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When the first serious thoughts of an impending Donald Trump presidential election victory may actually come to pass, U.S. stock market futures tumbled.
However, the day after the election, the stock market actually surged upward as financial analysts weighed the possibilities of Trump’s economic proposal on spending to improve U.S. infrastructure. At the same time, the controversial candidate struck a far more benign tone during his celebratory speech compared to his fiery rhetoric on the campaign trail.
Wednesday’s surge was fueled by the banking sector in anticipation of a Trump fiscal policy which would cut back in the restrictive regulation that hit the industry following 2008’s financial fallout.
However, the rise in stocks didn’t end there and continued through the end of the week. By Friday, the market actually enjoyed its best week in five years.
In addition to banking, other financial sectors which saw a rise were commodities, industrials, materials, and pharmaceuticals. Conversely, drug insurers saw their prices tumble. The latter two are a result of Trump likely going after ObamaCare. Also, Hillary Clinton likely would have tried to regulation the drug industry more. Instead, pharmaceuticals and biotech firms may not face such restrictions under a Trump presidency.
The rise in stocks may also be due to oil prices likely remaining low in the near future due to a surplus on the market. In turn, low oil prices may allow consumers to go out and spend more right in time for the upcoming holiday season.
A Trump presidency also may dissuade the Federal Reserve from raising interest rates next month. Trump has been critical of the Fed in the past and that may cause more caution from the Reserve. The continuing low interest rates may serve as a boon to foreign stock markets as well.
Many foreign markets initially tumbled as a Trump presidency becomes increasingly likely. However, his conciliatory tone during his victory speech temporarily calmed such nerves. In fact, many foreign stock exchanges closed on Friday with higher numbers compared to a week ago.
While many still see the months ahead as uncertain, there wasn’t a plunge in stock prices as many had speculated and feared. All that means is the market remains uncertain for the coming months ahead.
The stock market has not known how to respond to a Donald Trump Presidency and has therefore been volatile ever since he was elected on Tuesday.
The volatility began before he was elected; when signs were present that his side was strengthening the stock market dropped and when Clinton seemed stronger the market bounced back. When he won the key mid western states the stock market crashed but recovered the next day.
Now the stock market is accelerating with movements that have pushed it to its best level ever and is coming off of its best week since 2011. While there are many doubts as to the impact that his presidency will have on stocks, people are taking in the good and reducing the chances for the bad.
The good for stocks are proposed tax cuts to corporations which will reduce the tax burden. Trump is proposing dropping the corporate tax rate to 15% from 35% which will lower the tax burden on companies and increase their net incomes. Further, President a Trump is proposing a one time foreign profit repatriation at a ten percent tax rate. Companies like Apple have significant amounts of money overseas that they have as yet been hesitant to repatriate due to a 35% tax rate when they do. These moves would move the United States corporate tax rate from the highest to the lowest in the developed world and is seen as a positive for stocks. Further cuts for individual tax rates is thought to further demand growth.
The negative would be the impact of trade wars on the United States if protective tariffs were implemented by Trump, which he repeatedly promised during his election campaign trail. These promises would provide for a risk of higher prices for consumers and would risk the United States economy spiraling downward.
For now, however, the stock market has taken the news of a Trump presidency remarkably well and has led to the aforementioned gains. Of course, Trump has not been sworn into the Presidency yet and the actual policies that he will implement have not been fully fleshed out or understood by the stock market. What the long term impact of Donald Trump’s policies will be for stocks will not be fully understood for years to come.
Commerce contributes massively to the success or failure of an economy. Retail sales absolutely play a huge role in the various economic ups and downs. Many retail stores positively enjoy selling gift cards. Gift cards are, essentially, reflective of money committed to make a purchase at a particular store. Some in the financial world, however, think gifts cards should not be purchased. They may help the retail stores immensely, but they can cause problems for the consumer. How so? They can be deemed a “waste of money”.
One major reason why people shouldn’t buy gift cards is that — not surprisingly — the cards are never used. Since the cards have been bought, the retailer gets a nice sum of money in advance on products never purchased. For the retailer, this is nothing but pure profit. Actually, it is more than just a profit. Consider the transfer of money, ironically, a gift.
Those who buy gift cards probably need the money more than the multi-billion dollar retailers who issue. Yet, if the person who receives the gift card chooses not to use it, then the retailer can hardly be blamed for “taking” the money.
On a side note, imagine the volume of gift cards that end up lost. Whatever their numbers, the lost cards create a financial boom for retailers.
Rather than giving a gift card, it may be far wiser to simply plan out what perfect gift to purchase for the intended recipient. Money earned is precious and shouldn’t be wasted or put at any risk of being wasted. Gift cards are a nice and easy to procure and they do cut down on having to search for a gift. Still, gift cards do come with problems such as the aforementioned ones. Additionally, the gift recipient may end up spending money through using the gift card as a down payment on a more expensive purchase. Why give a gift that leads others to spend money?
