Web Statistics Here's what to expect from the Trump trade in the week ahead

Sunday, 20 November 2016

Here's what to expect from the Trump trade in the week ahead


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Here's what to expect from the Trump trade in the week ahead

Here's what to expect from the Trump trade in the week ahead
Here's what to expect from the Trump trade in the week ahead

"Here's what to expect from the Trump trade in the week ahead" 

so Here's what to expect from the Trump trade in the week ahead . What to watch..... See below. 


The higher yields and stronger dollar of the Trump trade should continue to dominate markets in the week ahead.

At the same time, with stocks near all-time highs, traders are watching to see if gains fade in some of the more bubbly sectors of the stock market. The four-day Thanksgiving trading week does have some economic data, including existing home sales Tuesday, and new home sales and durable goods on Wednesday.

Plus the fact that There is more money starting to pour into the financial sectors. So right now that is a sector we are going to have to watch further. Here is the chart....

Markets have been recalibrating with money moving out of bonds and into stocks since the surprise election win by Donald Trump. The dollar index has risen 3 percent to a 14-year high, and Treasury yields, which move inversely to price, are at the highs of the year.

The president-elect's promise to cut taxes and launch a giant fiscal spending package has spurred expectations that growth will pick up, pushing up inflation and leading to higher interest rates.

Small caps have ridden the wave, setting new highs in the past week, but the broader market did not, with the S&P 500 ending the week at 2,181, up 0.8 percent but 9 points below its record close. The small cap Russell 2000 was the star performer, up 2.5 percent for the week at a record 1315. The Russell is now up 10 percent since the election and has been up 11 days in a row for the first time since 2003. cnbc

We could meander more than we press new highs, because I think we're going to see unwinding of some of the stretched trades," There has been an 11 percent gain in the S&P financial sector and the 5 percent jump in industrials since the election. The S&P 500 is up 2 percent in the same time frame.

If more bulls enter the market, there is a situation where the S&P could reach 2,350 in 2017, and 2,500 by 2018, before the bull market ends.

If the S&P is going to get over 2,200 real soon, it would need a catalyst, inauguration the fact that the incoming Trump administration has put corporate tax cuts at the top of its agenda is a major positive. That could be just the ticket needed. Time will tell. 

Every five points of the structural tax rates reduction would boost profits in the S&P 500 by about 4 percent," Trump proposes a 15 percent tax rate from the current 35 percent, but even a 25 percent rate would be a big plus. Domestic industries would benefit more than those with a lot of overseas profits.

The Trump transition in markets comes as economic data was beginning to look better. "The economic data is important and the Fed is only talking about raising rates two times next year, and  bond yields may be moving too quickly. He said the move in the dollar makes more sense, and its potential impact on multinational earnings has not yet started to worry the stock market. 

The 10-year Treasury yield pushed higher in the past week, trading at 2.35 percent late Friday.

10-year yield is at an important balancing point. It is at a level – 2.30 to 2.35 - that it was at late last year when the markets believed the economy was improving and the Fed was going to hike rates four times in 2016. But weakness in China, Brexit and other factors intervened, and the Fed now is only on track to hike once this year, in December.

If you believe there has been a fundamental shift in the markets with a Trump presidency, which means it's going to be more about business investment, capex … then yields should be higher, north of 2.75 percent. If you believe we're still in secular stagnation mode, then yields are going to be lower.

one negative would be if Trump begins to take steps to change trade accords that would spark retaliatory action from trade partners. that's the wild card," 

We may be getting way ahead of ourselves. There is one thing we can't measure, and that is animal spirits. If animal spirits are rising and confidence is moving higher, that could be surprising, yields could go higher than expected more quickly.

The thing with balancing points is they're inherently unstable. We're not going to stay here for long. We're either going higher in this shared optimistic world, or we're going to flip around say nothing is going to to work — we're back to stagflation,

Oil is another factor to watch in the week ahead. West Texas Intermediate crude futures ended the past week 5.3 percent higher at $45.69 per barrel, amid speculation OPEC and other producers will strike a deal on production.

We have our overall outlook for pending 2017 period in the coming newsletter

You can grab a FREE 14 Day Trial to Our newsletter here. 

More updates coming please stay tuned


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