|By Fisher Investments Editorial Staff, 03/13/2017|
In this podcast, Fisher Investments’ Investment Policy Committee discusses their views on capital markets and the economy in 2017.
|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 George Parker, Kate Allen and Mehreen Khan, Financial Times, 03/29/2017|
MarketMinder's View: UK Prime Minister May finally fired the starting gun today. While it’s not quite Chariots of Fire, Brexit is a two-year marathon—perhaps longer—to splitting from the EU. Why so long? Consider what’s next: Negotiating citizens’ rights; transferring EU laws and regulations to the UK, including trading and transport of nuclear materials and aviation access; and figuring out how border control with Ireland will work, etc., etc. It’s a lot. Procedurally, the UK now prepares for the Queen’s Speech in May where the Great Repeal to incorporate thousands of EU statutes onto UK books will be outlined, while the EU draws up guidelines and negotiating directives to achieve a mandate on how the talks will proceed. If all goes to plan, transition measures should be agreed by March 2018 with a target deadline for October to allow time for Brexit ratification by March 2019. Parallel to all this will be negotiations for a replacement trade deal, which requires ratification by the UK, a “super qualified majority” of the remaining EU (72% of members and 65% of population) as well as approval from the European Parliament. Whew. All that speaks to the fact an extension to the legislated two-year timeline may come to pass. The counterpoint: Talks start from a position of low barriers to trade and deep cooperation rather than breaking down vested interests to get there, and both sides are incented to cooperate. However, through it all to whenever it’s finally finished, keep in mind as European Council President Donald Tusk has that: “As for now, nothing has changed. EU law will continue to apply to and within the UK.”
|By Jonathan Bernstein, Bloomberg, 03/29/2017|
MarketMinder's View: So now that Washington has moved on from health care—well, at least for now—it’s on to tax reform (and, perhaps, federal infrastructure spending). Many wonder whether it will meet the same fate as Trumpcare; it very well could. A corporate tax overhaul looks just as daunting and has been described as a nightmare, difficult and not easy. This article argues that tax reform—which can throw up many ideological roadblocks (and scramble winners and losers)—looks untenable, but a simple corporate tax cut could be feasible, maybe a personal income tax cut, too. To us, this too seems like a perilous road, given Republican’s intraparty divisions over deficits and debt. There is lots of speculation that this is a big deal for stocks. But in reality, this is mostly rigmarole. Whether Congress enacts tax reform, cuts or nothing, taxes are a negligible market driver.
|By Vince Golle, Bloomberg, 03/29/2017|
MarketMinder's View: This shows a measure from the Conference Board (whose Leading Economic Index we like to follow) that surveys respondents on whether or not they think stocks will be higher a year from now. Currently 47.4% say yes, which is the highest it’s been since January 2000, and *gasp* back then a bear market followed, right? But making such an inference—from one data point—is a stretch too far. This gauge was also above 45% on multiple occasions from 1996 – 1999 and 2003 – 2004. 1991, the dawn of the longest, biggest bull market on record, was similar. What’s interesting, though, is that stocks rise in over 70% of rolling 12-month periods. Yet at no point in this survey’s history do more than 50% of respondents believe stocks’ annual rate will be positive, and yet that’s what stocks have done for most of the last two decades. This speaks more to folks’ engrained fear of loss in markets than anything, to us.
|By Ben Eisen, The Wall Street Journal, 03/29/2017|
MarketMinder's View: Sure, margin debt is making new highs, but so is the market and market capitalization. As a percentage of market capitalization, margin debt is elevated but it’s not especially high and around where it’s been the last four years. But is this chicken or egg? After all, stocks are margin collateral, meaning a higher market facilitates higher borrowing. Additionally, margin is used when a bearish investor shorts, so it’s not a pure gauge. That isn’t to dismiss this outright: Margin levels are one sentiment gauge we keep track of, but it’s the rate of change that matters most, and only then when taken in concert with valuations, fund flows and the like. More importantly, fundamentals like the economy and earnings remain sound and underappreciated, suggesting more bull market ahead.
Market Wrap-Up, Tuesday, March 28, 2017
Below is a market summary as of market close Tuesday, March 28, 2017:
- Global Equities: MSCI World (+0.7%)
- US Equities: S&P 500 (+0.7%)
- UK Equities: MSCI UK (+0.4%)
- Best Country: Portugal (+2.6%)
- Worst Country: Israel (-0.2%)
- Best Sector: Financials (+1.3%)
- Worst Sector: Utilities (+0.1%)
Bond Yields: 10-year US Treasury yields rose 0.04 percentage point to 2.42%.
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.