It doesn’t rival the breakup of the Beatles, The Supremes, Sex Pistols, New Kids on the Block, or the Backstreet Boys. However, the rapid unraveling of two business organizations set tongues wagging that are associated with President Trump and the White House. The bands are gone, and one has to wonder if they can get them back together again.

First, there was word that the Strategic & Policy Forum was on the verge of collapse followed by official word from the White House, which also included the Manufacturing Council, that these business committees were being shuttered.  Along this same timeline was an avalanche of communique from the various companies announcing their CEOs were stepping away from the White House: United Technologies (UTX), Campbell Soup (CPB), Johnson & Johnson (JNJ), 3M Company (MMM), General Electric (GE), JPMorgan & Chase (JPM), and Blackstone Group (BX). It was a hot mess.

What does this mean for the Trump economic Agenda?  I don’t think it makes much of a difference, although there might have been fresh ideas and perspectives to add to the universal goals of these businesses. By the same token, I’ve been leery of a few of these companies and their ulterior motives.

The most important thing that happened during all the hysteria on Wednesday wasn’t the market pulling back, but the market rebounding into the close. It was a tight trading range and I could be looking too deeply into the nuances. This market had a big excuse to sell-off; instead, buyers emerged on weakness.  This wasn’t the case last week when the buy-on-dips crowd was reluctant to buy into the weekend.

If the market continues to disassociate political intrigue from the fundamental developments, this market should continue to rally. That said, however, a shot in the arm via lower taxes and repatriation would make the former a moot point while enhancing the latter dramatically.

What the Fed Saw

The July Federal Open Market Committee (FOMC) minutes shed light on the Fed’s thoughts on inflation, governmental policies, Trump’s agenda, and the stock market. 

Inflation: The Fed continues to say the lack of inflation is “transitory,” but acknowledges this will not be a 2017 problem.

The staff's forecast for consumer price inflation, as measured by the change in the PCE price index, was revised down slightly for 2017 in response to weaker-than-expected incoming data for inflation. As a result, inflation this year was expected to be similar in magnitude to last year, with an upturn in the prices for food and non-energy imports offset by a slower increase in core PCE prices and weaker energy prices. Beyond 2017, the forecast was little revised from the previous projection, as the recent weakness in inflation was viewed as transitory.

-FOMC Minutes

Trump’s Agenda: There would be more jobs and more investments if Washington, D.C. could get something done from trade to health care.

Nevertheless, several participants noted that uncertainty about the course of federal government policy, including in the areas of fiscal policy, trade, and health care, was tending to weigh down firms' spending and hiring plans. In addition, a few participants suggested that the likelihood of near-term enactment of a fiscal stimulus program had declined further or that the fiscal stimulus likely would be smaller than they previously expected.

-FOMC Minutes

Stock Market Rally: Not irrational or a result of large leverage as banks are healthy and stable.

Participants considered equity valuations in their discussion of financial stability. A couple of participants noted that favorable macroeconomic factors provided backing for current equity valuations; in addition, recent equity price increases did not seem to stem importance from a greater use of leverage by investors. The increases might not pose appreciable risks to financial stability. Also, several participants observed that the banking system was well capitalized and had ample liquidity, reducing the risk of financial instability.

The Federal Reserve rubber stamped the notion that this is a Goldilocks economy, which means it will be a long while before the next rate hike.  The monetary policy makers were ambiguous on paring down that balance sheet, but suffice it to say, it will be a slow process. 

Picking up Steam

Don’t look now, but the Atlanta Fed is now modeling the third-quarter 2017 (3Q17) Gross Domestic Product (GDP) at 3.8% from 3.5% last week. If the GDP growth is that robust, it would be the best number since third-quarter 2014 (3Q14), and it could serve as a rallying cry and create the kind of urgency that those business councils were supposed to stoke. Of course, it comes down to the Republicans on Capitol Hill getting the job down.

There is real economic traction, and it could get a lot better; don’t discount or underestimate momentum already in the system.

