This was a pretty tame week (it was also shortened, with no trading due to Good Friday), with the major markets in a pretty tight range: plus/minus 0.5%. US and European markets were up 0.5%, Pacific markets were down 0.5%, and Emerging was right in the middle. That said, if you look at things day by day, it was a little bit of a roller coaster with a big up day on Monday and then a big pull back on Tuesday. So what caused all the excitement?
Economic projections in US looking good:
The National Association for Business Economists (how do I get to be a part of this group?) expects good news across the board in the coming years—lower unemployment, real GDP growth in the 3% range, and inflation less than 2%. That’s about as good as it gets, right? Certainly, the jaded investor might look at those projections with a jaundiced eye (I’ll believe it when I see it), but I’ve got to say they seem to ring true.
A major energy revolution is underway where the US is now the biggest oil producer in the world (who would have thought that would be the case ever again?). That’s creating a lot of jobs, potentially giving the US energy exports, and keeping a lid on inflation. Beyond that, there is a ton of amazing innovation out there that seems to be providing great opportunities to keep things moving forward. Of course, these things are impossible to predict, but hearing such a positive endorsement does help. The markets felt the same way, as they all rose on Monday over 1%.
Indiana’s “religious freedom” draws ire:
The news cycle was dominated by the passage of a law in Indiana which has been interpreted as allowing businesses to “refuse to serve” people who go against their religious convictions (i.e., gay people). There’s been a ton of controversy on this one, and rightfully so. Mike Pence, governor of Indiana, has been tracking and backtracking on what the law actually means and allows people to do. Regardless, the business community has come down on the Hoosier state like a ton of bricks.
Many organizations threatened to relocate their conventions away from Indianapolis. Angie’s List put expansion plans in Indiana on hold; Salesforce.com was assisting its employees in moving away from Indiana. Obviously there are moral issues at play here and you may fall on either side of the debate, but from an economic perspective, this is unambiguously bad. Certainly it’s bad for Indiana and its economy, but also for the rest of us. Indiana is home to some great companies (Eli Lilly, DePuy, Zimmer, Johnson Outboard Motors, Weaver Popcorn to name a very few). If consumers forego using their great products because of a reaction to the recent law, that hurts consumers as well. Everyone loses.
Yesterday they passed a “fix” to the law which reserves a lot of the most controversial elements of the original measure, but the perception damage was done. I imagine that the budding Indiana “embargo” and “boycott” will fade away, but this was definitely a bit of a negative for the investing community.
The international community seems to have arrived at a nuclear deal with Iran which limits their ability to develop nuclear weapons and in return eases economic sanctions. On the surface this is an unambiguously positive development. The Iranian market will start to open up to the world so you’ll have 80 million customers buying clothes and food and energy and gadgets and all sorts of other stuff that they couldn’t buy before. Also, it opens up the world to Iran exports, specifically oil which should continue to put downward pressure on energy prices.
That seems like a win-win and I think the markets have reacted accordingly. Of course, there is a risk, best stated by Israeli Prime Minister Benjamin Netanyahu that this deal makes the world a more dangerous place by potentially getting Iran closer to developing nuclear weapons. Clearly, opinions differ among the world’s leading politicians on this one, but if you believe President Obama’s talk track that the protections are in place to prevent that from happening, this news is a nice early Easter present for the investing community.
So that is my take on this week in the markets. For those of you who celebrate Easter, have a great holiday and you’ll see my next post on Monday.