Here’s the news of the week – and how we see it here at McAlvany Wealth Management:
Stocks Pause to Digest Trump Proposals
Due to scheduling issues, we’re providing the MWM weekly recap on Thursday, April 27th rather than Friday the 28th.
World stock markets gapped higher on the news that French parliament member Marine Le Pen had successfully advanced to the second round (May 7th) of this year’s French presidential elections. What initially confused me was that frontrunner and globalist/centrist Emmanuel Macron, who leans more towards status quo with the EU, had beaten Le Pen rather soundly. I therefore thought that stocks were getting it wrong until I saw a few of the more recent polls that showed Le Pen leading by a margin of 10% or more in the early second-round debates. The market had it right after all, as it appears that France may be on course to join the UK and the US in another anti-establishment vote. That will not likely change much about the fragile state of France’s fiscal and/or economic condition, but I believe it will restore some order to the social/legal fabric of the nation – as it has here in the US. That said, it’s understandable why stocks would rally – even if it’s entirely on a “feel-good” basis.
In any case, the rally in stocks continued with many indices breaking into new highs as the markets began to look ahead to the release of both a revised Obamacare plan and a tax package by the Trump administration. Upon release, stocks began to sell the news a little, with very little change at last look on Thursday. I won’t cover the details of each proposal, as we have posted what we can on the front page of our website, but it should be noted that conservatives are having trouble once again saying yes to the healthcare proposal, while the tax plan faces some scrutiny over how a 15% (revised from 35%) corporate tax rate in addition to healthy cuts for individuals will be funded in the absence of government spending cuts. I also found it interesting that the tax plan calls for a one-time tax (the percentage was not disclosed) on about $2.6 trillion in earnings that U.S. companies have parked overseas.
Away from stocks, Treasuries rallied along with other sovereign debt (ex Japanese government bonds) while the US dollar rose on the aforementioned news. Crude oil fell, as did the broader group of commodities, which are now well below their Trump-induced highs for the year. I’ve said this before, but the poor showing in commodities suggests that a contraction rather than an expansion has been or is now underway in the US economy. That, along with a ho-hum earnings season, has not mattered to stocks just yet.
Turning back to the action, the metals saw some more profit taking. Though gold held to technically sound areas on the chart, silver dipped into bearish mode with a move just below its 100-day moving average. I don’t have a crystal ball on how next week will look, but I imagine that, with many of these events having already been expected and thoroughly discounted, we should begin to see better things for the metals and a return to more corrective undertones for stocks as we move forward – though I would qualify that prognosis with the word “gradual.”
VP Investment Management