As we head into the holiday weekend, this week is jam packed with eye-popping headlines that could affect the markets. Tropical Storm Harvey incurred losses on all fronts, and our hearts go out to all those affected. On the financial front, one factor many haven’t considered is how gas prices will respond. Additionally, protectionist talk between the U.S. and China has come to the forefront as Trump rejects Beijing’s proposed steel cut TWICE seemingly holding out for a deal with tariffs. See how these stories progress and what the outcomes could mean for the market in this week’s edition of Steady Investor’s Week…
Tropical Storm Harvey by the Numbers – Harvey has wreaked havoc on Houston, dumping what is estimated to be close to 50 inches of rain. If rainfall is confirmed to be 49.2 inches or higher, it would be the highest total rainfall ever from a tropical cyclone in the continental U.S., with records dating to 1950. The current record came in 1978 when Tropical Storm Amelia hit a 48-inch storm total in Medina, Texas. As it stands as of this writing, insured losses could be as much as $10B-$20B, according to JPMorgan, which would make Harvey among the top 10 costliest hurricanes to hit the U.S. Compared to Hurricane Sandy ($30+ billion) and Hurricane Katrina ($80+ billion), however, the estimates appear somewhat more measured. Another factor is in gas and refinery production. The Gulf Coast refiners account for more than 13% of the country’s refining capacity offline, and production cuts are sure to put some upward pressure on gas prices, already sending them to their highest level since July 2015. As far as markets go, using Sandy and Katrina as historical data points, the markets were able to digest and price-in the effects relatively quickly, with minimal downside pressure. Both years – Katrina in 2005 and Sandy in 2012 – were positive for U.S. stocks.
“I Want Tariffs” – protectionist talk between the U.S. and China has been bubbling up of late. President Trump seems intent on levying tariffs on China particularly as it relates to steel. A week after the July G20 summit in Hamburg, where President Trump notably criticized China for flooding the world market with cheap steel as we were simultaneously trying to get them to reign in North Korea, Beijing proposed cutting steel overcapacity by 150 million tons by 2022. Reports indicated that Commerce Secretary Wilbur Ross was content with the deal, but that President Trump rejected it twice. Any deal that does not include tariffs likely will not satisfy the President, which can be a slippery slope. China is a huge contributor to the supply chain of several everyday goods we purchase here in the U.S., and China can easily retaliate which could affect corporate earnings at several U.S. multinationals. Tariffs and protectionist actions generally do not benefit earnings and the stock market, in our view, and should be avoided.
Amazon Slashes Prices at Whole Foods – following the $13.7 billion takeover of Whole Foods by Amazon, stores are already seeing an immediate impact. Some food products saw prices slashed by as much as 43%, particularly in produce. Sentiment amongst consumers appears to be largely positive as a result, with early indications that price slashes are effectively bringing in new customers. Amazon is also using the grocery retailer to push its own product – Amazon Echo speakers went on sale in Whole Foods as well as Amazon Alexa devices. From a short-term view, the stocks of rival grocers felt some downward pressure as Whole Foods and Amazon gobbled on the headlines and left investors wondering how much it could disrupt the food industry.
Better than Expected GDP – the United States economy is off to a good start in 2017. Corporate earnings are expanding as expected, and real gross domestic product (GDP) increased at an annual rate of 3.0% in the second quarter of 2017, according to the second estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2%. Profits from current production (corporate profits with inventory valuation adjustment and capital consumption adjustment) increased $26.8 billion in the second quarter, in contrast to a decrease of $46.2 billion in the first quarter. This data is in-line with our expectations and reaffirms our positive outlook for stocks.
As this week comes to a close, news stories leave us with more unanswered questions. With that, it can be very time-consuming for investors to keep up with shorter-term trends, news, and events that could impact their investments. To help give you a leg up, we’ve laid them out for you in our newly released Zacks’ Stock Market Outlook report. This exclusive Report is a quick read but contains predictions that can help you assess your portfolio. Learn more by clicking on the link below: