“It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest” – Adam Smith
As the world anticipated the Dow breaking past the 20K mark, the index has not been able to surpass the momentum to overcome the nice round number. The failure can be attributed to anything one might seem logical: valuation, season, lack of earnings power, political uncertainty, national debt, interest rates, etc, etc. Still, some view the inability to break through as a major problem, others see it as a temporary obstacle which inevitably will be eclipsed.
Early last week, Janet Yellen indicated she thought interest rates might see some strengthening during the rest of 2017, maybe even up to as many as three increases. Mrs. Yellen’s interest rate policy is going in the opposite direction than most of the rest of the world, intending to normalize the cost of money as a way to preempt possible inflation. In doing so, the actions of the Fed are consistent with Mr. Smith’s famous quote about self interest, a bedrock principle of economics. As you will see later, there is another person who believes in Adam’s philosophy.
In other interesting developments last week, investment bank and scourge of the earth (according to Bernie and Elizabeth) Goldman Sachs posted strong earnings on the strength of improved fixed income results. US Bank, a solidly run, large regional bank, also turned in steady results by meeting expectations. United Health Group, the largest health insurer in the country, showed the losses from being involved with the exchange business aren’t hurting shareholders much. If you are a small business, you know you can count on health insurance premiums going up every year by nearly 10%, and in some cases a heck of a lot more. IBM beat expectations but has seen revenues decline for many quarters as the enterprise computing space gets even more competitive thanks to the cloud. At the end of the week, Union Pacific, Proctor, and Schlumberger also met consensus estimates. You can see it was a full week on the earnings front, and next week much of the corporate world reports, so there is plenty to watch on that front.
