Welcome to the weekend!
We continued to see the market move downward this week in context of more volatility. Know there is much more to the story than what we read in mainstream media headlines. The macro-outlook is good with real GDP growing, the labor market continues to surprise to the upside and inflation is low – all positive signs. Stay steady – and, know that a key investing pitfall is allowing emotions drive decisions. This can be costly. Now, on to Steady Investor’s Week…
Trade Boost Coming from Trans-Pacific Partnership? – not so fast, at least for the U.S. Early in the week, 12 member nations got together in New Zealand to sign and celebrate the massive trade deal, but that doesn’t mean the deal is done. That’s because Congress has to review and ratify the final text of the deal, which means agreeing on hundreds of provisions before signing it into law. This ‘ratification period’ will run for two years, and given the election year and general stalemating tendencies of Congress these days, we’ll probably need at least that long. With every trade deal there are winners and losers, but the net impact of freer capital movement across the world is almost always a net positive. Some domestic jobs could be impacted, a tough pill to swallow, and will likely create a political minefield. But, the long-term benefits of open markets and freer trade create efficiency in prices and production costs that ultimately benefit the global economy. We should ratify this agreement.
Will Zika Virus Impact Stocks? – Florida has declared a state of emergency in four areas where people have been diagnosed with the Zika virus. The good news (if you can call it that) is that all cases have been contracted by individuals while in Central or South America….so, the mosquitoes haven’t made the trip yet. The broad equities markets are rarely phased by outbreaks or health scares (even the much deadlier and widespread Ebola virus did not cause a ripple in prices). There’s no need to be bearish, market-wise, despite there being no vaccine for the Zika virus yet. Two pharmaceutical companies have announced plans to try and develop a vaccine including Sanofi (SNY) and NewLink Genetics (NLNK).
Alphabet (Google) is King of the Castle – Google (GOOG, GOOGL) holds the throne now as the most valuable public company in the world. It’s amazing to think that the biggest company in the world, by market cap, is a website with the word “Google” and a search bar. There is much more to the company than that, of course, but it goes to show that hardware or physical goods are not necessary in the new economy to amass fortunes. Ads sell just as well, or even better. Google’s core business saw strong sales of mobile advertising boosting revenue for the quarter 18% to $21B. It has a market capitalization of over $550 billion, just a few billion bigger than Apple, Inc. (AAPL).
(Persistently) Weak Prices in Euro Zone – inflation concerns still reign supreme in the euro zone and the fight continues to nudge prices higher. In a recent blow to that objective, it was reported that the manufacturing and services sectors cut prices in January at the fastest pace in nearly a year. The composite Purchasing Manager’s Index fell to a 4-month low of 53.6 from 54.3 in December. Markets appreciated the European Central Bank’s response, which had ECB President Mario Draghi re-affirming his commitment to doing whatever it takes to return Europe to normal levels of growth and inflation. The fall in crude oil prices is just another headwind to reckon with, but the consumer strength that could surface in the back half of the year should ultimately help.