|By Fisher Investments Editorial Staff, 12/12/2016|
MarketMinder’s editorial staff sits down with Fisher Investments Capital Markets Analyst Brad Pyles. (Recorded 11/17/2016)
|By Fisher Investments Editorial Staff, 12/12/2016|
MarketMinder’s editorial staff sits down with Fisher Investments Capital Markets Analyst Brad Rotolo. (Recorded 11/3/2016)
From Brexit and Trump to Italy, Brazil and the Philippines, 2016 has been a year of political upheaval and theatrics. And it isn’t over yet. South Korean President Park Geun-hye is embroiled in an influence peddling scandal that has outraged the country and likely numbered her days in office. She has offered to step down from office in April 2017—10 months before her term is slated to end—but lawmakers in the National Assembly instead introduced an impeachment bill, which gets a vote Friday December 9. While Park’s political fall looks inevitable, Korea’s political issues needn’t derail its other positive drivers. For global investors, whether or not you own any Emerging Markets stocks, this is another lesson in the importance of thinking long-term and not getting hung up on short-term events.
The movement against Park appears more about her actions (which you can read all about here), not a broader distaste with the government or the state of society. After decades of chaebol (Korea’s huge, family-run mega conglomerates/corporate fiefdoms) dominating political decisions and the economy, corruption has emerged as the societal cause du jour (see this summer’s draconian corruption bill), and Park appears a victim of the times. The scandal also coincides with some economic softness, as a slowdown in global trade hit export-oriented businesses hard. In response, the country’s largest sectors—which account for a fifth of GDP and employ nearly 15% of the workforce—have undergone significant corporate restructuring. More recently, scandals at several chaebol only further weighed on sentiment.
South Korea has also faced some geopolitical uncertainty in recent months. Besides long-running issues with North Korea, which has made progress in its nuclear program, new tensions with China have arisen as South Korea recently deployed an advanced US missile system. In addition, Donald Trump’s victory made many call into question the future of Asia’s trade relationship with the US given his campaign rhetoric and dismissal of the Trans-Pacific Partnership. There is also a potential domestic political headwind, as the legislature’s opposition party favors tax hikes, with eight different proposals put in the supplementary budget bills. With one of the world’s stronger fiscal positions (40% debt to GDP), such a move makes little economic sense, but the negative fallout is likely short term.
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.
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|By Donald J. Boudreaux, Foundation for Economic Education, 04/24/2017|
MarketMinder's View: If you’re having a bad case of the Mondays—and we sympathize—this piece offers a good reminder of how far living standards have risen over the past 100 years. Indeed, even simple things we take for granted today (e.g., air conditioning and heating, quick cross-continental travel and even dental care) were fantasies for many people living a century ago. We have no doubt that free people and free markets will continue innovating and building upon the advances of today, and we’re excited to see how much better life will be in next 10, 20 and 50 years. For investors, owning stocks is the best way for your portfolio to benefit from all these advances!
|By Robert Samuelson, Washington Post, 04/24/2017|
MarketMinder's View: To answer the titular question, “real” but with a caveat: We would remove “Trump” and replace it with “Global.” But there is a lot more wrong with this article than its assertion that stocks’ rally is a product of Trump cheer. For one, it ignores that in the MSCI World All Country World Index (ACWI), US returns trail 18 other countries since November 8, 2016, including Poland, Australia and even Greece(!) (FactSet, as of 4/21/2017. Returns in local currencies)—stocks in Poland, Australia and Greece aren’t rallying on Trump excitement. There is also a big framing issue in this passage: “On Election Day, Nov. 8, the Dow Jones Industrial Average closed at 18,332.74, not much different from a year earlier. By March 1, the Dow hit 21,115.55, a gain of 15 percent.” See, that implies markets were flat for a year, then soared after Trump on. In reality, they V-ed. November 2015 was the middle of a correction that began the prior May. Stocks fell until February 11, 2016, then rallied. By November 8, world stocks were already up 17.1% off that low (Also FactSet, as of 4/24/2017, MSCI World Index returns with net dividends from 2/11/2016 – 11/8/2016). What people call the Trump Rally is just an extension of that global rally—itself an extension of the global bull market that began on 3/9/2009. Finally, the wealth effect discussed at the article’s end is a myth. Consumer spending depends on disposable income, not stocks. If the wealth effect were real, US consumer spending would have fallen from Q3 2015 through Q1 2016—in reality, it rose all three quarters. For more, see our 3/23/2017 commentary, “Are Stocks Headed Into Foreign Territory?”
|By Helene Fouquet, Gregory Viscusi and Gaspard Sebag, Bloomberg, 04/24/2017|
MarketMinder's View: Pollsters have taken a lot of grief recently, especially after some big misses like the 2015 UK General Election, last year’s Brexit referendum and the US presidential election. So we would be remiss if we didn’t acknowledge they were pretty spot-on here (and with the Dutch parliamentary elections in March). Independent centrist Emmanuel Macron—technically an outsider candidate, though he served as outgoing President François Hollande’s economy minister—and far-right, anti-euro Front National candidate Marine Le Pen were the clear poll leaders over the past couple weeks, and they won the most votes: Macron took 23.9% of the vote while Le Pen won 21.4%. Republican François Fillon won third, far-left Jean-Luc Mélenchon’s late surge still left him in fourth, and the Socialist Party’s Benoît Hamon was fifth at just 6.4%. Now Macron and Le Pen will contest a runoff on May 7, and early projections put Macron as a heavy favorite (though things can move a lot in politics over two weeks). As “experts” debate what this all means for the global order, markets likely see this as yet another bit of falling uncertainty taking place in Europe this year—a good reason to be bullish, in our view.
|By Mohamed A. El-Erian, Bloomberg, 04/24/2017|
MarketMinder's View: This is a long-winded way of saying that the first round of the French presidential election resulted in further falling political uncertainty in Europe, with more to come soon. However, though the most extreme, uncertain outcome (Le Pen vs. Mélenchon) has been avoided, this piece raises two more questions: uncertainty surrounding a potential Macron presidency, as his lack of an established party infrastructure means June’s parliamentary elections favor the traditional Republican and Socialist parties, as well as the possibility of potential unknowns arising. However, the former simply means gridlock persists—fine for French and European markets in general, as it reduces legislative uncertainty—while the latter is always true. Sure, it’s possible some unknown arises and changes things, but that’s kind of how life works. Successful investors act on what’s probable, not possible.
Market Wrap-Up, Friday, April 21, 2017
Below is a market summary as of market close Friday, April 21, 2017:
- Global Equities: MSCI World (-0.2%)
- US Equities: S&P 500 (-0.3%)
- UK Equities: MSCI UK (-0.6%)
- Best Country: Japan (+1.1%)
- Worst Country: Denmark (-1.5%)
- Best Sector: Utilities (+0.4%)
- Worst Sector: Telecommunications Services (-0.9%)
Bond Yields: 10-year US Treasury yields rose 0.02 percentage point to 2.25%.
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.