Doubts resurfaced around Trump’s ability to pass pro-investment reforms
A coalition of U.S. states and municipalities began legal action against Trump’s administration, saying its delay of energy efficiency standards for several consumer and commercial products violated federal law.
The recent highs in stocks have largely been due to investor hopes around Trump’s campaign promises to cut taxes, ease regulations (especially on financial companies), and increase infrastructure spending (see the ‘Broader Financial News’ section below).
However, with this latest push back against the government combined with the failed healthcare legislation seen less than 2 weeks ago, hopes of broad political support for investor friendly activity have continued to fade which is a negative for stock prices.
Auto sales are weaker than we thought and manufacturing data declined
Auto manufacturers reported worse-than-expected U.S. sales for March. This affects stocks such as Ford (down 1.72%), General Motors (down 3.37%), and Fiat Chrysler ( 4.76). The monthly number, reported as seasonally adjusted light vehicle sales came in at 16.7 million units, below estimates for 17.3 million units.
Auto makers comprise several stocks, and when their stocks are weak this also spreads to related companies such as auto parts and equipment makers.
In addition to the weaker auto data, yesterday the monthly reported ISM Manufacturing index dropped to 57.2 in March versus its previous reading of 57.7, raising concerns around the strength of the US manufacturing sector.
Interest rates fell again
Due mainly to the weaker than expected economic data yesterday (specifically auto sales and manufacturing data, see above), Treasury yields fell to multi-week lows.
Although lower Treasury yields tend to be good for consumers (banks set the rates that they charge you to borrow money off of them based on Treasury rates – i.e. a mortgage), they are often viewed as a negative for financial and bank stocks since these institutions will now be lending out money at lower rates. Financial stocks were one of the weakest market sectors yesterday, dragging down the overall indices.
PM May triggers ‘historic’ Brexit – Reuters
On March 29, Prime Minister Theresa May officially triggered Article 50 of the EU’s Lisbon Treaty and notified EU President Donald Tusk that Britain would be leaving the European Union. This follows the June 2016 referendum vote in which 51.9% of British citizens voted to leave the EU. The Prime Minister now has 2 years to negotiate the terms of Brexit before it comes into effect in March 2019. May’s challenge will be to negotiate with the other 27 EU states on issues such as trade, security, and finance, while also managing renewed calls from Scotland nationals for their own independence referendum.
Trump, conservatives try to put aside bitterness to cut tax deal – Reuters
Donald Trump and the Republican party are seeking to rebound from their defeat on healthcare legislation by launching an overhaul of the U.S. tax code. One of the key features of the current blueprint plan is to cut the corporate tax rate form 35% to 20%, meaning US companies would retain more earnings in order to reinvest in the economy and create jobs. However, cutting taxes is not simple as it results in a loss of government revenue at a time when the budget deficit is already high (around $580bn at the end of 2016 per the WSJ). To counter this, some lawmakers have proposed creating a ‘border adjustment tax’ that would tax imports at 20% in order to offset the cuts, but this will harm many companies and is very controversial on its own. This development will be important to watch as hopes for corporate tax reform have been one of the key drivers of rising expectations for corporate earnings and the increase in stock prices over the past several months.
Blackrock bets on robots to improve its stock picking – WSJ
Blackrock, the world’s largest asset manager, is overhauling its stock picking business and will be relying more on computer models to make investments rather than humans. The changes include job cuts as well as lower fund fees. The move comes as passively managed investment funds, which often charge the lowest fees to manage versus an index, continue to see large inflows versus actively managed funds that aim to beat the market.