectations in January. Exhibits 1 and 2 show the year in interest rates.

Exhibit 1: Investment Grade Yields “Smiled” ...

Research Analysis

Brad Rotolo
Reality Check

What Does OPEC’s Production Cut Mean for Oil?

By, 12/01/2016
Ratings694.086957


There’s more where that came from. Photo by yodiyim/Getty Images.

At long last, the Organization of the Petroleum Exporting Countries (OPEC) reached an agreement to cut production on Wednesday. While details are scarce, comments from oil ministers indicate the group will cut oil production to 32.5 million barrels per day (Mbpd), from recent levels of 33.5 Mbpd. Despite the hype, however, the change is basically window-dressing. It probably won’t much alter global supply or improve the outlook for Energy firms. Their earnings are tied to oil prices, which likely remain lackluster for the foreseeable future (albeit with short-term volatility).

This is OPEC’s first official action of this sort since oil began crashing in 2014. OPEC surprised markets that November by declining to cut production, as had been widely expected at the time. Oil supplies were growing briskly, primarily due to new output from US shale production, which got a boost from developments like horizontal drilling and hydraulic fracturing. The resulting oversupply led to the last two years of oil weakness. With Wednesday’s agreement to cut production, OPEC is arguably moving back to its traditional role of attempting to target a price range for oil.

Research Analysis

Scott Botterman
Into Perspective, Reality Check

Italian Referendum

By, 11/30/2016
Ratings554.036364

In a year where populism has swept the ballot box, is Italy next? On December 4, the country will hold a referendum on whether to reform the size, powers and appointment process for Parliament’s upper house, the Senate. If the referendum is approved, the Senate’s powers would be greatly curtailed and size reduced. It would shrink from 315 members to 100, the government would no longer have to win a Senate confidence vote, fewer measures would require Senate approval and senators would be appointed by Italy’s Regional Councils instead of directly elected. If passed, it would foster government stability and make it easier to pass badly needed reforms. But if it fails, many fear it will destabilize Italy’s pro-euro government, potentially propelling anti-euro populists to power and raising the risk of a domino effect across the eurozone. In our view, however, fears of broader market impact are likely overstated.

Prime Minister Matteo Renzi proposed the referendum to mitigate the Senate’s ability to block legislation and increase the Italian government’s stability, through elimination of one confidence vote. However, he also indicated his government will step down if the referendum is defeated. Opposition parties, such as the Five Star Movement (M5S), are against the referendum, as they believe it gives too much control to the Prime Minister. Many believe a Renzi resignation could give M5S an opening to enter the national government.

Italy doesn’t allow the publication of polls 15 days prior to an election or referendum, but the last polls indicated the “No” vote was ahead by about three points. PredictIt, a betting website similar to the late, great InTrade, puts the odds of the “No” vote prevailing at ~80%. But as US elections and the Brexit vote showed, polling and prediction have been unreliable lately. The considerable number of undecided voters (~20%) also suggests any poll isn’t conclusive.

Research Analysis

Pete Michel
Into Perspective

Should Bond Holders Expect Poor Long-Term Returns?

By, 11/11/2016

A few months ago, 10-year Treasury yields hit an all-time low of 1.36%, as investors piled into Treasury bonds in the wake of the Brexit vote.[i] Since then, Donald Trump’s win and expectations for higher inflation have sent yields up 70 basis points (0.70%).[ii] As rates have risen, so have fears about the end of the alleged 35-year bond bull market—and the possibility of a bond bear market, should rates climb higher. Since bond prices and interest rates move inversely, many seemingly fret higher rates mean bonds are doomed to poor long-term returns—arguing bondholders should ditch them post-haste. In our view, this overlooks important nuances suggesting the case for investors who need fixed income exposure hasn’t changed.  

First, let’s look at the last 35-ish years of yields—that long-term bond bull. Fast-rising inflation and aggressive Fed rate hikes pushed 10-year yields to 15.84% in 1981. But after the Volcker Fed put inflation in check, rates began a secular move downward to recent lows. However, this wasn’t a straight line down.

As Exhibit 1 shows, bond yields went through several cycles where yields increased. Since 10-year US Treasury yields peaked in September 1981, rolling 12-month yields rose 35% of the time.[iii] Even if yields do experience a long-term climb, odds are investors will see plenty of periods where yields fall. Having an actively managed fixed income strategy can help take advantage of these opportunities.  

Research Analysis

Brad Rotolo
Reality Check

Energy Still Isn’t a Fit

By, 10/28/2016
Ratings573.973684

With oil up from its most recent low, many see a prime opportunity in Energy stocks. However, despite oil’s nascent rebound, the bigger picture hasn’t changed. The primary headwind facing Energy is an oil oversupply, which puts downward pressure on prices. Even if prices don’t plunge anew, this force still impacts the sector’s future profits. For investors, the question isn’t, “how much have prices risen recently?” Rather, it’s, “are there any meaningful supply constraints that will alleviate pressured profits?” All evidence today suggests there aren’t, making it premature to load up on Energy stocks.

Demand growth likely remains steady, as it has since 2012, but supply probably won’t abate any time soon. Domestic producers are quick to bring supply back online at the first signs of price strength. As seen in Exhibit 1, US producers have responded to stronger oil prices by putting rigs back to work, with a narrow lag time of only three months. In many shale regions, new wells are profitable with oil at $40 a barrel, according to estimates by ConocoPhillips. Indeed, the abundance of US supplies—accessible at ever-lower costs—led ExxonMobil CEO Rex Tillerson to refer to domestic shale as a source of “enormous spare capacity,” which has visibly changed the industry. That quick producer response and abundant supply dampens the likelihood oil prices significantly rise over the next 12-18 months.

