July 7, 2017 – Weekly Market Commentary



 

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Motoko Rich – New York Times
Tokyo Voters’ Rebuke Signals Doubt About Shinzo Abe’s Future

Summary: A local election in Tokyo has put Shinzo Abe’s tenure as Japan’s prime minister in doubt. The voters resoundingly rejected candidates from Mr. Abe’s party, while electing all but one of 50 fielded by an upstart party founded by Tokyo’s popular governor, Yuriko Koike. The vote is being viewed as a referendum on Abe and his party, the Liberal Democrats. 

 

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Jeff Cox – CNBC
The Fed Grows Worried its Loose Policy Threatens US Financial Stability

Summary: The minutes from the recent Fed meeting showed that the interest hike came amid worries that keeping policy too loose was posing increasing risks to financial stability and the economy. Fed officials also indicated a determination to continue raising rates even with muted inflation levels, which they consider to be temporary. 

 

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Jeffry Bartash – MarketWatch
U.S. Adds 222,000 Jobs in June Hiring Surge

Summary: 222,000 new jobs were created in June and the unemployment rate was little changed at 4.4%. Wages grew at 0.2% bringing 12-month gains to 2.5% which is well below the expected gains this late in an economic expansion. The report should be further confirmation for the Fed that the economy can withstand additional rate hikes. 

 

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Aaron Brown – Bloomberg View
What History Says About Low Volatility

Summary: Historically, every five years or so volatility rises above 20 percent, and in between it follows a shallow trading pattern that bottoms at about 10 percent, which is exactly what is happening now. Crises tend to follow volatility spikes above 20%. From such low levels, a spike to over 20% in the near term is highly unlikely which suggests that realized market volatility will remain low. 

 

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Liz Ann Sonders – Charles Schwab
2017 Mid-year US Equity Outlook: Rattle and Hum

Summary: Delays by the Trump administration and Congress on healthcare reform, tax reform, and other pro growth policies have not had a significantly negative impact on stocks. A flattening yield curve appears to be driven by a lack of inflation, not poor economic expectations, which is a positive for stocks. Looking ahead, the ongoing uncertainty regarding Fed policy and any deterioration in earnings growth could lead to bouts of market volatility. 

 

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Mohamed El-Erian – Chief Economic Adviser – Allianz
How Healthy is the Global Financial System?

Summary: El-Erian sees three major risks in the global financial system. First, as banks have ceased certain activities due to regulations, non-banks have stepped in to perform the same activities without similar oversight. Second, segments of the market are in a “liquidity delusion”, in which some exchange traded products may be over-promising the liquidity they can provide. Third, technological disruptions in big data, artificial intelligence, and fintech have not been tested by a full market cycle. The financial system could experience detrimental impacts from these new technologies in an economic downturn. 

 

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Russ Koesterich, CFA – BlackRock Global Allocation Team
Into Thin Air

Summary: Market valuation levels are poor indicators of short-term performance bun can shed light on longer-term returns. Historically, when S&P valuations have been near current levels annual returns over the next three years were only 0.7%. Koesterich points out that low vol strategies, such as investing in dividend growing companies and foreign growth stocks, have outperformed following high market valuations.  

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