Countdown to Shutdown: T-8hrs

Jan 19, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

With earnings announcements starting to trickle out, the news so far is good.  Most analysts had predicted the fourth quarter of last year would be a good one due to improving economic data, rising wages, and the positive effects of tax reform.  To a large extent, a lot of the good news is already priced into the stock market.  To that end, we’ve seen some companies report higher than expected revenue and earnings growth only to have investors take some money off the table in those stocks.  While the good news is generally speaking good, you’ve likely heard the saying, ‘buy the rumor, sell the news.’  We may see some of this in the weeks ahead.

The more pressing issue is the looming government shutdown which is just hours away.  I won’t go into the politics of it since that is outside the scope of this weekly email.  However, regardless of what happens, investors may not need to worry too much, as past shutdowns haven’t corresponded with significant stock-market movement.  Data shows that markets have an only modest weakness during shutdowns, with the S&P 500 falling an average of 0.6% over the period of the closure.  In fact, 44% of the time, the markets went higher during the period of the closure. Since 1976, there have been 18 closures ranging from one day to three weeks but never before has there been a shutdown when one party has controlled both the Congress and the White House.

Fortunately, the economy looks good according to the latest release of the Federal Reserve’s Beige Book.  The economy continued to expand at a “modest to moderate” rate across all eleven districts.  Employment was up at a modest pace with most districts noting ongoing market tightness and challenges finding qualified workers.  Inflation also sees “modest to moderate” growth and retailers noted holiday sales higher than expected.  Lastly, housing sales were constrained by limited inventory.  Overall, this is a picture of an economy that is growing at a sustainable pace without risk of overheating in the near-term.

In company news, Apple announced an ambitious plan to boost the U.S. economy by $350 billion over the next five years and hire an additional 20,000 workers due to the recently passed tax reform.  Also, in a reversal, the company announced that it will allow you to control whether or not your iPhone slows down as it ages in an upcoming software update.  In other news, while Cincinnati didn’t make the final cut for Amazon’s second headquarters, the company is getting closer to finding a second home Indianapolis and Columbus still in the running.  General Electric (GE) continues to feel the pain as investors slowly give up hope on this company emerging from the ashes.  There are strong rumors that the company is looking at breaking itself up, however, in this case, the sum of the parts may, in fact, be less than the whole.  To say that GE is struggling to find itself is an understatement.

In closing, I came across a piece about a month ago which highlights the most annoying words people use in everyday conversation.  For the ninth consecutive year, Americans say “whatever” is the most annoying word or phrase used in casual conversation.  Coming in second place is “fake news” which annoys 23% followed closely by “no offense, but” with 20%.  11% think “literally” is the most grating word while 10% assert “you know what I mean” is the most agitating.  Interestingly, those under the age of 40, compared to their older counterparts, do not find the word “whatever” all that bothersome.  Those millennials.  Now you know.

January 19, 2018

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