Major Market Corrections: On Monday, February 5th, the Dow Jones Industrial Average took a 1,175 point (4.6%) plunge – its largest one-day point drop in history that sent shockwaves around the globe. At its worst, the Dow fell nearly 1,600 points in the late hours of the afternoon. Meanwhile that day, the S&P 500 fell 4.1% to 2,648 and the Nasdaq fell 3.78% to 6,967. Of the hardest hit, energy, financial, and health care stocks saw the most significant declines.
Our Takeaways: For the past year, we have been anticipating and preparing for a market correction. However, our belief was that this would likely be spurred by either a single, significant political/geopolitical event or news of unexpected, declining economic metrics. What happened instead, was a rather healthy, and understandably frightening, pullback from an aggressive 18 month bull market run that had exhausted itself. Yet, fanning the flame for this pullback were worries of higher interest-rates, increased inflation, and wage gains. With Jerome Powell replacing Janet Yellen as the Chair of the Federal Reserve on February 5th, we will see how he navigates monetary policy concerns as the Fed prepares to raises rates at least three times this year and how he contends with the effects of fiscal policy following Trump’s $1.5 trillion tax cut as well as another $1.5 trillion in potential infrastructure spending. Going forward, we expect to see the market struggle to fully recoup the losses sustained in early February and struggle further to reenter a similarly aggressive bullish trajectory witnessed in the past year.
SpaceX Launches Falcon Heavy: On February 6th, Elon Musk and his team at SpaceX successfully launched their Falcon Heavy rocket at Cape Canaveral’s historic Pad 39A (the pad used for Saturn V launches and the majority of the Apollo missions). Inside the Falcon Heavy for its first test flight was Musk’s own Tesla Roadster with a SpaceX spacesuit wearing dummy at the driver’s seat listening to David Bowie. The significance here is that this rocket is the most powerful rocket in operation anywhere in the world and has the added benefit of utilizing reusable rockets (although the center-core crashed in the Atlantic upon return during this test). Moreover, SpaceX’s technological leaps are paving the way to send humans to Mars and reignite the demand for future space exploration.
Our Takeaways: While this particular topic had little (if any) economic and political effect on the market this month, the implications of what was achieved by this brilliant, rock star-like billionaire and his band of determined, ingenious engineers are not to be overlooked. For decades, the National Aeronautics and Space Administration (NASA) has grappled with pushback from members of the public and various politicians on how they can justify spending billions of dollars every year to study space. For anyone who is a student at or an alum from Purdue, that previous sentence probably did not make sense and was most likely insulting. The point here is that SpaceX has kicked-off a revolution that is enticing not only additional publically funded governmental support but also privately funded initiatives (ex. Jeff Bezos’ Blue Origin) to develop new systems and technologies that can take us beyond the Moon. Furthermore, such advances usually end up having far-reaching economic affects since the new technologies are applied in other ways for everyday use. As proof take a long list of NASA’s spinoff technologies.
Renewed Gun Control Debate: On February 14th, the nation suffered yet another mass shooting at a high school where 17 lives were senselessly taken. However, there is light in another dark moment of our country’s internal battle over gun control – the response from the surviving students. Instead of the usual routine of sending “thoughts and prayers”one day and then back to regular news the next, these kids are fighting back against gun violence and against political complacency. They are taking on news pundits, politicians, and the NRA, and they are having an entire nation reevaluate and redefine its relationship with guns.
Our Takeaways: Regardless of where anyone stands on the issue of gun control, a certain level of respect is owed to these kids since they have been able to break the routine and spark a serious conversation that the country needs to have with itself. As we know, the Second Amendment was adopted on December 15, 1791, as part of the Bill of Rights with the purpose of securing the natural rights of self-defense and resistance to oppression. The issue, although, is that in the more than 200 years since the Second Amendment’s adoption, our technology and our culture has changed substantially, and we have failed to have a productive conversation at each of the crossroads leading up to this moment. The result: on one hand, people believe that increased regulation will end up with their guns being taken away, and on the other hand, kids are being killed at school. Going forward from here, we expect that this debate over gun control will continue and become a key policy issue come the midterms. Where politicians throw their support in this debate today will likely contribute to dramatic shifts in the political landscape in the House and Senate later this year, and perhaps impact the Presidency as well.
Trump’s Turbulent Administration: It’s no secret that Trump’s White House has seen a variety of new faces come and go in the roughly 13 months since he took office. In fact, the turnover rate among top-level positions for the Trump Administration is at a record setting 43%. With this in mind, the core problem here is that the White House is becoming less and less suitable for effectively governing since there are a growing number of vacant positions on top of an already understaffed administration. Conjuring support for policy was already a challenge for Trump, and with an ever shrinking staff to continue that work, the future seems to be growing bleaker by the day.
New Arrival – Jerome Powell (Feb. 5, 2018 - Present): Powell, as mentioned earlier, is the newly appointed Chair of the Federal Reserve who is replacing Janet Yellen. He served as Under Secretary of the Treasury for Domestic Finance under President George H. W. Bush in 1992 and has served as a member of the Federal Reserve Board of Governors since 2012.
New Exit – Rob Porter (Jan. 20, 2017 – Feb. 7, 2018): Porter was the White HouseStaff Secretary who resigned amid multiple allegations of domestic violence (that he denied) from his two ex-wives. Chief of Staff John Kelley reportedly sought Porter’s resignation on March 2, 2018, after learning of the domestic violence allegations.
New Exit – Hope Hicks (Jan. 20, 2017 – Feb. 28, 2018): Hicks was Trump’s longest serving aid, first serving as the Director of Strategic Communications and then was later appointed as the Communications Director on August 16, 2017, after Sean Spicer (January 20, 2017 – March 6, 2017 & June 2, 2017 – July 21, 2017) and Anthony Scaramucci (July 21, 2017 – July 31, 2017) exited. Her resignation was announced the day after being interviewed by the House Intelligence Committee.