There was big news over the weekend of a government shutdown. Historically, this type of event has had a low impact in the markets. The last shutdown in 2013 lasted 16 days. Our economy is a lot stronger now than it was in 2013. It’s important to know that the shutdown only affects 15% of the government while 85% will still be working. This week the market will most likely be concentrated on earnings and the 4th quarter GDP report being released on Friday. Are expectations on earnings too high or will guidance become stronger because of the tax reform? These are the types of questions we might see with all that’s going on.
A topic that will become very relevant is if interest rates will go up. Janet Yellen is quickly approaching her last meeting with the Fed. Also, in relation to the weak dollar, dialogue will begin to form around the impact on companies that have international operations. This could prove to be a positive for them. The discussion revolving around interest rates rising could have more of an impact on markets than the government shutdown talks.
This year, for the first time since 1970, the US will have more oil output than Saudi Arabia. This could completely change the political dynamics with the Middle East. This data could prove positive for shale gas producers.
One thing often overlooked is the supervisory role that the Fed has on the country. Last week, Randall Quarels’ comments showed that this will be much more of a deregulated climate from the Fed versus 10 years ago. What this means is that banks can lend more money, leading to companies not keeping as much of a reserve. In turn, this could lead to growth and strength in the economy.
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Economic forecasts set forth in this presentation may not develop as predicted.
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