Winning’ with Tech – in a sign of the times, the consumer products, engineering and aerospace company, Honeywell (ticker: HON), is working to enter the software business. They announced what could be a $3 billion acquisition of debt laden JDA Software, but are feeling competition from Blackstone Group LP that wants, instead, to provide the company with restructuring capital. The CEO of Honeywell, David Cote, is likely to fight for the deal. He stated that about half of the company’s 23,000 engineers are already working in the software/supply chain management business instead of focusing on heavy goods, like jet engines and control systems. In another software-related move, Cisco (ticker: CSCO) announced its plans to lay off some 14,000 employees and move its focus to a more “software-defined” future. In today’s economy, a company can often be judged by how quickly and effectively they evolve their technology.
Fiscal vs. Monetary Policy – recently, we highlighted comments from Australia’s central bank chief regarding the need for governments to think more about fiscal stimulus than monetary policy to stimulate an economy. Those thoughts were echoed this week by San Francisco Fed President, John Williams. He stated that governments need to develop new policies to buffer their economies from persistently low interest rates which threaten to make future recessions more difficult to avoid and manage. He made some interesting suggestions including instituting government spending programs that automatically kick-in during economic downturns as well as boosting investment in education and research. A secular risk we see is central banks keeping interest rates too low for too long, and if the next crisis or recession arrives when rates are already at the zero bound, central banks will have their ‘hands tied.’
Brexit Delays – a report this week noted the Brexit could be delayed until, at least, late 2019 citing the government is too “chaotic” to start the two-year process early next year. This is not surprising—the manpower needed to negotiate new trade deals is enormous. Since prior trade deals were negotiated through EU channels using EU resources, Britain will have to replace this infrastructure which means costly training and hiring. They’ve got a mountain to climb. Britain’s reluctance to invoke Article 50 until a plan is in place is understandable, especially as it’s likely not enough parliamentary votes could be gained to pass it without that plan. Remember, the Brexit referendum was only a vote to leave the EU—it wasn’t a binding agreement. Article 50 is the binding agreement, and to bring it into force the government needs to enact legislation through a parliamentary vote.
What Brexit Impact? – data released in the UK showed a very minimal impact of the Brexit so far. Retail sales posted a larger than expected jump in July, even as the pound weakened considerably. The volume of goods sold in stores and online jumped 1.4% month-over- month and 5.9% year-over-year. UK inflation also accelerated in July and consumer-price growth picked up to 0.6% from 0.5% in June. In the labor markets, British unemployment remained unchanged at 4.9% in the three months ending in June. In the same period, average weekly earnings rose 2.4%, meeting estimates. The “Armageddon” predictions tied to the Brexit are looking ‘tooth-less’ for the moment.
This week’s news shows just how much times are changing as governments face economic uncertainties, and businesses work to keep up with changing technologies. With so many fluctuations in the market, many investors struggle to identify leading investment tactics. One tactic to keep in mind is a fundamental, long-term approach. By staying abreast of economic news (we’ll help), remaining aware of corporate fundamentals (we’ll help here too), and thinking long term, investors may produce better returns over time. This is our approach at Zacks Investment Management. The benefits are reflected in the five investment strategies we have ranked in the top 10% of their respective classes according to Morningstar (as of 6/30/16)—we call this our ‘Dean’s List.’ Learn more about these strategies by clicking below…
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