Exhibit 1: Rig Count Response to Oil Prices

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What We're Reading

By , Reuters, 01/23/2017

MarketMinder's View: In one of his first acts as president, Donald Trump formally pulled the US out of the Trans-Pacific Partnership (TPP), the 12-nation free-trade agreement that, if approved, would have reduced trade barriers and tariffs for roughly 40% of global GDP. Though it’s today’s big news, we aren’t going to call this a major blow to free trade. For one, the likelihood TPP became reality in its current form at all was doubtful at best no matter who won the election. The Democratic Party didn’t support it broadly. And after trade negotiators reached an agreement last year, all 12 participating nations had to approve it too—not smooth sailing. In the US, that’s Congress’s responsibility, and the reception was cool, to say the least. So rather than introducing a new negative, this merely formalizes a long-expected absence of a positive. Though President Trump’s removal of the US means the TPP won’t include America, other countries can forge ahead or work on smaller agreements. While they lack the hype of TPP, they are still quite beneficial for the global economy. And before one gets carried away with the theory American protectionism is rising, consider: Trump’s spokesman repeated the long-held statement today that Trump supports trade but is against multilateral deals that are difficult to enforce. Take that as you will, but it highlights the fact that looming trade war claims are premature. For more, see today’s commentary, “Trump Executes TPP.”    

By , The Wall Street Journal, 01/23/2017

MarketMinder's View: We’re ambivalent toward this piece. It starts from a pretty confused place: That high volatility and big daily dispersion between stocks is “good” for stock pickers. That may seem to make sense, but in reality, dispersion and volatility aren’t relevant to stock pickers’ success because it isn’t about one day’s movement—that’s the myopic territory of day traders. That said, this article does unwittingly illustrate three important points: The observation that daily “big” stock movements (defined as double-digits, in the neighborhood of 15%-20%) are less frequent today compared to a long-term rolling average suggests increased market liquidity is reducing volatility, contrary to those who have harbored suspicions over high-frequency trading in recent years. Two, the whole report highlights the fact most similar stocks will move similarly. While stock selection can make a difference, it is overall less important than weighting the correct sectors, styles, sizes and countries. Finally, the conclusion more sensibly notes that, “the best way to deal with sudden, violent swings is to ignore them.” We wouldn’t suggest outright ignoring the activity—if you own the stock, you’d probably be interested in the “why” behind the big move—but emotionally reacting and selling is never a prudent investment action.

By , The Wall Street Journal, 01/23/2017

MarketMinder's View: A very interesting trip through history that makes the point: It has never been as easy as many presume for presidents to cram through their agenda, even with significant party support. President Trump seems likely to face the same and potentially much higher hurdles. As this article opines, “What about Donald Trump? He may well end up tangling as much with his own party as with his Democratic opposition. In his campaign, he badmouthed or alienated most leading Republicans in Washington, and though some wounds have been patched, many more still fester.” Eleven Republican Senators never endorsed him. “Mr. Trump lacks, too, not only the overwhelming majorities that would insulate him from some intraparty dissent but also the leadership qualities that his most successful predecessors exhibited. He has neither Wilson’s deep understanding of government, nor Roosevelt’s easygoing charm, nor Johnson’s years of experience mastering the byways of the Senate.”

By , Bloomberg, 01/23/2017

MarketMinder's View: There are a whole bunch of inflation-related misperceptions here. While this piece sensibly doubts President Trump’s ability to spur lasting inflation through fiscal stimulus and tax cuts, it layers on its own misconception: that because demand (in the form of consumption and investment) is so weak, the US could enter a deflationary spiral, in which consumers refrain from spending in the hopes of lower prices—begetting a cycle of weaker and weaker demand. However, the deflationary spiral is a rarity in economic history, despite being frequently feared—especially since 2009. Moreover, data show consumption and investment aren’t nearly as weak as this presumes, and forward money supply indicators are healthy. Though loan growth slowed some in Q4, it rose at a solid clip in 2016—so did broad money supply, which accelerated. Recent inflation figures have picked up, yes, but that has more to do with the negative skew of past weak Energy prices. Today, rising headline CPI figures reflect Energy’s now-positive turn. Core inflation gauges, which remove volatile inputs like energy, show prices have remained pretty steady over the past several years. So the explanation for “why inflation won’t last” is flawed, in our view, because it never truly went away—at least when you account for one-time, outsized skews.    

Global Market Update

Market Wrap-Up, Friday, January 20, 2017

Below is a market summary as of market close Friday, January 20, 2017:

  • Global Equities: MSCI World (+0.4%)
  • US Equities: S&P 500 (+0.3%)
  • UK Equities: MSCI UK (-0.1%)
  • Best Country: Sweden (+2.0%)
  • Worst Country: Australia (-0.7%)
  • Best Sector: Telecommunication Services (+0.9%)
  • Worst Sector: Health Care (-0.2%)

Bond Yields: 10-year US Treasury yields remained at 2.47%.

 

Editors' Note: Tracking Stock and Bond Indexes

 

Source: FactSet. Unless otherwise specified, all country returns are based on the MSCI index in US dollars for the country or region and include net dividends. S&P 500 returns are presented including gross dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.