Business Leaders Get the WH Blues

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.