Geopolitics Takes Center Stage

Apr 21, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The uncertainty regarding healthcare reform, infrastructure spending, and tax reform took on new dimensions this week.  Geopolitical risks took center stage this week.  From the terrorist attack in Paris on the eve of their presidential election to the continued risks in both Syria and North Korea, investors are understandably reluctant to keep driving the market higher.  It looks like we’re headed for a period of consolidation while these various issues are resolved one way or another.  In the meantime, we remain invested but diversified.

It was a light week for economic news, however, first quarter earnings announcements began to dribble in.  Some of the largest Dow 30 companies reported this week including popular names such as American Express, Visa, Verizon, and General Electric.  Having a difficult time are the largest banks whose stocks are basically flat for the year.  The energy sector is also having a tough time as oil prices have stalled around $50 per barrel with pressure to the downside.  The energy sector is down 9.8% for the year.  However, there are bright areas of the economy which include technology, consumer discretionary, and healthcare.  In fact, technology is the clear winner up almost 10% this year. It seems people are still spending money on appliances, automobiles, entertainment and dining out.

In other news, let’s turn to France.  Voters will be going to the polls on Sunday to choose their next president.  It is a close race between the four frontrunners, which include independent Emmanuel Macron, far-right Marine Le Pen, conservative Francois Fillon, and far-left Jean-Luc Melenchon.  Since an outright majority is unlikely, a run-off between the two leading candidates is expected on May 7.  Security fears have re-emerged in the run-up to the election after an ISIS gunman killed one and injured two on the Champs Elysees this week.  This is the sixth terror strike on Paris in three years.  France is the second largest economy in the Eurozone and its president holds enough power to influence the country’s economic and political path.  Both Marine Le Pen and Jean-Luc Melenchon have proposed, via different routes, taking France out of the euro and, like Britain, out of the European Union (EU).  All eyes will be on France this weekend.

The brief respite we receive this week was after Treasury Secretary Steve Mnuchin let slip that President Trump is working on an enormous tax reform proposal that may come as early as next week.  In an Associated Press interview, President Trump promised a “massive” cut for both businesses and individuals.  It is expected on Wednesday or shortly thereafter, in time for what looks like an important self-imposed 100-day deadline for President Trump.  His administration will release the plan for cuts that are “bigger I believe than any tax cut ever.”  At this time it is unknown whether the proposal will be deficit neutral but either way it could have large implications on the economy.

In closing, I appeal to all the data junkies out there.  I came across a new organization funded by none other than Steve Ballmer (ex-CEO of Microsoft) called USAFacts.  According to the website, “USAFacts is a new data-driven portrait of the American population, our government’s finances, and government’s impact on society. We are a non-partisan, not-for-profit civic initiative and have no political agenda or commercial motive. We provide this information as a free public service and are committed to maintaining and expanding it in the future.”  So why is Ballmer doing this? The project grew out of his conversations with his wife, Connie, about their philanthropic initiatives. One of his theories was that government was best-positioned to handle many of the issues most important to them — education, poverty, inner-city youth — and so perhaps they didn’t need to worry so much, as long as they paid their taxes. Connie Ballmer challenged him on that point, which led Steve Ballmer to look for the kind of report on government that he would have sought when trying to analyze a company as an investor.  When he couldn’t find one, he set out to build it himself.  USAFacts.org is the result of several years of hard work in partnership with Stanford University, the Wharton School of Business, and $10 million of Mr. Ballmer’s own money.  If you have a moment, it is worth a look.  Now you know.

April 21, 2017

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