May 10, 2017

Capital Trading Group Daily Newsletter

Investors Unnerved with Trump Firing FBI Director

Investors seem unnerved by the headlines out of Washington, with Trump firing FBI director James Comey and Congressional Democrats voicing strong threats and opposition. Some stock market insiders are worried the recent actions could derail Trump’s ability to implement his teams agenda, in particular tax reform and infrastructure spending which has taken a backseat as lawmakers focus on healthcare reform.

There are some concerns that if confidence in President Trump starts to further deteriorate it could make it tough for his team to gain enough support to push their pro-growth policy ideas through Congress. In fact U.S. Commerce Secretary Wilbur Ross is now saying U.S. GDP growth will probably not achieve its +3% target until 2018, once the full Trump pro-growth agenda is implemented.


 The fear is with stock valuations trading much higher the market may start to require some political tailwind to keep values justified and well supported.


If relations in Washington seem stressed or strained it might be tougher to find those supportive headlines. The "wall of worry" is clearly not elevated at the moment and there's very little on the calendar in the coming weeks, but we still have unresolved geopolitical risk in the way of North Korea moving forward with its nuclear program; tensions with Iran and Russia; complications inside Syria; and continued uncertainties surrounding ISIS.

 

Today here at home it will be very quiet in regard to economic data with only Weekly Jobless Claims and the Producer Price Index set for release. Earnings continue to lend a high level of support to stocks right now, with a solid majority, some 78% of S&P 500 companies beating analyst expectations.

 

Per share growth in the index is on track to grow +13% this year, the best in many years. A few key releases scheduled for today include CA Technologies, Enbridge, Kohls, Macy’s, Nissan, Nordstrom, Panasonic, Petrobas, Prestige Brands and Subaru. The only Fed official speaking today is New York Fed President William Dudley who will be speaking on globalization. Yesterday, Boston Fed President Eric Rosengren voiced an interesting concern that the U.S. Federal Reserve is at risk of moving too slow and in turn letting the economy "overheat".

 

In fact, Rosengren thinks the central bank should raise interest rates three more times this year, rather than just the two more times the Fed has indicated. Keep in mind that Rosengren has traditionally been a staunch "dove" when it came to Fed policy, so his very 'hawkish" attitude is garnering major attention amongst some of the big-money players.

 

Rosengren also said Wednesday that he expects above-potential growth over the next year, pushing unemployment even lower. I'm hearing similar comments from several insiders who say the U.S. labor market is really starting to heat up. Internationally, Bank of England will announce their latest policy decision as well as releasing updated forecasts for the UK’s economy. Officials are not expected to change rates.  There's also a G7 meeting coming up in Bari, where leaders will focus on issues including international taxation, cyber security, better coordination of global financial institutions and ways to fight inequality.

 

Oil prices enjoyed their biggest one day gain of the year yesterday jumping by +3% after the EIA revealed U.S. crude stocks fell by -5.2 million barrels last week. Bulls are also pointing to the fact both Iraq and Algeria are saying they agree with Saudi Arabia in supporting an extension to OPEC supply cuts. Oil prices are a bit higher again this morning but still remain down double-digit year-to-date. 

 

 



Finally, we will decidedly end our notes with our reaffirmation of the growing need for alternative strategies. We would like to think that our alternative view on markets is consistent with our preference for alternative risk and alpha driven strategies. Alternatives offer the investor a unique opportunity at non correlated returns and overall risk diversification. We believe combining traditional strategies with an alternative solution gives an investor a well-rounded approach to managing their long term portfolio.

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It is our goal to keep you abreast of all the growing market risks as well as keep you aligned with potential alternative strategies to combat such risks. We hope you stay the course with us, ask more questions and become accustomed to looking at the markets from the same scope we do. Feel free to point out any inconsistencies, any questions that relate to the topics we talk about or even suggest certain markets that you may want more color upon.
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