The Intersection of Politics and Investments

Jun 9, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

I know it has been a couple weeks since our last update and A LOT has occurred.  The good news is the market has been very resilient in the face of a lot of uncertainty.  Between the terror attack in London, British elections, the Comey testimony, and renewed Middle East tensions, the stock market continues full steam ahead.  Instead of predictions of collapse, the headlines suggest “Why The Dow Can Go Much, Much Higher,” “This is a Reagan-like Rally and Here’s How Much Higher Stocks Can Go,” and “Dow Rises: Why The Trump Stock Market Rally Will Continue.”  It goes without saying, the pundits think this bull market has room to run.  For now, it seems investors agree.

It’s hard to avoid politics these days.  Unfortunately, politics does impact various industries and companies in significant ways.  The House voted yesterday along party lines to pass a major rollback of Dodd-Frank regulations.  The bill will relieve healthy banks of some regulatory requirements and force failing banks into bankruptcy via the court system instead of a liquidation process spearheaded by regulators.  It goes without saying, bank stocks were some of the largest winners this week.  In other news, the “fiduciary rule” went into effect today requiring financial advisors to put their customers’ interests ahead of their own when providing advice about their retirement money.  As a registered investment advisor, Harvest Investment Advisors has acted as a fiduciary since its inception.  However, the rule could be killed by a provision in the Financial CHOICE Act which has widespread support in the House.  Putting client’s interests first should not be a difficult decision.  At least, that’s what we think.

While legislation shapes the economy, market forces also play an important part.  I’ve talked at length about automation and its impact on labor and productivity.  This week Boeing announced it is studying self-driving planes.  It is looking forward to a world where jetliners fly without pilots and aims to test some of its new technology next year.  Boeing’s VP of Product Development said, “the basic building blocks of the technology are clearly available.”  Honda announced its future strategy is to launch a Level 4 autonomous driving technologies in its cars by 2025.  Level 4 means the cars can drive themselves on highways and city roads under most situations.  To make this happen it has ramped up R&D spending, earmarking a record $6.8B for this year.

Technology isn’t only changing the face of transportation.  We also learned this week that robots are helping to boost production in athletic apparel.  Morgan Stanley forecasts that 20% of the production from Nike and Adidas will be through automated factories by 2023.  Adidas already has its next-gen Speedfactory in Germany up and running as well as an Atalanta Speedfactory site being built, while Nike has several automated platforms in development.  The International Robot Federation estimates that over 2.5 million industrial robots will be at work by 2019.

There were two other significant developments this week include Anthem pulling out of ACA in Ohio in 2018 citing uncertainty.  The insurer ticked off a list of concerns, including “continual changes in federal operations, rules and guidance” and “an increasing lack of overall predictability.”  The move will leave about 10,500 Ohio residents in at least 18 counties without an insurance option.  Anthem is currently reviewing its involvement in the fourteen states where it currently participates.  Insurers in New York requested double-digit increases as high as 47% for ACA policies next year as the debate rages in Washington on how to overhaul the law.  The other big development this week was the announcement that this administration would like to privatize air traffic control in the United States.  As far back as I can remember, there has been talk of overhauling the air traffic control system in this country.  Thirty years later, by all accounts it remains a major infrastructure weakness.  However, while some airlines applaud this move, others find it problematic.  Executives from United Airlines, American Airlines, and Southwest Airlines praised President Trump’s plan.  They believe the antiquated system we rely on today is inefficient and causes thousands of avoidable flight delays.  Those on the other side, including Delta Airlines, believe that privatization would not save money, but instead would drive up ticket costs and could create a national security risk.  Like I said above, while I don’t like talking about politics, politics does have a big impact on the industries and companies we invest in.  It’s hard to be an investor these days and not pay close attention to politics.

While I could go on about Apple’s WWDC conference this week, or how Alphabet’s (Google) shares joined Amazon in the $1,000 per share club or the elections in the U.K, or how the European Union is preparing a new defense union to potentially replace NATO or former FBI Director Comey’s testimony…  There simply isn’t enough time to discuss it all.  I appreciate your patience this past couple of weeks.  For the next couple of months, this weekly email will be more sporadic but rest assured it will return to its reliable consistency in August.

June 9, 2017

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