With four vacancies on the powerful seven-member Fed board of governors, its seems change is inevitable for the federal reserve. Such changes will be critical to monetary policy and the economy, and will be impactful to markets in the next several months. So, what can we expect. Get all the details in this week’s edition of Steady Investor’s Week…
Shakeup at the Federal Reserve – Fed-watchers were surprised this week when Vice Chairman Stanley Fischer announced he would step down in mid-October, for family health reasons. His resignation means that there will be four vacancies on the powerful seven-member Fed board of governors, which includes the seat of current Fed Chairman, Janet Yellen. The decision to nominate Fed governors falls on President Trump, meaning he will have the ability to set the tone for the types of thinkers and policy-makers that will come to dominate the Federal Reserve. So far, President Trump has only nominated one candidate, Randal Quarles, a private-equity executive who served in the Bush administrations. The markets will be watching closely as President Trump essentially remakes the Fed, and the challenge for the administration will be managing leadership turnover without roiling the markets.
Who Will Become the Next Fed Chairman? – this question is a critical one on the minds of all market and Fed-watchers, Zacks Investment Management included. Janet Yellen is a notorious dove, meaning she generally has a preference of favoring growth conditions at the potential expense of inflation. In other words, she’d prefer to keep rates lower for longer, if possible. Candidate Trump was quite critical of Ms. Yellen, stating that she kept rates artificially low to help Democrats during the Obama years. Since becoming President, however, Mr. Trump has stated he is impressed with Ms. Yellen and that she may keep her post. If President Trump does not nominate her to remain Chairman of the Fed, Ms. Yellen would be the third Fed leader since 1934 to serve only one term. For some time, it was expected that Gary Cohn, Chief Economic Advisor to the President, would take the reins as Fed Chairman, but the Wall Street Journal reported this week that his candidacy is all but dead following his critical remarks of the President after Charlottesville. All of these decisions surrounding who will lead the Fed are critical to monetary policy and the economy, and will be impactful to markets in the next several months. Stay tuned.
Using Trade as a Stick Against North Korea – the United States is growing increasingly impatient with North Korea’s rhetoric and accelerated weapons testing, and is urging the U.N to impose an all-out oil and textile embargo against them to cripple their economy even further. China and Russia have U.N. votes and may nix the deal, and if they do U.S. Treasury Secretary Steve Mnuchin said he has an executive order ready to impose penalties on any country that trades with North Korea. This course of action could be a slippery slope, as it implies we would penalize China who could in turn retaliate with trade penalties of their own. Depending on the scope of each country’s actions, there could be significant supply chain disruptions which could in turn affect the trajectory of Q3 earnings.
NAFTA, Take Two – round one of NAFTA negotiations were tense and uneasy, but all nations appear intent on moving the deal forward in a modernized way. On the table for negotiation are rules of origin issues, arbitration, and modernization to account for e-commerce issues and other pre-internet terms that were put in writing 23 years ago. The Trump administration has threatened to leave the deal if the U.S.’s conditions are not met, but that could potentially be catastrophic for many major U.S. corporations that do business with Mexico. Canada and Mexico have announced publically they will remain in the deal even if the U.S. leaves.
With questions circling about the future of the Fed and NAFTA negotiations laying in limbo, now the question becomes, “what should you as an investor do about this?” To help our clients prosper in this market landscape, Zacks Investment Management has just released a fresh Market Strategy Report. This report suggests where you might look to invest and where NOT to invest during these market conditions. It spotlights two shining sectors that according to the Zacks Industry Rank are the major drivers of added earnings growth. The report also discloses sectors that should be approached with caution. Get the inside scoop by downloading your copy today – simply click on the link below: