Geopolitics Takes Center Stage

Geopolitics Takes Center Stage

Last week closed flat as early week concerns over inflation and missed earnings in Caterpillar (attributable to increased steel costs) were offset by large earnings surprises coming out of the technology sector. The S&P 500 ended the week at 0.00% while the MSCI World Stock Index ended down -0.11%.

Korean Peace Talks

Positive news came out of Korea as leaders Kim Jong-Un and Moon Jae-in attempt to seek a formal ending to the Korean War, which ended in a joint armistice between China, the US and the Koreas. Hopes are high for unification of the Koreas and a denuclearization of the Korean Peninsula. There appears to be talks of increased economic cooperation going forward. The Wall Street Journal posted an article on 04/25/18 suggesting a collapse in North Korea’s nuclear testing site following an earthquake which may have rendered it inoperable, thus creating motivation for the Northern denuclearization talks in return for economic relief. This story hit broader news sources but the impact of the earthquake on the site has since been brought into question.

Russia

Russian markets have partially recovered since we reported on the 8% drop in the market two weeks ago. This is, in part, due to a softening stance on US sanctions. The Russian central bank is maintaining their benchmark interest rate at 7.25%. Aluminum prices have been stabilizing as the global supply is adjusting and the timeline for sanctions on Rusal have been eased.

Monthly Global Market Commentary

 

Technology Sector

The US tech sector is well on its way to recovering as Facebook and Amazon stock prices jumped on large positive earnings surprises. Facebook rallied 10.38% after announcing earnings on Thursday morning. Strong earnings, increased user growth and an emphasis on privacy dominated the conference call following the earnings announcement. The company continues to push for active, meaningful engagement on their website. Amazon ended the week up 2.95% as they also strongly beat earnings per share estimates by a whopping 55.74%. Amazon Prime annual membership costs will be rising to $119 effective 5/11/18. Existing members will be locked into the $99 price until 6/16/18.

Trade War

Trade talks are still underway between China and the US. While talks are ongoing, the effects of tariffs are being felt. Caterpillar stock price fell on rising steel costs. China imposed a temporary 178.6% anti-dumping deposit on the value on US sorghum. US soybean exports to China fell 27% in March. They have been substituted by Brazilian, Canadian and Argentinian beans.

Conclusion

The recovery in the technology sector and quick, tactical exposure to Russia helped our fund performance. We are continuing to monitor the trade war as an ongoing threat. The effects of the tariffs have been seen in increased inflation which has the potential to trickle through to rising interest rates. We continue to monitor the trade talks as we hope for resolution. Strong corporate earnings in the US are beginning to represent a tailwind. Once we are past earnings season, it is unclear whether investor sentiment will remain optimistic. In this more challenging environment, we are paying strict attention to quality and value in our security selection process.

April 2018

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