Darren's Blog

A resource for the thoughts and writings of Darren Brennan

April 2017 Market Commentary


Economic Outlook


There is a lot of economic data that shows an improving economy and I think that the data will continue to trend positive in the near future. However, I think President Trump is getting a good dose of Washington gridlock not only from the Democrats, but also from within his own party. The “business as usual” in Washington may delay the President’s agenda as we recently saw with the Obamacare failure in the House. Republicans now own Obamacare since they failed to repeal or replace it, but I do expect this issue to be resolved towards the end of this year when we will be entering the House election year of 2018. I think Trump is betting that those in the House who stop another repeal effort of Obamacare will have a hard time being re-elected and that will motivate them to pass some type of reform. In the meantime, Trump can now focus on the part of his agenda that should most likely have more impact on the economy and at the top of that list are tax reform and a major infrastructure spending package. I expect a tax relief bill to be passed by the end of summer which should be retroactive to the beginning of the year. I also think that a major infrastructure repair bill could be supported by some Democrats that could help it pass quicker which may get some projects started by the end of the year. Should Trump get these bills passed, I think they will both pay dividends to the economy that could go a long way to jumpstarting the economy and getting GDP back above 3% sometime in 2018. However, if Trump is unable to get much done in his first year, the economy will become more susceptible to recession, stocks will likely adjust to the downside, and interest rates could decline again.


Stock/Bond Report


With the recent turmoil regarding Syria and North Korea, we are reminded that stock markets tend to trend to the downside when there is uncertainty. However, in a stark contrast to Obama, Trump is taking swift military action to show that we will not tolerate the use of chemical weapons. Trump is also living up to his promise to destroy ISIS with the military dropping the largest non-nuclear bomb on an ISIS camp. I think this show of force gives some type of confidence to investors that we may be able to reverse the trend of world terror and that would be good for equities in the long term.



The real interesting asset class of late has been the bond market. The Fed raised interest rates recently but something quite interesting has happened ever since: the yield on the 10-year Treasury note is now lower than it was before the Fed raised rates, which means that, in general, the value of most bonds has risen since the Fed raised rates. This disconnect between the Fed and the 10-year T-note is important to understand since the big fear was that bonds were going to crash when the Fed starts raising rates, but the exact opposite has occurred. This is why I have repeatedly written in these updates that while the Fed is starting to raise rates slowly, that doesn’t necessarily mean that bonds are going to decline in value. The yield on the 10-year bond is really what drives a lot of the debt market interest rates that include loans for cars and homes, and it is critical in setting bond values around the world. So while the Fed raising rates is important, if you are a bond investor, you should be paying close attention to the yield on the 10-year T-note.




Just a Thought




“Never think that you’re not good enough yourself. A man should never think that. My belief is that in life people will take you at your own reckoning.”


-Isaac Asimov


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