In the context of how aggressively trends across all asset classes have progressed since Donald Trump’s U.S. Presidential election victory, it might seem like needless hindsight to revert back to a political assessment. Yet, there are so many interesting aspects of the U.S. election campaign and major developments in Europe as well that this is actually worth an extensive review. We begin with one of the more interesting post mortems on the Hillary Clinton loss.
This year is a bit different in the context of a very upbeat outlook on the pending regime change in Washington D.C. Yet we still believe that our long-standing views on the "Santa" influence in the markets remains the same. And the U.S. election certainly provides a plethora of blessings for the equities markets from multiple benefactors this year.
Even we were a bit shocked that “The Donald” and his team actually pulled it off. Yet, it is a measure of just how much disenfranchised older white workers and even a select subset of younger voters were fed up with the "business as usual" inside-dealing and advantage to the largest and richest, which the Washington DC establishment has supported over the past 16 years.
First things first. As we head into the final leg of the 2016 U.S. general election that has seen vitriol and tangential issues (personality and peccadillos) elevated to what were previously unimaginable levels, we repeat our previous admonition: THERE IS ABSOLUTELY NO INCENTIVE TO HOLD ANY INTERMEDIATE-TERM MARKET POSITIONS INTO THE U.S. ELECTION THIS TUESDAY.
There was not really any mystery in the equities anticipation and subsequent negative reaction to Wednesday afternoon’s FOMC meeting minutes. In hindsight, it is clear the degree of weakness spilling over into Thursday morning was overblown. Yet very typical compounding factors from the Fed’s extended "normalcy bias" are in play once again. It would be comical if it were not tragic that the alleged leading developed world central bank is incrementally diminishing its credibility.
This is a very pointed "macro" follow up to my post-Jackson Hole extensive reviews of why the FOMC was NOT going to hike Wednesday afternoon. This remains disconcerting in the wake of all the hawkish rhetoric since before and after last December. The picture of Fed Chair Janet Yellen is not from Wednesday afternoon’s press conference, but rather her Feb. 24 congressional testimony. It makes plain just how hawkish the Fed remained after last December’s first hike in almost a decade.
What a "beautiful" U.S. Employment report for the equities bulls, just like the metaphorical beauty of Goldilocks in the fable. There was reason for some trepidation on the part of the bulls coming into last Friday’s Employment report after a week of sharply divergent U.S. and global economic data.
After all of the alleged "clarification" from Fed Chair Janet Yellen’s somewhat more hawkish views that were reinforced by Fed Vice-Chair Stanley Fischer’s missives at this year’s annual KC Fed Jackson Hole Policy Symposium, equities and govvies rallied back together Monday from Friday’s mutual selloff. How could this be? Surely the Fed might now raise rates as early as the September (major projections revision and press conference) FOMC meeting!