Markets Rally on Certainty

US Mexico Trade

Markets had a strong week as the US and Mexico came to a preliminary trade agreement. The S&P gaining 0.98% while the MSCI World Index rose 0.68%.

US-Mexico Trade Agreement

The US and Mexico reached a trade agreement on Thursday. While details are not expected to be released until late September, the White House has released broad guidelines on the agreement.

Consumer Confidence

The consumer confidence index rose to 133.4 in August, an 18-year high. The index is typically used to predict short term consumer spending habits.

Wells Fargo Woes

Wells Fargo has fired more than a dozen investment bankers and is looking into broader concerns about improper expensing of after-hours meals. The company continues to struggle to turn around its image since the bank account scandal.

Brazilian Elections – Lula Ineligible to Run

The Brazilian electoral court has blocked former president Luiz “Lula” da Silva from running in the upcoming September election. Lula was found guilty of corruption in charges related to the “Operation Car Wash” scandal and was ordered to surrender earlier this year. Under the Brazilian “Clean Slate” law, individuals found guilty of crimes in the appeals court are ineligible to run for office. Lula was the front running in the upcoming September elections. Lula will be backing his successor, Fernando Haddad, the former mayor of Sao Paulo. With Lula out of the running, it is unlikely that any individual candidate will get the majority necessary to win the September election. Without a majority, the top two candidates will go to run off elections in October. This is setting the stage for a run off between Haddad and Jair Bolsonaro, a divisive Trump-like candidate with sympathies for the old military dictatorship.

Deep Fakes

Advances in machine learning are creating new challenges in distinguishing between what is real. The Deepfake technology currently allow us to digitally render one persons’ face onto another. For the most part this technology has benign uses such making Nicholas Cage appear in a host of movies. A recent paper out of UC Berkley entitled Everybody Dance Now shows the potential of full body motion transfer. There are some exciting, real world possibilities such as applications in movies. The risk is that as these technologies get out of the uncanny valley (where the output looks slightly inhuman), video evidence will be suspect and easily disputable.

Conclusion

Overall, this has been a pretty good week for the markets. With consumer confidence at record heights the real concern is sustainability. For now, we remain cautiously optimistic about the overall market. The Brazilian election is unlikely to have a large effect on the US economy. We expect the elections to go through to the run off election in October. Regardless of the winner, markets tend to rally after an election due to the dissipating uncertainty. That said, nothing is guaranteed.

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Markets Rally on Certainty

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