How can the headlines affect your investments? Learn more in this week’s Steady Investor’s Week…
Is Europe Ready for a Taper? – the European Central Bank (ECB) decided to keep interest rates at zero this week, and they also made no changes to their quantitative easing (bond buying) program designed to stimulate the economy. In other words, monetary policy is pretty much full steam ahead. Perhaps the ECB is playing it safe with the upcoming French election in the wings and growing uncertainty over the currency bloc’s future. That may be wise. But, there is growing evidence that the ECB may have some wiggle room to start paring back their extraordinary monetary policies, and normalizing them a bit. Eurozone inflation rebounded in April, with the annual rate climbing to 1.9%, which is nearly in-line with the ECB’s goal of 2%. Manufacturing business activity in the eurozone. This number also rose in April, hitting a six-year high of 56.7 from 56.2. Seven out of the eight nations covered in the manufacturing data showed an improvement in operating conditions, while Greece – not surprisingly – did not. With manufacturing growing at nearly a 4% annualized rate, that could translate to modest but healthy growth for the bloc in 2017.
The Federal Reserve Leaves Interest Rates Alone – the Fed followed the ECB’s lead in their May meeting, leaving the fed funds rate unchanged after a March hike. Regarding paltry GDP growth in Q1, the Fed issued a statement that it “views the slowing in growth during the first quarter as likely to be transitory” and believes the “fundamentals… remain solid.” Coming off a strong Q4, the U.S. economy generally tends to smooth out in Q1, gaining steam as the consumer enters the summer.
Strong Earnings from the Tech Behemoths – it used to be that a good barometer for the U.S. economy was tracking the earnings of General Electric, Proctor & Gamble, and McDonald’s. Now the benchmarks are the tech behemoths: Google, Amazon, Facebook, Netflix and Microsoft. So far, their collective earnings look to be on solid footing. Amazon reported a Q1 profit increase of an astounding 41%, which moves its streak to eight consecutive quarters of growth. Google posted similarly strong results, showing Q1 profit growth of 29%, with no indications of an advertising backlash. As if you thought earnings growth couldn’t get any better, Facebook reported that Q1 revenue rose around 50% Y/Y to just over $8B on soaring ad revenue. Finally, the darling of U.S. stocks, Apple Inc., reported higher than expected earnings per share at $2.10 versus the expected $2.02, with higher than expected revenues of $52.9 billion in just the first quarter.
French Elections! – Investors should be sure to check the evening news on Sunday to see the outcome of the French elections. This week marked the final week of (often brutal) campaigning, and voters head to the polls on Sunday to choose their new president. The outcome could have a serious and lasting effect on the European Union. If far-right candidate Marine Le Pen wins, it could mean a referendum on France’s membership in the EU, which could essentially be seen as a referendum on the European Union at large. The centrist candidate, Emmanuel Macron, would be the status-quo business friendly candidate, and likely the one that markets would prefer to see gain the victory.