Fed Decision

Mar 17, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was a relatively quiet week as investors waited for the Federal Reserve (Fed) meeting Wednesday.  At the end of last year, the Fed anticipated raising rates three times in 2017.  This past Wednesday was the first opportunity to raise rates and investors took a wait-and-see approach to avoid getting ahead of the Fed’s decision.  Because it was so highly anticipated, when the Fed did make the announcement to hike rates 0.25%, it was largely met with a collective yawn.

What is rather unusual is the lack of larger swings in the market.  So far this year, the Dow has only closed higher or lower by more than 100 points on 13 days.  If this pace keeps up, 2017 will be the year with the second least 100-point moves since 2006.  For clarification, a 100-point on the Dow represents only 0.48% Dow’s value.  The low number of 100-point days comes alongside a host of other stats demonstrating just how abnormally quiet stocks have been.  The CBOE Volatility Index has remained anomalously low, and the S&P 500 has not fallen by 1 percent or more since early October, the longest such streak since 1995.  The consensus is investors are in a “buy-the-dip” mentality since the election last November.

In other news, with tax reform looking less likely this year, U.S. companies are making overseas acquisitions now rather than waiting for tax changes later.  Intel announced Monday it is paying $15 billion to buy Mobileye, and in January Johnson & Johnson agreed to buy Switzerland’s Actelion for $30 billion.  In both cases, the corporations are paying for their acquisitions completely with cash they’ve stashed abroad.  Publicly listed U.S. corporations have announced more than $60 billion in acquisitions of targets outside of North America this year, more than double the amount in the same period a year ago, per Bloomberg.  There’s too much cash on corporate balance sheets.  That cash wants to go someplace, and if it can’t go home, it will travel.  Congress’s non-partisan Joint Committee on Taxation estimates that U.S. corporations hold as much as $2.6 trillion of profit overseas that hasn’t been taxed in the U.S.

While we’re on the subject of tax reform, it might be a good opportunity to review some highlights of President Trump’s first budget proposal.  The good news, I suppose, is that it does not touch mandatory spending programs like Social Security, Medicare, and Medicaid (which collectively make up 75% of total federal spending).  What he addressed in his budget is the 25% which is considered discretionary spending.  It should come as no surprise that the areas he wants to spend more on are those he talked about on the campaign trail, while those parts of the budget he wants to cut are ones he has been most vocal about since taking office.  If one were to score the agencies regarding winners and losers under the current proposal, it would look like the chart above.  In a nutshell, defense spending will increase approximately 10 percent while the EPA and aid to foreign countries would take the biggest hit.  While the budget will most likely be tweaked in the coming weeks, it will undoubtedly have a positive impact on some sectors while making it more difficult for other sectors.  The stock market will try to anticipate the winners and losers.

For the story of the week, I turn to YouTube.  By now most of your have heard of YouTube, and many may watch videos on it regularly.  I count myself among the latter group.  But what I came across a couple of weeks ago caught me completely off guard.  As of this month, people around the world now watch more than 1 billion hours of YouTube per day!  For comparison sake, viewers of regular television programming watch 1.2 billion hours per day.  While many of the clips found on YouTube are short, they clearly add up.  YouTube put it in further perspective, pointing out that an individual attempting to rack up 1 billion hours of viewing would have to find a playlist that was 100,000 years long.  It is a huge shift and one that reflects YouTube’s ascent to a primary media distribution platform.  Google owns YouTube.  Now you know.

March 17, 2017

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