Gift cards are not inherently bad, but they are rife with problems. Avoid the problems by purchasing a traditional gift.
A large portion of the country is seeing rental prices for homes increasing. Home ownership rates across the country, meanwhile, are steadily decreasing. Now you may think this trend signifies a bad economy. To an extent it does. There are a number of factors underlying that I will attempt to explain below.
The drop in home ownership is due to a poor economy. Weak economic growth means fewer people can afford to own homes. The increase in the rental price of a home is caused by two factors. The first is supply and demand. In many metro areas, there is a strong demand for home rentals. Supply in many cities is limited. A high demand and a short supply raises prices on the homes in numerous metro areas in the United States.
There is also another factor at work in driving rental home prices up. Many younger people and couples cannot afford to take out a home loan. As they outgrow apartments, they naturally look for single family homes. Unable to secure a mortgage, many younger people opt to rent a home instead. Reasons why the younger generation goes for renting a home instead of buying includes a high student debt and low credit scores.
The booming home rental market in some segments is creating highly profitable assets for the homeowners. Many of the homeowners now, are not people. They are institutional investors. What this means is that they could be banks, realty groups or other investor groups. So many people now rent from a company or institution, instead of a person.
Here are some numbers that show just how much rental prices are increasing for single family homes. Cape Coral, Florida, saw the price of its rental home market increase by more than a quarter in just over a year. Imagine, if you paid $2000 a month, you suddenly end up paying $2500 a month, a year later.
The states of California and Florida had 10 of the 25 biggest increases for metro areas when it comes to home rental prices. Other notable cities where rent is expected to increase and that have a high rate of return include Grand Rapids, Syracuse, Pittsburgh and Shreveport. All of these cities have returns of about 15% as an investment from a rental home. These figures show that rental homes can be a very lucrative investment.
Gas prices are low, the economy finally seems ready to take off, and the international market appears relatively stable, at least for the moment. The Fed is poised to raise interest rates. Existing red flags such as Brexit, the Chinese economy, ongoing Middle Eastern instability, and the U.S. election cycle just don’t seem that threatening. So what are the professional worriers (pardon me, the “bears”) worried about the most these days? That’s right, the lack of worry. In fact, many are starting to use the exact same word to describe the current financial climate: complacent. Everyone Has Started Using the Same Word
What’s wrong with this? Not worrying enough makes us more vulnerable to the next economic catastrophe, of course. We were complacent in 2006, 1999, and especially so during the 1920’s. But worrying too much isn’t productive either. It paralyzes investment and risk taking, which form the basis of capitalism. Worry about the lack of worrying is spreading. The man who accurately forecast the 2007 economic crash, Kyle Bass, has also predicted one in Japan – every year for the last five years. One prominent equities figure warns that “investors should make sure their seat belts are fastened.” The head of Franklin Templeton Solutions, Rick Frisbie, demonstrates how this concept is actually institutionalized with the saying, “when the CBOE Volatility Index is low, it’s time to go.”
So where’s the sweet spot between too little versus too much worry? That’s what our economy is designed to find. That’s why incentives and disincentives exist for both bulls and bears. When both groups are pursuing their goals according to their beliefs, a natural balance is achieved. Adam Smith’s theories are born out. Life is good. When one group gains too much ground on the other, imbalance occurs. The economy suffers either stagnation or over-inflation, or worse yet, stagflation. Life is not good.
Are we worrying enough about the economy right now? Or too much? The only thing I know for sure is, I’m not worried about it. And please don’t worry about my lack of worry.
The current return to life of the country’s economy has made many consumers hopeful about the job market. For the first time in many months, buyers now enjoy the moderated house prices. They can also afford to boost their household wealth by a larger margin, which was not possible a few months ago.
An economist at TD Securities in New York indicates that the current changes are clear indications that the country’s economy is bouncing back to its glorious days after faltering in the first half part of the year. Reports from the Conference Board reveal that the consumer confidence index rose significantly this month. There was an impressive increase in the index by 4.4 points from 97.0 to 101.1, which is the highest to be recorded since September last year. Also, the consumer scrutiny of the job and business market increased showing a lifted confidence.
The studies, which are known as market differentials, are done on respondents who think jobs are hard to get and those who think they are easy to get. The reports resonate with economists’ views that the US job market is plentiful. According to the economists, there is expected increase in employment rates in the August report, which is scheduled to be released on Friday. There is expected increase in job gains up to 215,000.
Another survey done a few days ago showed positivism in consumers’ attitudes towards the country’s economic situation. The dollar finally gained its superiority against a number of currencies and the prices of the government debt decreased. The stocks were trading lower as Apple’s shares experienced a free fall after the company was ordered by the Irish government to pay its back-dated taxes amounting to $14.5 billion.
