Weekly Research Briefing: So many roads ahead...
Dallas/Fort Worth International Airport, TX, USA (Benjamin Grant/DigitalGlobe) |WIRED
Which road will Alabama take on Tuesday? Which road will the FOMC take on Wednesday? Which road will Congress go down as they have many decisions to make on the Tax Bill?
As the stock market looks to wind up for its often ‘Santa Clause’ rally in the second half of December, there are some big items that are about to be decided on. Easily the biggest decision of the week will be Tuesday’s special election for the U.S. Senate in Alabama. While the RNC may have already made a decision to thin their ranks and coffers by deciding to back Roy Moore, the state voters could surprise the U.S. by electing Doug Jones. Crazier things have happened in politics in the last 13 months. For the FOMC meeting on Wednesday, a 25bp hike would seem to be a lock in terms of where we are headed. But with a new Chairman at the center of the table, communication will be key to the markets. Let’s see if any language changes about the overall strength of the economy, and what the future plans are to deal with inflation. And in Washington D.C., the Tax Bill wrangling continues. Some very big items surrounding State and Local income tax deductions for individuals, AMT for corporations, FIFO to become mandatory for capital gains, Electric vehicle tax credits, and many others. Expect fits and starts from affected stock prices as leaks make their way to the market. There is much to be done and not a lot of time before the holidays begin.
Like the 361 Capital Weekly Research Briefing? Share with a colleague now.
In looking at last week’s returns, it really makes you wonder if the Gold bugs are transmutating into Bitcoin bugs…
Among sectors, Financials and Industrials owned the week. Not so for Commodity stocks…
Some are worried that all the repatriated cash will be spent on buybacks. The market says no way…
Yes, some companies have no internal cash needs because their core business is very mature and has no input for additional cash. These companies should buy back stock and pay greater dividends. But any business that is growing into new industries, markets or just participating in the synchronized global GDP expansion will look to invest in Capex, R&D and acquisitions that will allow them to grow faster. This chart clearly illustrates that the market wants to reward investment in growth right now and not capital shrinkage. If a CEO and Board of Directors listens to the stock market and cares about their stock price, then they will spend time looking to deploy repatriated capital with the 2018 Tax Bill.
Also, just look at this ramping chart of factory manufacturing…
Companies will need to spend as production moves up and to the right.
Even small businesses are looking to ramp up their hiring…
Of course with a U.S. economy on fire, Goldman Sachs asks the obvious question…
…the key economic question is the impact of more stimulative fiscal policy at a time when the economy is moving beyond full employment. If most of the added growth takes the form of stronger aggregate demand without an offsetting increase in aggregate supply, as we expect, then it is only a matter of when, not if, financial conditions and monetary policy need to turn more restrictive to reverse the demand expansion. In a full employment economy, what Congress giveth, the Fed ultimately taketh away. The prospect of fiscal stimulus thus reinforces our forecast that the funds rate will rise well beyond current market pricing, with four hikes in 2018 and a terminal rate of 3¼%-3½%.
Your follow up question should be, “When do we pay down the National Debt balance?”
And yes, at first glance, this does look like a price chart of Bitcoin… which begs the question even louder.
If the Fed is a go, will our Emerging Market stocks and currencies remain calm? My fingers are also crossed for the Goldilocks scenario…
The Federal Reserve is set to raise interest rates for the third time this year Wednesday, just as other central banks in the developed world have recently started to tighten monetary policy. But investors in developing countries aren’t flinching, reflecting confidence in the growing global economy and a changing investment landscape in those countries, fund managers say.
“Everybody used to think if the Fed tightens, all emerging markets die,” said Helen Qiao, managing director at Bank of America Merrill Lynch in Hong Kong. “I don’t think that is the picture anymore.”
The reversal in fortunes comes as emerging markets are enjoying what some analysts call a “Goldilocks” moment—a combination of strong global growth, stabilizing commodity prices and improving domestic fundamentals. This has fueled a rally dwarfing gains made by U.S. stocks.
Still easier to bet on International stocks over U.S. stocks as this price and valuation chart shows…
Time for international stocks to make up some ground and close this 20% multiple gap.
To read the full 361 Capital Weekly Research Briefing, please click here
Subscribe Now to receive the Weekly Research Briefing in your inbox
Follow Us on Twitter @361Capital
Follow Us on LinkedIn