Today’s Session

Major indices have been under pressure all morning exacerbated by the reaction to Walmart’s financial results, which beat on the top and bottom line, but the mixed guidance is sending its shares lower.  It’s the folly of earnings season on full display once again.  Walmart saw 12 straight quarters of comp store sales increases and 11 straight quarters of improvement in traffic.

On the other end of the spectrum, Alibaba posted a monster quarter sending its shares to a new high in the pre-open.  Alibaba isn’t a Dow component, Walmart is a Dow component, hence the pressure. 

Cisco is also a Dow component that also reported a solid quarter this morning, but shares are looking lower.

There seem to be other issues this morning – an odd feeling of angst that could apply pressure or magnifying disappointment.   I’m not talking panic, but the need for greater assurance to move the rally forward. 

Comments

The outsider who promised to drain the swamp has created his own swamp! More and more he is being ostracised by the folks who supported him and the mainstream middle is/has lost patience. He really has proven himself to be oblivious and unaware of the nuances of leadership. the first task of a leader is to get the right people on the bus and then have them in the correct seats. A grade of C would be generous. The economy sprinted ahead like a runner out of the blocks in the 100m dash but, is now trying to navigate the 100m Hurdles. Clipped a few hurdles but, is still on its feet. Will the hurdles ahead not be cleared and the runner tumbles to the track? Garro on 8/17/2017 10:26:48 AM

Thanks for the balanced report on the White House situation. Also, regarding the FED, they are a bunch of bankers wanting higher interest rate - Headlines say "Low interest rate bedevils rate hike" - my feeling is that the higher the interest rate, the higher inflation (raise the cost of $ and everything else goes up! Gary Fox on 8/17/2017 12:07:00 PM

It seems to me that the man at the head of this has been under attack since day 1; more so than any other President I have seen in my lifetime, and that is pretty bad. For decades DC has needed some shaking up. The corruption is nauseating and it is not neccessary to have a strong business climate along with a government we can trust. Congress is currently the problem. They don't have the will or fight in them to go against the Presidents enemies. After the last administration, there is a lot to do. I don't think they were prepared to win. Trump is learning politics on the job and all that comes with it. If we can survivie Barack Obama, we can survive Trumps learning curve. I think people under estimate how much support Pres. Trump actually has. We have already been shown the amount of violence those who oppose him are willing to commit in an attempt to shut us up and change our minds. It is a form of hostage taking and imprisonment. I believe the silent majority is still rather sick of them. They only reinforce the support people have for him. Now, as a micro business owner, I have seen a drastic change in business. I would love to hire another technician, but we can't afford to do so until Congress fixes the health care laws. Once they do that and lower taxes, we will have more money to invest in training and everything else that goes along with being an employer. If they wait until the next recession, then we all lose out. Gas prices will be going up for a second time this year in Calif. because of state taxes. The first one was .12/per gallon. The next one will be added in a couple of months and could be as high as .71/gal. These are just the state tax hikes. The Democrats were crying because they didn't think that was high enough. They want to punish oil companies. Not sure how that does that, we are paying the tax. They are delusional. We will need a tax cut to keep the economy moving along in Calif. Hopefully, the Ca. Democrats won't decide to match our tax cut with a state tax hike as they promised to do earlier in the year. The way I see it, President Trump has done everything he can in his position to help get people back to work. His enemies are running as many good people off as they can, and the cowards can't find the back door fast enough. The rest is the responsibility of Congress. People in both parties need to be replaced, and the next Congress should be controlled by fiscal conservatives who believe in the free market and the idea that a job is more important than longer welfare lines. Since the Democrats blocked some outstanding reforms for Social Security plans, those need to be upheld and will, of course, be a drain, but this is where we are due to inaction in the past. This does not mean reforms can't begin to take place during this administration to protect future retirees. The right reforms will do wonders for the stock market, and maybe some of us closing in on that time of our lives can still benefit from them. But this is all on Congress, they have a President anxious to sign the right bills. Paulette Whinnery on 8/17/2017 8:23:42 PM

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