Politics & Markets Are Unpredictable

in Market Commentary by

Market Digest – Week Ending 5/19/2017
Global stocks finished the week little changed, but the eerie calm of the past few months was disrupted on Wednesday when word leaked that President Trump may have asked former FBI director James Comey not to investigate Mike Flynn’s ties to Russia. However, stocks quickly recovered on little new news. The dollar fell and bond yields dropped as investors sought safety. The 10-year Treasury yield is now down to 2.23%.

Weekly Returns:
S&P 500: 2,382 (-0.4%)
FTSE All-World ex-US: (+0.9%)
US 10 Year Treasury Yield: 2.23% (+0.03%)
Gold: $1,255 (+2.1%)
EUR/USD: $1.120 (+2.5%)

Major Events:

  • Monday – Thermo Fisher Scientific announced it will buy Patheon for $5.2 billion
  • Tuesday – Dick’s Sporting Goods said sales fell short of estimates and announced it would scale back store opening plans
  • Tuesday – Cisco announced it is laying off 1,100 workers and forecast a drop in revenue
  • Thursday – Salesforce reported higher than expected sales numbers and said it expects to surpass $10 billion in revenue for the first time this year
  • Wednesday – U.S. stocks suffered their worst day of the year after it was reported that President Trump may have told former FBI Director Comey not to investigate Mike Flynn
  • Thursday – WalMart reported higher than expected sales and improving results at its ecommerce site
  • Thursday – Brazilian markets were thrown into chaos after it was reported that President Temer paid hush money to a key player in the former president’s impeachment. Later in the week accusations would be made that Temer also accepted bribes himself

Our take:
Since the months leading up to the U.S. presidential election, politics have dominated the headlines and captured the focus of investors. We’re of the opinion that stock prices are higher in that period primarily because companies are thriving, profits are growing rapidly, and interest rates remain very low.

But market gyrations this week served as a reminder that the volatile nature of the White House can still drive markets. Political uncertainty is high. Many are speculating that Trump will be impeached and markets initially reacted negatively to raised prospects for this. Then they rapidly recovered. This week was yet another example that even if you know what may happen in the crazy world of politics, it doesn’t mean you can have confidence in how markets will react.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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