This week was packed with news from the Vice President visiting EU leaders to discuss trade deals to UPS’s first drone delivery and news of a March rate hike. How could these stories affect your investments? Get all the details in this edition of Steady Investor’s Week…
Diplomacy in a Critical Year – As trade deals get thrown on the chopping block and Europe gears up for some critical elections that may threaten the future of the European Union, the United States will be tasked with the delicate challenge of maintaining strong alliances (for trade, travel, and defense). Vice President Mike Pence travelled to Brussels this week to meet with EU leaders and reassure them of the U.S.’s stated intent to maintain cooperation and partnerships. Stated intent may be much different than action, however, as the outcomes of general elections in Europe (namely Germany and France) may result in backlash or support of the Trump Administration. EU leaders are desperate to maintain order as the unity of the trade block is threatened by populist campaigners who see Trump’s rise as an opportunity to ‘ride the wave’ of anti-globalist sentiment. The French elections will be a super-critical race to watch, and will take place in late April/early May.
Bigger Than You Think – Did you know that Amazon employs nearly 20,000 people in Britain? That total is set to rise by 5,000 this year as Amazon aims to hire more software developers and warehouse staff to fuel its incredible growth. Unlike many corporations that are receiving criticism for ‘moving jobs overseas,’ Amazon is merely developing a presence in one of its largest consumer markets. The move happens even as Britain gears up to exit the European Union, suggesting that Amazon is firm in its commitment to do business in the country while still acting in its own best interests.
Expecting a Rate Hike in March – Minutes from the last Federal Reserve meeting were released this week, and all signs point to a March rate hike, almost certainly a quarter point. The language used stated that the federal funds rate could be raised again “fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations.” We at Zacks Investment Management expect this to be the case, and would welcome an interest rate increase. A 25-basis point increase would mark a marginal but gradual step towards normalizing interest rate policy, which we believe the markets would ultimately cheer. Fed policymaker John Williams believes the U.S. economy is “essentially at full strength,” which we would tend to agree with. Any additional growth beyond the moderate rate expected would likely directly affect inflation, which would incite further rate hikes on the year. Last December, the Fed forecast it would raise interest rates three times this year, and a March increase would put them on target.
Enhanced Delivery Technology from UPS – a fascinating story came from mail carrier UPS this week, as it successfully tested a drone delivery to a farm in rural Tampa, Florida. The drone successfully delivered a package to a farm and then flew back to the roof of the delivery truck, which by then had already moved 2,000 feet down the road! This kind of technological advancement is an efficiency miracle maker, and it does not necessarily compromise the job of the driver. He or she can save time by not having to drive up long driveways or on long stretches of country roads to deliver a package, and can instead keep moving more linearly along a delivery route.
Earnings Strength a Positive for Stocks – it’s been a popular angle in the equities markets to credit President Trump’s election and his Administration’s business-friendly policy proposals as the key factors driving stock performance. But nearly everyone forgets to give any credit to earnings! We’re not sure why – while it has not been a gangbusters quarter (Q4) by any means, earnings growth is still on track for about 7.5% increase q/q, which is an improvement over the estimates at the start of the quarter. That 7.5% earnings growth comes along with an estimated 5% revenue growth, which is robust by any measure. Solid earnings give tailwinds to stock prices, and gives a fundamental underpinning to the ongoing rally.
While the Trump administration’s policy proposals may have driven stock performance, we are reminded how important it is to stay focused on other key factors. Many times, investors can give more weight to news stories as opposed to economic indicators. To help you keep an eye on important fundamentals that could impact your investments, we invite you to download our Stock Market Outlook report. See predictions for where the S&P 500 is heading by year’s end, small cap vs. large cap returns, odds of a recession, inflation, unemployment, and much more. Click on the link below to download your free copy today:
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