The Brexit comes to a crossroad while the “fiduciary rule” takes effect, and the Fed raises interest rates this week for the second time in three months. Get the full story in this week’s Steady Investor’s Week…
Brexit Perils – British Prime Minister Theresa May made a gross miscalculation last week in calling for a special election to try and consolidate parliamentary power for her Conservative Power. Whether she called for the elections because she believed she was ‘striking while the iron was hot’ or because she sensed the Conservative party was losing popularity fast, it did not go quite as planned. Instead, her Conservative party lost its majority, and the left-leaning Labour party gained significant ground, which resulted in a hung parliament. This outcome considerably weakens her party’s ability to negotiate a “hard Brexit,” as the vote indicates an enlivened voter base that may be starting to comprehend the scope of leaving the European Union. The Labour party is angling for a “softer” Brexit, which hopes to maintain access to the single market and would almost certainly maintain an immigration policy that the EU favors. In our view, the market would cheer for a “softer” Brexit, as it would mean favorable trade policies and stability of financial and governmental institutions. Does this story end with Britain essentially begging to be let back into the EU? Not likely, but don’t rule it out.
Regulatory Roundup: Financials – the so-termed “fiduciary rule” went into effect last week on June 9, whereby financial advisers will be required to put their client’s best interests first when it comes to 401(k)s, IRAs, and other deferred retirement accounts. The rule is not set to be enforced until next January, but chances are it could be struck down before then anyway. The House of Representatives voted last week to pass the Financial CHOICE Act, which is designed to strip down regulations in the financial industry set forth by Dodd-Frank. One of those deregulations would involve reversing course on the fiduciary rule. The U.S. Treasury Department also released a 150-page plan this week to reduce restrictions on big banks’ trading operations, ease annual stress tests, and check the overreaching (according to the new administration) powers of the Consumer Financial Protection Bureau. In reality, perhaps the most harmful parts of Dodd-Frank regulations were not the regulations themselves, but the complexity and confusion the rules – which are still being written – created for banks trying to comply.
Fed Hikes Interest Rates as Europe Charges Ahead – The Federal Reserve raised interest rates this week for the second time in three months, lifting the federal funds rate from 1% to 1.25%. This move was largely expected and is in-line with Zacks’ forecast of three interest rate hikes this year. The Fed also said it would begin to reduce its balance sheet over time by incrementally selling off its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, which it purchased during and after the financial crisis. The Fed stated that it saw the U.S. economy had continued to strengthen, that the employment picture had remained solid, and that it viewed recent inflation weakness as temporary. The Fed forecasts U.S. economic growth to be 2.2% in 2017 with inflation reaching 1.7% by the end of this year. Meanwhile, the ship is sailing in the opposite direction in Europe, as they are arguably about 2-3 years behind the U.S. in monetary policy setting. The European Central Bank (ECB) decided last week that the interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40%, respectively. They also expect interest rates to remain at their present levels for an extended period of time, and believe that the quantitative easing programs will remain in place for a “long stretch of time,” which is probably a year plus.
Time to pivot investment portfolios to Europe? Many of you may be wondering where these headlines leave us and what they mean for the direction of your financial future? Well in our view, many investors can oversimplify the answers to these questions and with that oftentimes oversimplify their wealth management approach. Working with the right wealth manager can help investors take the right steps towards saving and investing an appropriate amount of money, while also learning about the threats and risks to financial well-being in retirement. Proper planning requires knowledge of investments, cash flow needs, saving strategies, and so on down the line. This may sound like a lot to manage, but you don’t have to do it alone. Zacks Investment Management has helped investors build a better future by approaching investments with a time-tested and disciplined strategy. To learn more about our approach, please contact one of our Wealth Management Advisors at 1-888-600-2783. And to learn more about how you can plan for your future, we would like to offer you our just-released guide, “Guide to Personal Wealth Management.” This is an exclusive report that will give you the steps needed to prepare a secure financial future. Click below to download your copy today.
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