April 17, 2017 – Weekly Market Commentary



 

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Lucia Mutikani – Reuters
U.S. Retail Sales, Inflation Data Highlight Weak First Quarter Growth

Summary:
During March U.S. retail sales fell for the second straight month and consumer prices dropped for the first time in over a year. Retail sales were mostly hindered by a pullback in auto sales, and inflation was pared by lower fuel prices. Any decline in inflation could make the Fed reconsider its rate hike plans this year. In the past, inflation coming in below their 2% target has been cited as a reason for keeping monetary policy unchanged.

 

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Alan Rappeport – The New York Times
Trump Reversals Hint at Wall Street Wing’s Sway in White House

Summary:

President Trump made some key tone changes which suggest a move towards a more mainstream economic approach. First, he is no longer labelling China a currency manipulator. Second, he is considering reappointing Janet Yellen as chairwoman of the Federal Reserve when her term ends next year. Finally, he backed away from the border adjustment tax which was a cornerstone of his tax plan. Instead, Trump called for a new “reciprocal tax” which would alter his plans for taxing imports. The policy changes muddled investors’ outlooks for what Washington can accomplish on the policy front this year.

 

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Matthew J. Belvedere – CNBC
The Fed Isn’t Even Close to Being the Biggest Wild Card for Markets

Summary:

Allianz’s chief economic advisor, Mohamed El-Erian, argues that “The biggest wild card is the politics. It’s really important here, Europe, Middle East, North Korea. There’s a lot of moving pieces,” he said in an interview. El-Erian said he would advise the Fed to hold off on shrinking its balance sheet until rates are lifted back to more historically normal levels. He also pointed out that the Fed “will adapt” to evolving conditions and stave off any profound financial market volatility,  but the same is unlikely to be true of politics.

 

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Rick Rieder – Chief Investment Officer – BlackRock
Where the Fed Goes From Here

Summary:

March job numbers surprised on the downside, but Rieder believes that the data will not affect the Fed’s tightening path this year. Labor market tightness will place upward pressure on wages, and wage growth already appears to be taking hold in the lower- and middle-income job categories. Against this backdrop, the Fed should raise rates three to four times over the next year. This will lead to higher short-term rates while long-term rates remain relatively flat.

 

Euro Bills

Katrina Dudley and Philippe Brugere-Trelat – Franklin Templeton
Cutting Through the Political Noise for Opportunities in Europe

Summary:

Political news is dominating the European headlines but underneath the noise, economic and corporate conditions are quietly improving. A stronger economic foundation means that the region is better able to weather unexpected shocks. European stocks are significantly less expensive than US stocks on a number of metrics, including price-to-book (P/B) and price-to-cash-flow; the recent outperformance of US stocks relative to European stocks has made valuations even more attractive. These metrics create opportunities in value stocks and cyclical industries.

 

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Liz Ann Sonders – Chief Investment Strategist
Brad Sorensen – Managing Director of Market and Sector Analysis
Jeffrey Kleintop – Chief Global Investment Strategist

Reassessing Risk and Reflation

Summary:
Investors are reassessing market risks, which has resulted in a short-term pullback in stocks. The reduction in demand for risk assets has been driven by hard economic data has been growing slower than expected and disappointment with political developments. Currently, the biggest risk to the markets could be first quarter earnings. Many estimates assumed that positive effects from Washington and a rebound in consumer activity would show up in earnings, but the rise in optimism may not tickle down to the bottom line. That said, the Schwab team does not think that the recent market decline is the end of the bull market. Solid economic growth and improving global revenue and earnings growth will allow the market run to continue.

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