Week of June 19, 2017
This week in the markets
Global markets stayed steady during a week where the Federal Reserve behaved as expected and Amazon.com surprised markets with acquisition news. The S&P 500 inched up 0.1%. The MSCI All Country World Index slid 0.5% and the Bloomberg BarCap U.S. Aggregate Bond Index edged 0.2% higher.
The Federal Reserve matched widespread expectations, by raising short-term rates to between 1.00% and 1.25%. They also announced a plan to steadily reduce the size of their balance sheet on the same day U.S. inflation came in just below expectations.
Corporate news included a couple surprises. Jeff Immelt announced he would be stepping down as CEO of conglomerate General Electric (GE). Amazon surprised many by making a bid for troubled organic-food chain Whole Foods.
French parliamentary elections suggest Emmanuel Macron will have a solid majority from which to implement key reforms. The results give Macron some degree of a mandate for moderate reforms and represent additional short-term good news for the European Union.
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:
The Federal Reserve raised its benchmark interest rate by 25 bps to 1.0-1.25% and signaled another increase is likely later this year. The committee now projects the economy to grow slightly faster than its previous forecast, with GDP up 2.2% in 2017. While the markets expected the increase, the recent spate of weak economic data has cast doubts on Fed’s hawkish stance. Fed futures markets now puts the probability for another rate increase this year to below 50%.
GE and Amazon provide a sharp contrast between CEOs of large firms who happen to share the same first name. While Jeff Bezos and Amazon have disrupted multiple businesses and continue to grow rapidly, Jeff Immelt and GE have significantly reworked its portfolio business with little to show in top line growth or increases in stock price. While Jeff Bezos announced a takeover bid for Whole Foods, Jeff Immelt announced he would be retiring from the top job at GE.
Macron’s success in parliamentary elections builds a strong base of support for economic reforms in France as well as the European Monetary Union. Considering Macron’s party En Marche was just formed for this election cycle, its success reflects voter dissatisfaction with the current political environment. Macron’s next challenge is to keep his party together while passing meaningful reforms that will improve France’s economic competitiveness.
Fun Story of the Week
Decades after going off the air, fans of Seinfeld continue to reference the show in their everyday lives. New York’s Attorney General recently gained a guilty plea from a man who had been posing as an architect for several years. The theme of characters making up lies about themselves and then seeing those lies come back to haunt them was a regular theme on Seinfeld. In this case, the New York AG dubbed the investigation “Operation Vandelay Industries” That was the name of the firm George Constanza claimed to hold key roles in on various episodes. Costanza, like the impersonator, said that he always wanted to be an architect or “pretend to be an architect.” I don’t think pretending worked out well in either the fictional or real world.
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S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large and mid-cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.