Key Economic News:
Markets have hit record highs throughout July, U.S. banks reported strong earnings, but consumer spending has begun to show some fractures.
Our Take Away: Previous management flip-flopped on taking a clear bullish or bearish stance on the market, however, this new team’s stance is that the steam hasn’t run out just yet. There’s still some room left to run in what has been a resilient market, but rallies do not last forever. Overall sentiment from our analysis: Bullish, but plateauing.
The VIX, CBOE’s “Fear Index,” hit an all-time low, leaving many to ask if market volatility is dead or if this is a good buying opportunity for ETFs that attempt to track the VIX.
Our Take Away: While such ETFs don’t necessarily track the VIX as many might expect, they could still be useful for capturing returns off of the volatility that accompanies a sharp market downturn.
The Federal Reserve is set to unwind its $4.5 trillion balance sheet within the next few months, an option that seemed unlikely until Trump took office.
Our Take Away: The concern here is not that the Fed’s active involvement may directly have a negative impact, but that the market’s reaction to the Fed’s involvement may trigger sudden shifts. In fact, former Fed Chairman Ben Bernanke stated back in January of this year that, “I worry though that, in practice, attempts to actively manage the unwinding process could lead to unexpectedly large responses in financial markets.”
Former Chairman, Alan Greenspan recently spoke on the idea that there could be a “bond bubble” present in the market.
Our Take Away: Interest rates have been low for quite some time and with the Fed’s departure from quantitative easing, there could be a shock to the bond market that carries into stocks.
Key Political News:
Donald Trump Jr. released, via Twitter, an email chain that exasperated concerns over potential collusion between the Trump Campaign and the Russian Government.
Our Take Away: The real concern at the moment is how the purpose of the meeting, how the number of the attendees, and how the details of the conversation all continue to change. Regardless of political affiliation, the best course of action for both the economy and the country, as a whole, is for the Russian investigation to occur swiftly and thoroughly. Barring any major revelations, the looming uncertainty will only further incite legislative congestion and induce market volatility.
U.S. Intelligence Reports indicate that Jeff Sessions may have spoken with Ambassador Kislyak over campaign and policy matters during the 2016 election.
Our Take Away: The problem with these reports is that U.S. Intelligence officials cannot always ensure that these intercepted communications were not planted by Russian Counter-Intelligence officials in order to spur additional turmoil.
Senate GOP members released a revised version of its health care bill, which included $45 billion more for opioid treatment. However, some parts of the bill did not comply with budget rules and any support quickly faded prior to the anticipated vote despite Trump’s advocacy. The “skinny” bill ultimately flat-lined after a dramatic thumbs down from McCain.
Our Take Away: With Republican control over both the legislative and executive branches of government, one would expect smoother sailing for keystone policies to work through the system. Yet, seeing as though the One Hundred Fifteenth U.S. Congress is struggling to cooperate both inside and outside of party lines, the next election cycle is likely to bring about some major party upsets.
Trump now has the lowest 6 month approval ratings compared to any other President since polling began, but that’s ok because “any negative polls are fake news.”
Our Take Away: Depending on what poll you consider to be accurate, roughly four in ten Americans approve of the job Donald Trump is doing as president. This negative sentiment surrounding his administration does not bode well for 2020 and will certainly intensify the rhetoric coming from the White House over the coming months.
Aside from the numerous administrative changes the nation has witnessed throughout the young history of the Trump administration, we saw quite the show this month as the Director of Communications and the Chief Office Staff were replaced. More specifically, the Director of Communications changed hands from Sean Spicer, to Michael Dubke, back to Sean Spicer, then to Anthony Scaramucci, and is now vacant. Meanwhile, Priebus was traded in as the Chief of Staff and replaced by John Kelly.
Our Take Away: At this rate, will any of Trump’s original administration remain standing by the time he leaves office? While we agree that staffing changes are necessary from time-to-time, the current environment within the White House appears to be growing more disorganized and incendiary by the month. Before we can expect to see any substantial progress in policy, Trump will need to get his own house in order.
Key Social News:
Goldman Sachs computed the costs of bringing iPhone manufacturing to the U.S. and forecasted that it would raise the cost of production by nearly $100 per unit. It would also bring roughly 500,000 jobs and infrastructure spending of between $30 and $35 Billion to support the manufacturing move.
Our Take Away: Bringing jobs back to the United States is easier said than done, and the concept is far too complex to be a mere political talking point. Unless there are greater tax benefits and other incentives, the team doesn’t believe many firms will respond to political criticism and move manufacturing centers back onto U.S. soil.
Elon Musk is predicting that, within the next 10 years, cars won’t have steering wheels and nearly all new cars will be electric (and autonomous).
Our Take Away: This paradigm shift could perhaps have an adverse impact on insurance companies as well as create new threats and opportunities for the top auto manufacturers (depending on who can keep up). Furthermore, we would also anticipate higher demands on an already stretched electric grid.