For traders and investors, the political climate has been unlike anything we have ever seen in recent times!
There are plenty of opportunities if you know where to look. I will help to bridge the gap between Washington and Wall Street, finding you the best stock plays being driven by politics.
- The Federal Reserve increased its short-term interest rate by a quarter of a percentage point and stated that economic growth has been “rising at a solid rate.”
- The Federal Reserve indicated that two more rate hikes are likely in 2018 followed by three in 2019
- A consortium of domestic banks passed the Federal Reserve’s stress test that was more rigorous than last year’s criteria
- The banks are well capitalized and positioned to withstand severe economic conditions under high unemployment, housing depreciation, and credit defaults
- Banks are in a position to release largess to shareholders via an increase in dividend payouts, share buybacks, and more unobstructed risk appropriate growth
- Wells Fargo (WFC), Citigroup (C), Bank of America (BAC) and J.P. Morgan Chase (JPM) received approval for their capital return plans while Goldman Sachs (GS) and Morgan Stanley (MS) received conditional approval
Rising Interest Rates:
Back in March, the Federal Reserve expected the economy to continue to strengthen and inflation to rise shortly. The economic strength coupled with inflation telegraphed an environment that was ripe for more interest rate increases over the near term. This economic backdrop has gained momentum, and the Federal Reserve recently increased interest rates by a quarter percentage point and indicated that two more increases are highly likely in 2018 for a total of four this year. The consensus from the committee was perceived as very bullish on the domestic front and that the Federal Reserve will continue on its path of rising interest rates along with higher inflation expectations. In March, the committee stated that “tax changes enacted late last year and the recent federal budget agreement, taken together, were expected to provide a significant boost to output over the next few years” and more recently economic growth has been “rising at a solid rate,” unemployment has “declined” and household spending “has picked up.” The committee sees economic growth hitting 2.8 percent for the full year followed by 2.4 percent in 2019. The committee also indicated it continues to expect three more rate hikes in 2019. "The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with the sustained expansion of economic activity, strong labor market conditions and inflation near the committee's symmetric 2 percent objective over the medium term." Provided this backdrop of positive economic commentary, financials such as Goldman Sachs (GS), J.P. Morgan Chase (JPM), Citigroup (C) and Bank of America (BAC) are poised to benefit as a result. Continue reading "Stress Test Success and Rising Interest Rates"