What can investors do in the event of a market downturn? Can we expect another interest rate hike? And what is the big takeaway from the beginning of the NAFTA negotiations? Get the answers to these questions and much more in this week’s edition of the Steady Investor’s Week.
Fed Minutes Reveal Some Reluctance – the Federal Reserve released minutes from its July 25-26 meeting this week, and the transcripts revealed that a few policymakers are concerned about persistently low inflation. The remarks at first glance seemed to contradict the party line that ‘normalization’ was on track and that at least one more interest rate hike was set for 2017. Of particular concern was the inflation rate dropping from 1.8% in February to 1.5% in June, both of which are materially below the Fed’s 2% target. A few policymakers called for stopping interest rate hikes until the Fed could confirm that the inflation slowdown was temporary/attributed to normal cyclical forces, versus an outright consequence of tightening policy so far. Zacks Investment Management still believes that one more interest rate hike will occur in 2017, in December, and our fixed income strategies remain biased to corporate bonds and municipals.
NAFTA Talks Begin – in what could be a tense several months or even years of negotiations, the U.S., Canada, and Mexico have officially begun trade talks aimed at modernizing NAFTA and getting the United States a “better deal.” The timeline for talks is set to span the next seven months, with conclusions coming at the beginning of next year. Market participants are eyeing the talks closely for protectionism language, i.e., threats of tariffs and new taxes on goods and services. It should be noted that trade between the three nations reached $1.2 trillion in 2016, which marks a quadrupling since the deal first took hold in 1994. Many U.S. corporations benefit greatly from expanded supply chains and efficient production processes, so bottom lines are potentially at stake here in addition to the end costs of goods and services. It’s clear from rhetoric on the matter that President Trump is not interested in minor updates to the agreement and tweaks here and there – he is looking for a significant overhaul. Expect this story to stay front-and-center for the months to come.
The Future in Auto is Happening Fast – Did you ever think that Toyota would have a reason to strike a huge partnership with Intel and Ericsson to create a “data ecosystem” for sharing information amongst connected cars? Only two years ago this would have been far-fetched, but now it is commonplace and expected. It has been estimated that the data volume between vehicles and the cloud will grow by 10,000x within the next 10 years, as cars share information to get smarter and make fewer mistakes on the road – something that humans cannot do. Meanwhile, on the efficiency front, the global race to make ever lighter vehicles has led to Japanese suppliers experimenting with a material you would not expect to be associated with cars: wood. Lighter weight is essential for the feasibility of electric cars (so they can travel further on less charge), and Japanese suppliers say that cellulose nanofibers made from wood pulp weigh just a fraction of steel and can be five times stronger.
Japan is Growing, But Debt Remains a Problem – Japan saw a surge in GDP in Q2, having expanded by 4%. This quarter brings Japan’s growth streak to six, which marks the country’s longest streak in 11 years. According to reports, growth was largely driven by solid domestic demand as consumer spending and capital expenditure rose at their fastest rates since 2014. Debt remains a problem, however, Japan’s debt-to-GDP stands at just north of 230%, making it by far the most indebted developed nation in the world.
While the market right now and for the foreseeable future is steady, many investors have been asking us how they can prepare for a market downturn. While volatility is a normal, natural feature of equity investing, the key to preparing for it is realizing there is no way to eliminate it, but many approaches for dealing with it. To help investors prepare for a potential downturn, we have created a just-released guide that will provide investors with tips and tricks for dealing with volatility. To download your exclusive copy, click on the link below: