Trump made more headlines this week with policy changes including the immigration restrictions. Now the question from investors is – what are the possible implications? Get all the details in this edition of Steady Investor’s Week…
Corporate Reaction to the Immigration Restrictions – President Trump make bold headlines and caused a stir in the country this week with his announcement of a travel ban from seven predominately Muslim nations. Corporate America’s response was fairly broad-based: Starbucks announced plans to hire 10,000 refugees; Airbnb said it would provide refugees anyone not allowed in the U.S. with free housing; Google created a $4M crisis fund; UBER announced the establishment of a $3M defense fund; Lyft said it would donate $1M to the ACLU; and a group of companies including Alphabet (Google) Apple, Inc., Facebook, and Uber are working on drafting a letter opposing the travel ban. In many cases, corporations are posturing for public relations purposes and to preserve the business. In others, the travel ban may actually affect employment and production. Here’s an excerpt from the drafted letter: “Our ability to grow our companies and create jobs depends on the contributions of immigrants from all backgrounds… In a global economy, it is critical that we continue to attract the best and brightest from around the world.”
Harsh Words for Greece – Greece has been long troubled with its sovereign debt crisis and flailing economic growth. Since 2013, however, the problem has been moderating slightly with euro zone growth and IMF and ECB bailouts. But the International Monetary Fund (IMF) appears to have reached a tipping point – earlier this week, the IMF labeled Greece’s sovereign debt as “explosive” and “highly unsustainable,” claiming that it could reach 275% of GDP by 2060. That is, unless the country massively restructures its loans and finds some way to couple fiscal austerity with economic growth (more difficult than it sounds). This may also be the IMF’s way of posturing against any further bailouts, unless Greece takes serious action. For now, the issue seems fairly moot when it comes to broader European growth and the equity markets. Meanwhile, in Italy, it appears as though weak banks will be recapitalized with the 20 billion euro committed by the Italian government, once it bails out the world’s oldest bank, Monte dei Paschi.
Volkswagen Claims Top Spot – the largest carmaker in the world is no longer Toyota. In spite of a wide-ranging scandal involving intentional cheating on emissions tests, Volkswagen sold 10.3 million vehicles in 2016, which outpaced Toyota by about 200,000 units. This is the first time ever that the German carmaker, Volkswagen, has held the top spot, perhaps signaling that the consumer is ready to forgive and forget. It may not mean much for Volkswagen’s bottom line, however, as the fines related to its emissions scandal could top $4 billion.
Solid Eurozone Growth – the euro area grew modestly but nicely last year, with GDP climbing at a +1.7% pace on the year (2016). That was slightly faster than U.S. growth, but both areas muddled through to expansion. Europe has not surpassed the U.S. in growth since the financial crisis, and 2017 could prove to be another year where both regions grow modestly. The unemployment picture in the U.S. is significantly better than Europe’s, however, as the U.S. boasts a 4.8% jobless rate compared to 9.6% for Europe.
The Federal Reserve Holds Rates Steady – The Fed kept interest rates steady at its January policy meeting, in-line with market expectations. From here, the Fed is likely to wait and see how policies shape up under the new administration, and what impact they believe will apply to inflation and growth. Janet Yellen has stated before that fiscal stimulus when the economy is at or close to full capacity could be inflationary and may have negligible effect on GDP growth. The Fed meets next on March 14 – 15, and by then there should be more data available that may result in a quarter point increase.
With so many factors affecting the market, ultimately the question becomes—what is the overall state of our economy? We at Zacks Investment Management are always looking at hard data instead of getting caught up in the headlines to provide context for investing decisions. If you want an inside look at what we’re seeing, download our Stock Market Outlook Report. Learn more by clicking on the link below.
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