July 31, 2017 – Weekly Market Commentary



 

Washington D.C. Skyline

Juliet Eilperin, Sean Sullivan and Kelsey Snell – The Washington Post
Senate Rejects Measure to Partly Repeal Affordable Care Act, Dealing GOP Leaders a Major Setback

Summary: Senator John McCain cast a “no” vote against the “skinny repeal” of the Affordable Care Act which blocked the legislation. All 48 Democratic members and two other Republicans also voted “no”. The defeat leaves Republicans without a clear path forward. Some senators are optimistic that the bill’s defeat will open the door for bipartisan discussions, but for now, the outcome of any healthcare legislation is far from certain. 

 

US Federal Reserve Logo

Binyamin Appelbaum – The New York Times
Fed, Leaving Rates Unchanged, Expects to Wind Down Stimulus ‘Relatively Soon’

Summary: The Federal Reserve left interest rates unchanged and stated that it would begin reducing its bond holdings “relatively soon”. Stagnant inflation data does not appear to have affected the Fed’s confidence in the economy. Looking ahead, the Fed is expected to lay out its balance sheet reduction plan at the September meeting and raise rates again at the December meeting. 

 

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Abby Phillip and Damian Paletta – Washington Post 
Anthony Scaramucci removed as White House communications director

Summary: Anthony Scaramucci has been removed as White House communications director at the request of White House Chief of Staff John. F Kelly, just days after being named to the job. His brief tenure in the role had been marked by turmoil as he conflicted publicly with former White House chief of staff Reince Priebus.  

 

Oil Pump

Julia Simon and Jessica Resnick-Ault – Reuters
Oil Jumps to Near Eight-Week High After Big Draw in U.S. Crude Stocks

Summary: Oil prices continued to grind higher after a steeper than expected decline in U.S. inventories. It was the fourth straight weekly decline, bolstering hope that supply and demand are moving back into balance. Despite a rebound in bullish sentiment, analysts say that prices could be capped by U.S. production increasing as prices rise. 

 

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Joe Ciolli – Business Insider
Legendary Investor Byron Wien Says the Stock Market is Entering Uncharted Territory

Summary: The S&P 500 and the Fed’s balance sheet are diverging for the first time since 2009. Wien says that the markets are entering uncharted territory as they lose the support of central bank stimulus and that further gains will have to be supported by corporate profit expansion. He is optimistic that the current expansion can continue, but declining productivity growth could restrict earnings growth and lead to a pull back. 

 

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Jeffrey Kleintop, Chief Global Investment Strategist – Charles Schwab
An Important Benefit to Global Investors is Back After 20 Years

Summary: Global stock market correlation has fallen to its lowest level in 20 years. The return to “normal” levels of correlation enhances the benefits of diversification. Holding a globally diversified portfolio may be of particular importance over the short-term as stocks are ripe for a pullback. Going forward, fully diversified portfolios should experience lower risk without decreasing returns. 

 

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Russ Koesterich, CFA, Global Allocation Team – BlackRock
The Geekiest (and most important) Number Nobody is Discussing

Summary: The correlation between stocks and bonds has a major impact on investment portfolios. Correlations have historically moved higher as the Fed is tightening. As correlations between stocks and bonds rise using cash as a volatility hedge may be preferable to using traditional risk hedges such as longer dated Treasury bonds. 

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