Private Client Group

April 24th, 2017

China’s GDP Growth – A Positive Sign for the Global Economy

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Could Dodd-Frank’s replacement be here? How long will we have to wait to see tax reform regulations? And when do we anticipate the coming of self-driving cars? Get all the answers in this edition of Steady Investor’s Week…

China’s GDP Growth Remains Steady and Strong – a strong China is a positive sign for the global economy, and a strong China is what we saw in Q1. Reports showed that the world’s 2nd largest economy grew by 6.9% in Q1, which marks the fastest rate of growth in a year and a half.  The boost came as higher government infrastructure spending and a renewed property boom helped raise industrial output at its strongest pace in two years. China’s growth path from here will depend in great part to how U.S. trade policy shapes up, and it will also be affected by how local officials deal with rising housing prices. The Q1 result, at least, was steady and strong and higher than most analysts expected – a good sign.

Just Accept It: Self-Driving Cars are Coming – self-driving cars are coming, and they are more than likely going to arrive sooner than most investors anticipate. Apple Inc. is the latest player to enter the crowded field of technology giants seeking to secure market share, as it secured a permit for autonomous vehicle testing in California. It joins the game with companies like Google, General Motors, Tesla and Uber Inc. – all of whom have been in it for several months if not years now. Google has already logged over 2.5 million miles on public roads with its autonomous vehicles, more than half a million of which took place in California alone. Apple Inc.’s endeavor will be known as Project Titan, which will move it beyond just testing simulators and software. May the race begin!

Delaying Tax Reform – But for How Long? – with the failure to bring the American Healthcare Act to a vote, and infighting within the Republican party over a “revenue neutral” tax policy versus one that starts with reform and focuses on spending later, it could be several months before we see tax legislation on President Trump’s desk. Both the Treasury Secretary, Steve Mnuchin, and House Speaker, Paul Ryan, have made it clear that August is an ambitious goal for having the legislation ready, but that it will more than likely be longer than that. And that doesn’t even account for the battles within Congress in getting it passed. In President Reagan’s administration, it took some ten months and 1,000 pages of proposals to come up with a tax plan, and currently Mr. Mnuchin does not even have a team put together in the Treasury Department. It will take some time, and we do not expect that tax reform will apply to 2018. Mnuchin added in an interview with the Financial Times that if the planned “border adjustment tax” does not survive as part of the plan, that there would be other ways to make up the $1 trillion budget shortfall that would arise from deep tax cuts. The best proposal on the table, in our view, is a tax holiday for repatriating profits that U.S. corporations have stashed abroad.

Fed in Talks to Shrink Balance Sheet – the Federal Reserve appears poised to raise interest rates twice this year, and minutes show that they also believe it could be an appropriate time to start shrinking their $4.5 trillion balance sheet. Fed Vice Chairman, Stanley Fischer, does not believe; however, that trimming the balance sheet will result in the so-termed “taper tantrum” that resulted in 2013 and led to higher volatility in the equities and bond markets. Yield on Treasuries spiked in 2013 when the “taper” was announced, but this time around the bond market’s response was mostly muted.

Is Dodd-Frank’s Replacement Here? – a 600-page bill has made its way into the halls of Congress, as Texas Congressman, Jeb Hensarling, has brought forward a plan to replace the Dodd-Frank legislation with a GOP-crafted plan called the Financial CHOICE Act. The bill is reportedly targeting a “pro-growth, pro-consumer” alternative to Dodd-Frank that would, amongst many other things, eliminate “too-big-to-fail” bailouts and provide regulatory relief for certain financial institutions. The details are yet to emerge, and it will be a long and winding road. But, reforms in the Financial sector and some streamlining of the rules could be a boon for banks and the economy, if done right.

With so many questions left unanswered, we are forced to have to wait and see how many of these stories pan out. Still it is easy for investors to get caught up in short-term predictions. But, while we cannot predict the short term, the right investment strategy can make an enormous difference over the long haul. To learn more about various strategies catering to different investment objectives download our Dean’s List of Investment Strategies. To get your copy, click on the link below:

Disclosure

DISCLOSURE This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.
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