Investment Insights: Tillerson takes a walk
This weekly report presents insights from our Global Investment Management team.
Just last week we wrote about how Gary Cohn stepped down as the top economic advisor to President Trump. The exodus of White House officials has yet to be stopped.
Trump ousted U.S. Secretary of State Rex Tillerson on Tuesday after a history of public disagreements that culminated with allegations over the poisoning of a former Russian spy in the U.K. Despite Tillerson’s previous partnerships with Russia – he was the director of the joint U.S.-Russia oil company Exxon Neftegas and received the Order of Friendship from Vladimir Putin in 2013 – he butted heads with Trump over Russian relations. Central Intelligence Agency Director Mike Pompeo was nominated as his replacement.
It has yet to be seen if Tillerson’s departure will spark further turnover. Tillerson, Secretary of Defense Jim Mattis, and Secretary of the Treasury Steve Mnuchin were rumored to have made a pact to each resign if one of them was ever targeted by the president. However, at this point a pact seems to be just hearsay. Financial markets appear to be digesting the news fairly well with U.S. stock markets faring better than some international ones. The S&P 500 Index declined 0.63% on Tuesday compared to a decline of 1.00% for European markets, according to the MSCI Europe Index.
Earnings results and a fairly tame inflation release in the U.S. may be helping to buoy prices against declines from geopolitical news. All but a handful of companies have reported and the data seems to be supportive. Sales and earnings for S&P 500 companies grew by 7.68% and 14.31% respectively since last quarter, according to data aggregated by Bloomberg. While growth showed a strong upward trend from prior quarters, companies appear to be beating earnings estimates by less each quarter. However, sales saw a notable jump against estimates this quarter. Growth forecasts for next season suggest further advancement in earnings and a tempering in sales.
The Global Investment Management team continues to review geopolitical events closely as impacts from these changes can ripple outward to key policies like international trade. We believe the markets will remain in their status quo over the short term, but politics and valuations will likely play a greater role in the domestic versus foreign markets story. Another increase in volatility may be in store for investors, but we consider most of this to be just noise when evaluated against the current positive economic footing, market fundamentals, and consumer wealth. As always, our team will continue to monitor the markets for potential opportunities.
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