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We see some near-term downside risks for U.S. equity markets, given that policy uncertainty remains very high, while intense debates inside the beltway with respect to healthcare, taxes, trade, regulation, immigration, and geopolitics, are likely to intensify as Congress gets back to work this week. While the near-term outlook is somewhat murky, we expect markets to scale the ‘wall of worry’ over the remainder of 2017. We continue to give the GOP the ‘benefit of the doubt’ with respect to tax reform and believe that the U.S. market cycle remains solidly in the ‘Early Acceleration’ phase. That said, we recommend allocating capital to investment strategies that generate alpha regardless of the market environment, including our key ‘Cash Usage’ themes.
We release our Earnings Tracker over the weekend during the heaviest weeks of earnings season to review major trends coming out of 1Q17 reports.
Novartis (NVS) hired Bank of America to evaluate a spinoff of the Alcon Eye Care Unit, which may take place by the end of the year.
The ‘Trump Trade’ Fade. The ‘Trump trade’ has clearly faded in recent weeks, including the S&P 500 down -2.6% from its all-time high on March 1. However, we maintain a high level of conviction in our call for the underlying trend in U.S. real GDP to rise from 1.5%-2% to 3%+ over the intermediate term. At the same time, we recognize that many investors do not believe that the growth outlook is going to improve. As such, this note addresses seven common misperceptions that we’re hearing.
While no two accounting related stock ‘blow-ups’ are perfectly identical, history rhymes and serves as guide in avoiding future blow-ups. Indeed, flexibility throughout the grey shades of accounting allows for aggressive managements to achieve desired financial results. Over the coming weeks and months, we plan to highlight various companies experiencing a financial restatement or accounting “blow-up” in recent years. To that end, we’ll explain the timeline of events, key financial statement items impacted, how investors reacted, and whether a proper financial statement review and analysis would have signaled elevated accounting risk exposure ahead of time. Previously, we reviewed the accounting issues and restatement that occurred at Hertz Global.
The most recent companies with a CEO change include: ClubCorp Holdings (MYCC), Axovant Sciences Ltd. (AXON), Wins Finance Holdings (WINS), Mack-Cali Realty (CLI), Advance Pierre Foods (APFH), Schweitzer-Mauduit (SWM), Integer Holdings (ITGR), Alexion Pharmaceuticals (ALXN), Macy’s Inc. (M), HRG Group (HRG), Yahoo! Inc. (YHOO), LKQ Corporation (LKQ), American International Group (AIG), Advanced Drainage Systems (WMS), Weatherford International (WFT), CSX Corporation (CSX), CoreLogic (CLGX), DDR Corp (DDR).
While most investors recognize risks posed by very fluid political and geopolitical situations, the most hotly contested debate in recent months has focused on ‘soft’ economic readings (which are pointing to a meaningful acceleration) vs. ‘hard’ data (which has yet to show a pick-up in growth). We continue to believe that improving sentiment and new order trends will lead to stronger economic growth — as has typically been the case over the past 50 years.
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