The rising confidence is also associated with the strong consumer spending in residential properties. However, the streaming reports that seem to show the country’s solidifying economy could mean increased interest rates despite the benign inflation rates experienced. Even with the increase in consumer confidence and intentions to express themselves freely in the market, the US central bank should develop stringent mechanisms to put the interest rates at a steady position.
The majority of the controversy surrounding Brexit seems to be winding down in the major sense as both sides have been moving to accept the reality of the situation. In an effort to move forward, many people are wondering what Brexit might mean financially as it has left many ambiguities up in the air.
First of all, Brexit actually has to be legally set forth. The problem with this is that the legal framework set up by the Lisbon Treaty is not specific in how the UK should go about creating its exit. This problem has lead to a standstill in negotiations, as it is not clear if the Prime Minister or Parliament should rule on Brexit. Due to this fact, there is a lack of financial security as Brexit remains to be set in stone. The longer it is delayed the more insecure the situation becomes as people try to predict the outcome.
A major problem with Brexit is within the banking sector, which has been highly integrated into the EU common market. When the UK leaves the EU, these banks will have to move to meet new legal standards to continue trading within member states. This means that the fastest banks to meet these standards will end up ahead of those who cannot make the cut, ultimately leaving some behind.
The banking problem highlights a larger issue in which the EU will have to carve out new trade deals in general within a new independent system.
Donald Trump isn’t only a presidential candidate. He’s a multi-billionaire real estate investor. But, he’s not considered to be a stock market guru, unlike his political and business critic Warren Buffet. What Buffet advised is not to listen to Trump- whatever he says.
Buffet is recognized as one of the best investors ever. And he said that throwing darts at stock pages would result in better returns than listening to Trump.
Still, Trump has some advice to stock market investors: Stay away. So far, he has warned investors of some very scary scenarios. So, it’s better to dump stocks, he thinks. “The only reason the stock market is where it is, is because you get free money,” said Trump.
In the past, the presidential candidate has criticized the Federal Reserve Bank for keeping interest rates too low. According to “CNN Money,” Trump has less than 10% of its net worth in the stock market.
So, to whom should investors listen? For real estate investing, they may listen to Donald Trump. After all, that’s his area of expertise. For stock market advice, it may be better to listen to Warren Buffet.
However, investors need to take into consideration that Buffet is a long-term investor. Also, the stock market valuations are high at present, while there’s economic uncertainty. And that goes against the advice to buy low and sell high.
There’s a fallout when it comes to the shares of the European banks. None of it took place at once, but on a continuous basis over the past few months. So far this year, some of the major European bank shares have lost nearly half of their values, reports “CNN Money” in a recent article.
Among the biggest losers are Allied Irish Banks, Barclays, Credit Suisse, and Deutsche Bank. Especially surprising is the downturn in Deutsche Bank’s shares. After the 2008 financial crisis, it seemed that this huge German bank is well positioned. But, since March its shares are down from $20 to $12, a 40% decline.
These declines are partially due to the upcoming “stress tests” at 51 of the biggest European banks. These tests are intended to show whether banks have enough capital to withstand financial shocks. And it doesn’t seem that many banks are well positioned for another economic shock.
“The banks are poorly capitalized. They still have bad assets on their balance sheets, like bad loans,” states Diane Pierret, finance professor at University of Lausanne. She claims that 29 out of 51 banks would fail these tests if they were done with the American standards.
Pierret estimates that these banks need to raise around $130-140 billion to recapitalize themselves. The Italian banks are especially in precarious position. Their bad loans are piling up.
Many finance experts and academic research reports claim that share buybacks are a great way to raise shareholder value. After all, these buybacks reduce the number of outstanding shares, thus leading to higher earnings per share. However, a recent Goldman Sachs analysis revealed that stocks with the highest buyback yields (based on four-quarter yields) have underperformed the S&P 500 Index. What makes it even worse is that some companies acquired debt to finance these share repurchases.
The reason for this underperformance, claims “MarketWatch,” is that during periods of slow growth these companies don’t provide their shareholders with consistent dividend yields or prospects for future growth.
Based on recent data, investors are rewarding companies that offer high dividends for shareholders and/or high capital expenditures to stimulate future growth. Meanwhile, buybacks are no longer rewarded as much. In fact, they seem to be penalized by investors.
“Weakening balance sheets and rising interest rates also imply that the ability of firms to repurchase shares by issuing additional debt will diminish,” claims Goldman Sachs report.
This is, indeed, an interesting study, which also puts into question the old wisdom that share repurchases are good for shareholders. Many companies may begin to question buybacks. It is estimated that there are $150 billion outstanding in authorized buybacks which weren’t executed yet.
Share repurchases can be beneficial if the company has plenty of cash and not many good opportunities to pursue, especially in a market with high valuations. But, acquiring debt to buy back shares from investors can backfire in higher interest costs and reduced earnings, and all on top of increased risks.