May 22, 2017 – Weekly Market Commentary



 

American Flag

Michael S. Schmidt – The New York Times
Comey Memo Says Trump Asked Him to End Flynn Investigation

Summary:
Equity markets sold off following reports that President Trump had asked former F.B.I. director James Comey to shut down a federal investigation into former national security advisor Michael Flynn. The S&P 500 posted its worst one-day performance of the year falling 1.8%. The concern for investors is that further investigations could derail tax reform and deregulation efforts which have been priced into current valuation levels.

 

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Samy Adghirni, Mario Sergio Lima, and Rachel Gamarski – Bloomberg Politics
Brazil Plunges Back Into Political Crisis as Markets Brace

Summary:
Reports that current Brazilian President Michel Temer approved payments to Eduardo Cunha, the mastermind behind the impeachment of former president Dilma Rousseff last year, renewed the political crisis in the struggling country. Temer has denied the allegations, but the reports cast doubts on his proposed reforms. The financial markets took a major hit following the news.

 

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Will Martin – Business Insider
Britain’s Unemployment Rate Has Fallen To Its Lowest In 42 Years

Summary:
UK unemployment fell to 4.6% in April, the lowest reading in 42 years. Many economists predicted a rise in unemployment following the Brexit vote, but companies have continued hiring at a healthy pace. Unfortunately, wage growth has remained stagnant. Inflation has outpaced wage growth for two consecutive months leading to falling real incomes. The squeeze on household incomes could lead to a decline in consumer spending this year.

 

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Matthias Inverardi and Joseph Nasr – Reuters
Victory In State Vote Shows Germany’s Merkel on Course to Retain Power

Summary:
German Chancellor Angela Merkel’s conservatives defeated the ruling Social Democrats in Germany’s most populous state of North Rhine-Westphalia. The state is home to twenty percent of voters and is generally viewed as an indicator of national electoral trends. The vote deals a blow to the populist movement. Merkel supports the European Union, free trade, and is Western Europes longest-serving current leader.

 

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Laura Sarlo – Loomis Sayles
Italian Elections: The Political Climate Heats Up

Summary:
Italy is due to hold elections before May 2018 and there is a significant chance that an anti-euro government will come to power. The timing of the elections are uncertain, but many anti-euro leaders are pushing for elections before the end of 2017. Sarlo says that although there is support for anti-euro parties, the high number of factions is likely to produce a coalition government with limited ability to implement reforms.

 

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Ray Dalio – CIO – Bridgewater Associates
The Big Picture

Summary:
The global economy is in the Goldilocks part of the economic cycle, not too hot, not too cold. Average growth rates are tempering volatility and keeping threats of unsustainable debt flows and shocks from monetary policy at bay. This period of “equilibrium” should last for the next few years. Longer-term, the biggest worries are social and political conflicts, high debt and non-debt obligations (i.e. pensions), and limited central bank options to create stimulus during a crisis.

 

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Jeffrey Kleintop – Chief Global Investment Strategist
Is The Stock Market Just Quiet Or Is It Too Quiet?

Summary:
Low volatility and trading volume have prompted worries that stocks are vulnerable to rapid pullbacks. Reviewing historical data, these worries are unfounded. Periods of low volatility tend to precede market gains over the next 6 months, not declines. Additionally, since the start of 2009, all of the bull market gains have come on days when trading volume was below its 50-day moving average.

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