The Markets – U.S. equities began the month of March with year-to-date gains of 7.41% but since have slipped a bit with a year-to-date gain after the close as of March 9th of 6.07%.
Washington – As we suspected, President Trump will find that he cannot bully his key legislation through both the House and Senate. We are not only seeing that 100% of the Democrats are saying they will not vote for his health care bill, some of the Republicans are indicating they will not simply rubber stamp his proposed legislation either. A big concern is that the President promised a “phenomenal” plan to cut taxes. With that promise the markets have held a fairly steady pace with positive returns. We view the risk of investor disappointment is extremely high.
The Fed – With the recent jobs reports supporting a growing economy, the Fed is expected to raise rates with the market now predicting nearly a 100 percent chance the next raise will occur in March. Going forward with further rate hikes likely, we will have to watch the Fed to glean how they react to Trump.
A deeper dive into what we may expect in the coming months: We anticipate the rhetoric surrounding protectionist trade policies, effects on the labor force, and the cost of goods, will ramp up significantly. It seems Trump is not content to create border wars with our NAFTA partners; Canada and Mexico; he is also willing to poke a stick at China. One example of the danger we face enticing a trade battle with China may be felt by American cotton farmers. China purchases more American cotton than any other country in the world. Although China has quite a bit of cotton inventory, unprocessed cotton has a finite life. The fibers begin to break down as time and Mother Nature take its toll. However, if Trump really aggravates the Chinese, they may slow or halt their purchasing of American cotton, forcing the American cotton farmers to store their cotton. With a relatively short shelf life, raw cotton could waste away and cost the American farmers quite a bit of money. This would force Trump’s hand; either bail out the cotton farmers (no pun intended) or let the industry become devastated. The good news spin here is that as prices in the U.S. go up, Trump would likely tout a rising GDP as gross receipts are bound to increase, at least until Americans refuse to make new purchases. We reckon it is all in how Washington spins the tale.
We close with this: While Trump’s trade policies are important, we must focus on our business and how we manage our business. We cannot get caught up in the politics of the day, or we risk losing clarity on what matters and what does not matter. Even famed management theorist Peter Drucker talked about how a successful businessman can be “wrong about everything else in the future economy or society, but that does not matter as long as they are approximately right in respect to their own business focus.”
Book recommendation: Deep Work by Cal Newport.
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