Market Week in Review

Healthcare draft bill released—Will the U.S. Congress take up tax reform next?

In this week’s video update:

  • What does the U.S. Senate’s draft healthcare bill mean for potential tax reform?
  • New manufacturing data is in: Good news? Bad news?
  • What might plummeting oil prices mean for emerging markets?

U.S. Senate healthcare bill: What are the implications for investors?

In this week’s episode of Market Week in Review, Rob Cittadini, regional director, consultant relations, spoke to Senior Investment Strategist Paul Eitelman about the implications for investors now that the U.S. Senate has released a draft version of the healthcare reform bill.

According to Eitelman, what’s most encouraging here is that there’s now a draft of the bill—which is very important for the timing of tax reform. This is because the strategy that Republicans have been using requires them to prioritize healthcare reform before shifting gears to corporate tax reform. It looks like Senate Majority Leader Mitch McConnell has a focused resolve to put the bill up for a vote by next Friday. Win or lose, pass or fail, it appears that McConnell wants to get this healthcare issue behind him so that the Senate can shift gears to taxes. In the view of Eitelman and other Russell Investments strategists, this is good news for the markets, because it preserves the timeline for moving to tax reform—with corporate tax cuts possible by Jan. 1, 2018. “It’s encouraging because the ball is starting to move forward more around fiscal policy, after it arguably was pretty far behind schedule,” Eitelman said.

New data for flash Purchasing Manager Index

Transitioning to the flash Purchasing Manager Index (PMI®), Eitelman discussed the takeaways from the new global data released this morning. The data shows there’s been a slight moderation overall. Eitelman noted that the global cycle, chiefly outside of the  U.S., had really accelerated from the second half of 2016 until recently. While the latest numbers illustrate a step down from healthy levels, the global growth trajectory is still encouraging. Eitelman pointed out that there was some regional dispersion in the data, with different results for the U.S. and Europe:

  • In Europe, despite a slight setback this month, the region is growing at its strongest pace in six years when the entire second quarter is taken into account.
  • In the U.S., the results are more mediocre—the country took a clear step down, with the newest numbers close to a three-month low.

In a nutshell, “there were less exciting growth numbers in U.S., but very strong growth numbers in Europe,” Eitelman stated.

Plummeting oil prices

Switching to oil, Eitelman noted that crude oil prices are down 16% since late May. The main factor driving this is likely over-supply creeping back into the energy market. Eitelman pointed out that U.S. shale production has increased as the country has become more efficient at extracting oil. Energy prices had hovered at $40 to $55 a barrel range for 15 months—but with the supply of U.S. crude oil production increasing, prices have naturally started to fall.

In the view of Eitelman and other Russell Investments strategists, the key question is what the stabilization point will be for oil. As prices fall, U.S. production should moderate. “The decline in commodity prices around emerging markets is not a good thing,” Eitelman observed, “but we’re not at a stress point yet. While commodity headwinds aren’t great news for emerging markets,  it’s not a major headwind either.”

Watch the video.

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