Eyes were on Singapore as President Trump and Kim Jong Un discussed the future of North Korea’s nuclear program. The summit was big on fanfare but small on details, with the North Koreans making promises made in the past. But, while all that was happening, there were three underappreciated stories I think could have a significant economic impact.
A crowded news cycle can overshadow events that affect business, investment, and earnings. In my view, it’s not the widely-telegraphed stories that move markets – it’s the impactful stories that few talk about.
AT&T and Time Warner Merger
The decision to allow AT&T to acquire Time Warner paves the way for what could be a merger-frenzy in the telecom and media space. Following the merger, we saw signs that Comcast could try to swipe 21st Century Fox from Disney while also eyeing Sky Networks. Now, as the ‘table is set’ for a more hands-off approach to vertical mergers, we could see increased activity in the healthcare sector where big insurers like Cigna and Aetna are eyeing retail pharmacies and pharmacy benefits managers toward owning more links in the healthcare services chain.
$50 Billion in New Tariffs
The tariffs story is, arguably, difficult to follow. It seems every week there’s a new announcement one must research to determine if it’s a tariff threat or an actual tariff. In the days following the North Korea summit, while pundits were weighing-in on the impact of the meeting, the Trump Administration followed-through on a 25% tariff on 800 “strategically important imports from China,” to go into effect July 6. China retaliated with 25% tariffs on 659 US products ranging from soybeans to autos to seafood.1 In our view, these tariffs are still not of the magnitude to derail global economic growth, but if the duty wheel keeps spinning with new tariffs and more retaliation there could be real economic harm. It’s important, in our view, to analyze how individual companies’ and sub-industries’ earnings could be affected.
Federal Reserve Raises Interest Rates
It was widely expected when the Federal Reserve raised interest rates on June 13, but the hike still received sparse media attention. Perhaps it should have as Federal Reserve Chairman Jerome “Jay” Powell’s comments were overwhelmingly positive and plain spoken. This type of candor is not what we’ve come to expect from the Fed which is notorious for boring audiences with complex analysis. Jay Powell made his message clear: “the U.S. economy is in great shape” and “most people who want jobs are finding them.” The Fed expects two more interest rate increases this year.2 This, along with the potential for rising goods prices given tariffs, is key to note as the crosscurrents could affect growth and earnings, in our view.
Bottom Line for Your Clients
Several years ago, a “gorilla experiment” was conducted where three basketball players in white shirts and three players in black shirts passed a basketball back and forth. The experiment asked viewers to count how many times players in white shirts passed the ball. The answer was 15. But, another (the real) question was: “Did you see the man in a gorilla costume walk smack into the middle of the game?” Astonishingly, 50% of viewers did not!3
Human intuition is far from perfect. We’re often distracted by events that hoard the spotlight and miss the stories that, perhaps, should play a larger role in our decision-making. The takeaway: look past the headlines – that’s where you’re more likely to find stories that move markets, in my view.
– Mitch
PDF – 3 Events that Could Move the Market
1 Reuters, June 15, 2018, http://advisor.zacksim.com/e/376582/ing-strikes-back-idUSKBN1JB0KC/3r4hb/60335863
2 The New York Times, June 13, 2018, http://advisor.zacksim.com/e/376582/rve-raises-interest-rates-html/3r4hd/60335863
3 NPR, May 19, 2010, http://advisor.zacksim.com/e/376582/ry-story-php-storyId-126977945/3r4hg/60335863
Leave a Reply