What Will Happen Next
Financial Review by Sinclair Noe for 02-16-2018
DOW + 19 = 25,219
SPX + 1 = 2732
NAS – 16 = 7239
RUT + 6 = 1543
10 Y – .01 = 2.88%
OIL + .31 = 61.65
GOLD – 6.10 = 1348.20
I am glad it is Friday. There has been an overload of news this week. Consider, there are reports back in 2006, Trump had an extra-marital with a Playboy Playmate, and that hush money was paid before the 2016 election. No, this is not Stormy Daniels, the porn actress, this is different. Ten years ago, or 20 years ago this would have been a huge story, now it barely gets a mention.
Let’s start with Wall Street.
One week from one of the most disastrous weeks of stock market trading, including two quadruple-point drops in the Dow, one of which was the index’s biggest point-drop in history, Wall Street squeezed out a gain on Friday to end higher for a sixth straight session. The Dow rose 4.25 percent for the week, its strongest weekly gain since November 2016. The Nasdaq rose 5.31 percent for the week, its best week since December 2011. The S&P 500’s 4.3 percent gain for the week was its biggest weekly advance since January 2013. It remains down nearly 5 percent from its record high on January 26. Today was a wild ride, again (more on that in a moment).
So, what’s changed in that amount of time? Have there been Q4 earnings reports or economic data that have helped investors change course directly? No — not even close. If anything, the initial fears of heavy inflation hitting the market following the January non-farm payroll report two weeks ago have been nothing if not somewhat justified.
This week, we saw both the Consumer Price Index (CPI) and Producer Price Index (PPI) reads come in hotter than expected, indicating inflation has already begun to seep into the economy. Retail Sales fell in their latest report, though prices for things like gasoline spiked. (There’s a reason gasoline prices are stripped from the “core” read, however: they are historically more volatile, as are food prices.)
The dollar limped back from a three-year low against a basket of currencies on Friday but still marked its fifth weekly loss out of seven weeks this year, driving the euro up to its highest level since December 2014. The CBOE volatility index .VIX, known as Wall Street’s fear gauge, moved back above 20, but remained way off the 50-point level it hit during the peak of the sell-off. Coca-Cola rose 0.5 percent after the company reported better-than-expected profit and sales as it sold more teas, coffees and vitamin water. Among the big decliners was Kraft Heinz, which dropped 3.7 percent after quarterly profit and sales missed analysts’ estimates.
For today’s contribution to the macro picture, Housing Starts for January ramped up 9.7% from a -6.9% read in December, and more than twice as hot as the +4.2% we had been expecting. Building Permits, a forward indicator on future Housing Starts, reached 1.396 million, up 7.4% — higher than the 0.8% expected and from the previous month’s (slightly revised lower) seasonally adjusted annualized units.
Also, Import/Export Prices came in hotter than expected as well: 1.0% on Imports (+0.6% was expected) and 3.4% on Exports. Subtracting petroleum prices for Imports, that figure remains higher than expected at +0.5%. Year over year, Imports are up 3.6%. Yet more indicators that inflation is clear and present in today’s economy, and no longer something theoretical to consider for some other day.
And in a separate report, the University of Michigan said its consumer-sentiment index rose to a reading of 99.9 in February, up from 95.7 in January and the second-highest level in 14 years. There were big gains in both the current economic conditions and the expectations indexes.
In Washington today – a federal grand jury has indicted 13 Russian nationals and three Russian entities for allegedly meddling in the 2016 presidential election, charging them with conspiracy to defraud the United States. In addition, three defendants were charged with conspiracy to commit wire fraud and bank fraud, and five defendants with aggravated identity theft. The grand jury had been empaneled by special counsel Robert Mueller, who is investigating Russian interference in the 2016 election as well as any possible connections between Russia and Trump campaign associates.
Deputy Attorney General Rod Rosenstein said, “The defendants allegedly conducted what they called information warfare against the United States, with the stated goal of spreading distrust towards the candidates and the political system in general.”
According to the indictment, beginning as early as 2014, the Russian organization Internet Research Agency began operations to interfere with the US political system, including the 2016 elections. The defendants allegedly posed as US persons, created false US personas, and operated social media pages and groups designed to attract US audiences. The Internet Research Agency had a “strategic goal to sow discord in the US political system” including the election, according to the indictment.
Deputy AG Rosenstein in his announcement today said that the indictment does not contain any allegations that any Americans knowingly participated in the activity. Russians posted “derogatory information about a number of candidates,” and by mid-2016 they supported Trump and disparaged Democratic candidate Hillary Clinton. They bought ads and communicated with “unwitting” people tied to Trump campaign and others to coordinate political activities. Specifically, Rosenstein said, “There is no allegation in this indictment that any American was a knowing participant in this illegal activity,” he said. “There is no allegation in the indictment that the charge conduct altered the outcome of the 2016 election.”
Stocks had been rolling along earlier in the day. The Dow Industrials were up over 200-points. When the indictments were announced, the Dow turned negative. The S&P 500 had been up over half a percent but lost much of that after the announcement of the indictments. Then when Rosenstein talked, the Dow recovered slightly. The White House issued a statement that there was “NO COLLUSION” There is some legal-speak going on there. Rosenstein did not exonerate Americans or the White House, he just said that there are no allegations in “this indictment” – and he certainly did not say this is the only indictment. It could very well mean that Mueller has not, or will not, find any evidence of U.S. persons knowingly conspiring with these efforts. Or, it could mean there’s more to come. What remains unanswered is whether the Russians had U.S. help. The language in the indictment doesn’t mean the only people involved are these unwitting ones.
The indictment is the most complete set of allegations offered by the government yet about one subset of Russian interference, going far beyond an intelligence community report released in early 2017. At its peak, the alleged conspiracy had a budget of more than $1.25 million per month for activities in the U.S. and elsewhere. The indictment also stands as an implicit rebuke to President Trump, who has repeatedly refused to acknowledge the Russian role in the election, saying many actors may have been involved. He has also rejected the idea that any interference might have aided him. His rejection puts him at odds with the entire American intelligence establishment, which has concluded that Russia interfered. On Tuesday, top officials, many of them Trump appointees, reaffirmed that stance and said Russia would also seek to meddle in the 2018 election.
The allegations contained in this indictment, returned by a federal grand jury in Washington, D.C., do not reach the most politically contentious questions in Mueller’s view. This indictment does not deal with collusion, or obstruction, or money laundering, or tax evasion, or the hacking of emails. What the indictment does is to lay the foundation that crimes took place. The indictment clearly states that Russia intervened in the election. This is not a hoax. When the intelligence community has previously leveled that charge in the past, it has offered only vague evidence. That allowed skeptics of the intelligence agencies, as well as Trump and his allies, to cast doubt on the claims. Today’s indictment contains far more detail, and while its contents are allegations, not claims proven in a court, they are bolstered by extensive documentary evidence, including emails and messages. Much of the material has been reported in various news outlets, but the indictment puts it all in one place for the first time.
Still to be determined is who knew what, when and whether they became involved wittingly or unwittingly, and if they attempted to cover their involvement. More indictments will follow – this does not represent the end of the investigations.
And all this happening in a week that saw one of the deadliest school shootings in US history, at a high school in Parkland, Florida. The Boston Globe had the best front page coverage – it read: “We Know What Will Happen Next.”