Federal Government Shutdown Ends: Key Policy Shifts and Fed Leadership Change

On Monday, Congress passed a three-week spending bill to end the government shutdown that kicked off late last week. Immigration debate was a central topic between Democrats and Republicans, and the next three weeks will likely see continued debate on this front.

Jerome Powell, who has been a member of the Federal Reserve Board of Governors since 2012, was confirmed as Janet Yellen’s successor as chairman of the Fed. Yellen’s term ends Feb. 3. It is widely expected that Powell will maintain the economic strategy that Yellen has been operating under during her four-year tenure.

The U.S. dollar has continued to weaken relative to many foreign currencies in 2018, providing a boost to any international stock holdings held by investors. Netflix reported a strong quarter, based on stronger-than-expected subscriber growth, particularly abroad. The stock price rose significantly on the back of this news.

Weekly Returns:

S&P 500: 2,872.87 (+2.22%)
FTSE All-World ex-US: 58.89 (1.9%)
US 10 Year Treasury Yield: 2.66% (+.0%)
Gold: $1,350.32 (+1.3%)
EUR/USD: $1.2427 (+1.6%)

Major Events:

• Monday – U.S. government passes bill to avoid shutdown for three weeks.
• Tuesday – Jerome Powell confirmed as Federal Reserve Chairman.
• Wednesday – Treasury Secretary Steve Mnuchin comments that a “weaker dollar[U.S.] is good for trade” at the World Economic Forum in Davos, Switzerland.
• Thursday – The WSJ reported that airlines are facing an uphill battle this year as fuel prices and other costs are expected to provide a headwind for company profits.
• Friday – The U.S. Commerce Department reported that U.S. Gross Domestic Product(GDP) rose by an estimated 2.6% (annualized) in the fourth quarter of 2017. A revised estimate will be released on Feb. 28.

Our Take:

With only three weeks until a new federal government budgetary crisis, Democrats and Republicans will have a short span to work through their differences without providing further interruption in services to taxpayers.

As we continue into 2018, it will be interesting to see how the federal tax overhaul impacts companies small and large across the United States. As we’ve said before, a bull market doesn’t die of just old age, and the tax overhaul could lend a hand to continued gains in the U.S. markets. There is also interest in whether the new Fed chairman will deviate from the path that Yellen has been following for the past four years. The long-term impacts of the Fed’s policies over the past decade remain unknown, and as such, we strongly believe investors should maintain a disciplined, diversified approach as a core aspect of the investment strategy.