Whatever It Takes/Plough Horse/Long Expansion
Equity markets rally this week due to many factors including FED comments on “Will do whatever it takes” to help the economy – or – it’s seasonal as earnings season is coming– summer equity rally too.
Positives: Feds beige book showed modest pickup in growth in April and May - almost all 12 districts reported some growth - consumer spending was generally positive - employment edged higher - tight labor & strong hiring (some shortages). Trump tweets “not nearly enough progress was made between US and Mexico” – progress made is key. Powell suggests the central bank could cut rates given an escalation in trade tensions – a rate cut would mean that inflation and inflation expectations return to target more rapidly. China signals it is willing to return to trade talks with US – negotiations remain a priority. The US has enormous leverage with China, given their trade deficit with the country and the ability of firms to shift supply chains towards alternatives like Vietnam, Mexico and India. No signs of weakness in economy – no deal with China and higher tariffs on Mexico (and perhaps others) - doesn’t mean recession but instead return of roughly 2% Plough Horse growth – we estimate that the impact of tariffs net of benefits or tax cuts and deregulation roughly equal the negative effects of President Obama’s tax hikes and regulation (B Wesbury). Does anyone really think there are firms that are not investing because the FED has lifted short term rates to 2.375%? There are $1.4T in excess bank reserves. Continue to see S&P 500 reach 3000 based on multiple of 17 times next year earnings (B Murray). Investor bullish sentiment is trending lower even after strength in markets this year - implies correction risk may be limited. US economy – the longest expansion should make it through July and beyond (Dr. Yardini).
Negatives: The World Bank lowered its global growth forecast to 2.6% from 2.9% in January. With a sharp drop in trade and investment flows between countries – slowest pace since recession. US factory activity slowed in May - US ISMs at lowest readings since October 2016 - 52.1 it was 58.8 six months ago. Trump threat toward Mexico to stop flow of migrants from Central America - using tariffs to achieve policy goals outside foreign trade makes it much more difficult for international companies to plan ahead – what comes next – NATO, CO2 emission standards, who knows? – is this the cause of the next recession. Protectionism and added uncertainty could offset positives.
Investment Wisdom: Investment success accrues not so much to the brilliant as to the disciplined.
PORTFOLIO MANAGEMENT–Week’s Highlights
Stocks of the Day: BMO, GOOGL, SIA, BAM.A, NVU.UN
New Issues: DSG, MTL, SMU.UN
Have a great weekend. Bruce
MacKay Weekly Investment Report Contents:
Page 1 - How I see It
Pages 2 & 3 - Notes and Quotes
Page 4 - CDN Mkts
Page 5 – Int’l Mkts
Page 6- Funds & ETFs
Page 7-9 – Favourite Charts
Page 10 – MacKay Group Portfolio Management
Page 11 – Comprehensive Wealth Management
Page 12 – MacKay Group News & Events