Twelve straight record closes and a move above 21,000 marks another milestone for the market this week. Much of the appreciation since the election is due to the anticipation for deregulation, increased government spending, and tax reform. Some actions have been taken, but much more are in the pipeline (no pun intended) and could be difficult to gain traction not only with Democrats but also within the President’s party itself. We continue to enjoy the market appreciation but have been taking gains as part of the general rebalancing process. Diversification means owning those positions that may not be doing well at the moment, i.e. fixed income, but whose lack of correlation to the equity markets will provide respite when the tide eventually turns. And it will.
Has the market gotten a little ahead of itself? The answer depends on whether you believe President Trump will be able to achieve healthcare reform, tax reform, immigration reform, infrastructure spending, et al. Aerospace and defense names such as Boeing and Lockheed Martin rose after Trump proposed a $54 billion boost to defense spending. His plans regarding $1 trillion in infrastructure spending helped move shares of Caterpillar and other industrial stocks. Financials continue to rank among the top performers this year on anticipation of deregulation and interest rate hikes. These areas have become ubiquitously known as the “Trump Trade” and have outsized gains. While President Trump may giveth, he can also taketh away. Sectors like retail took it on the chin this week with renewed talk about a border tax on goods produced in Mexico and China. Utilities which have been spending billions upgrading to natural gas, oddly enough, are also hurting with a renewed focus on coal.
It was a good week for investors for another reason. The major brokerage companies, starting earlier this year, decided to cut trading costs. Just one month ago Schwab announced it was lowering its trading commission on stocks and ETFs to $6.95. This week Fidelity rose to the challenge and announced It is lowering its trading commission to $4.95. The same day, Schwab announced it would match Fidelity’s rate. The new commission rate is 50% lower than that at E-Trade and TD Ameritrade. As described in an article in Forbes, investment management fees are one of the smallest headwinds investors face. In fact, trading costs and taxes eat up even greater shares of returns than fees. This week marks a small victory for investors everywhere.
Let’s switch gears for a moment and talk about TV. For years the largest players in communications industry had a stranglehold on its consumers. Whether from a lack of competition or poor service and ever rising package prices, consumers had little choice. However, things are changing. Sling TV and Hulu were early innovators in streaming TV. This week we learned Google (Alphabet) is taking it to the next level. It plans on rolling out TV service this Spring, including thirty channels, local TV, and unlimited Cloud DVR for only $30 per month. The industry, reluctant to change, is being forced into a new future of streaming media and TV on any device anywhere. Fortunately, we all have a free front row seat to this coming attraction.
In closing, I came across another story about details. Last week was about an email sent by mistake that led to a substantial lawsuit. This week, it’s a typo that shut down some of the largest websites. The problem was traced back to Amazon’s hosting platform as part of its Amazon Web Services (AWS) a multi-billion dollar division within Amazon. And you thought they only sold stuff! After recovering from the problem, Amazon put up a post explaining what happened. While attempting to fix an issue with their billing system, “an authorized team member using an established playbook executed a command which was intended to remove a small number of servers for one of its billing subsystems.” There was just one problem with this: “Unfortunately, one of the inputs to the command was entered incorrectly, and a larger set of servers was removed than intended.” If there’s a moral to this story, it’s probably that even the best and most reliable can make mistakes. The other moral is details matter. Now you know.
March 3, 2017