Stress Test Success and Rising Interest Rates

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"

Tariffs Inducing Market Headwinds and Risks

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.

  • Trump has been in a back and forth tariff battle with the Chinese for months and now has indicated that the EU may be subject to tariffs
  • This is creating a tit for tat trade war between the world’s two largest economies, the United States and China
  • As these trade war exchanges between the U.S. and China, in particular, unfold, world markets have experienced increased volatility
  • Multinational companies are starting to voice concern that these trade fears are becoming the most significant risk to their respective businesses
  • Multinationals just as 3M (MMM), DowDuPont (DWDP), United Technologies (UTX), General Electric (GE), Boeing (BA) and Caterpillar (CAT) have been under weakness as the tough trade rhetoric continues

Trade War Rhetoric Heats Up

Reports indicated that the Trump administration planned to block many Chinese companies from investing in domestic technology and block additional technology exports to China. It was reported that the administration was drafting rules that would apply to companies with at least 25% Chinese ownership from buying companies involved in "significant industrial technology." Despite these reports, Peter Navarro, a top trade advisor, said the market was overreacting to fears the administration would restrict foreign investment as part of its trade actions against China and other countries. "There are no plans to impose investment restrictions on any countries that are interfering in any way with our country. This is not the plan," he said. He insisted that markets were taking the wrong message from the reports, stating, "I would say more broadly I think today's market reaction is a very large overreaction," Navarro said. "What we have here with Trump trade policy is a tremendous success for this country and this market. It's very bullish." Going further, Treasury Secretary Steve Mnuchin stated that all of President Trump’s advisors were unanimous on the Chinese investment restrictions and that any mixed messages were unfortunate. Hence, part of the uncertainty that corporations and foreign governments are voicing concern. Continue reading "Tariffs Inducing Market Headwinds and Risks"

Don't Miss This Week's Political Play

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. Our analyst, Noah Kiedrowski, will bridge the gap between Washington and Wall Street, finding you the best stock plays being driven by politics.

See all of Noah's Traders Blog posts.

Sneak Peek - In the Current Issue:

Companies are aiming to strike transformative acquisitions in light of one of the most pro-business administrations in recent history.

Noah Kiedrowski reviews three potential billion-dollar acquisitions that could set off a chain reaction of consolidation for industry giants and drive up the share price of a handful of stocks.

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While it’s nothing new, traders often discount the connection between political actions and their financial reaction.

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