Another good month for the S&P 500, but one in which IT trailed all the other sectors. Countertrend rally in the offing? I’ve just updated my Keeping Score page with last month’s sector performance.
I’ve just updated my Keeping Score page for February’s stock market performance
…back to momentum investing tomorrow.
I’ve just updated my Keeping Score page for Trumpmania in November.
Given that way back when I served in the 101st Airborne, it’s a double holiday for me.
…a post nevertheless.
Yesterday was Day 2 of the President-to-be Trump era.
S&P 500 gains were more modest than on Day 1, but the general pattern of trading was similar. Action continued to be “conceptual” in nature, that is, industries that Wall Street thinks will benefit from an end to Congressional gridlock generally did well—Industrials and Basic Materials, for example. Both parties have long favored amped-up infrastructure spending, but Republicans had previously blocked any initiatives. We won’t know what Democrats would do were positions reversed, but with Republicans in control of both houses any attempt to ape their past anti-Obama behavior will prove ineffective.
Financials continued to outperform strongly, both on the idea that finally getting fiscal stimulus will free the Fed to alter its super-low interest rate stance. The market also seems to believe that some restrictive provisions of Dodd-Frank will be removed come 2017. Whether this is good or bad remains to be seen (for what it’s worth, seeing that no one has gone to jail and the same clowns who caused the financial crisis are still in charge, my vote is “bad”). If some shackles come off, however, bank profits for a while will be higher than previously thought. (Note: despite my just-expressed distain, I own JPMorgan Chase. I guess I’m a Wall Streeter at heart.)
Healthcare was up as well, on the idea that the industry will have greater pricing power under Republicans. Healthcare firms also generally pay corporate tax at the highest rates–the reason inversions have been so prominent in this sector. Tax reform would presumably benefit these companies more than others.
Yesterday also saw sharp losers. Telecom, Utilities and Staples were all down by over -2%. IT came close to that mark, at -1.8%. IT seemed to me to suffer from serious derivative-led selling. Don’t ask me why. The only sense I can see in the rest is that the US$ has begun to rise, potentially lowering the profits from Staples. The idea that rates will be rising for sure, and faster than under a Hillary administration, is behind the weakness in bonds, Utilities and possibly Telecom as well.
Energy took the day off.
A closing thought: if we were to roll back the clock by a week, liberals could have imagined that when Hillary won, disgruntled Trump supporters might organize anti-Clinton demonstrations in right-wing hotbeds. These protests would have been labelled as typically Trumpish, and disgraceful.
As regular readers will know, I’m not a fan of Trump. It seems to me, however, that the most effective way to influence Mr. Trump is to boycott the products bear his family name, not to cast doubt on peaceful transition of power to the election winner.
Very early yesterday morning, S&P 500 index futures had fallen by 5% as the stock market gave its first verdict on the election of Donald Trump as the next president of the US.
That Mr. Trump’s surprise win should be met with initial selling isn’t itself so shocking. Trump himself had offered a Brexit metaphor to describe his potential victory. (In trading the day after the Brexit results were announced both the British stock market and the pound collapsed.) And an op-ed in yesterday’s UK Guardian, for example, describes Trump as having ” a folly so bewildering, an incompetence so profound that no insult could plumb its depths” as well as being “the least-qualified candidate of all time.”
What’s noteworthy is that, unlike the Brexit case, the selling dried up in short order.
During regular trading yesterday, the S&P initially declined by almost a percent …before reversing course and ending the day up by 1%+. Government bonds declined sharply. The dollar was basically unchanged. This happened even though earlier in the week Wall Street rallied on the idea that Hillary would win.
The sector pattern of trading was also revealing:
–the largest gainers, according to Google Finance, were Healthcare (+3.3%), Materials (+2.6%), Financials (+1.6%), Industrials (+1.6%) and Energy (+1.0%)
–relative losers were Utilities (-2.4%) and Staples (-1.0%). Real estate–part of the Google Finance financials–was down by about 2%
–looking more closely at the Energy sector, big multinational integrateds rose more or less in line with the market, while smaller exploration firms and oilfield services companies (the last being the rocket fuel of the Energy sector) made more substantial upward progress.
Led by Wall Street, global markets shifted very quickly away from concern about Trump’s checkered business career and his white supremacist views. They began instead to explore the implications of the likelihood that legislative gridlock is unlikely to continue in Washington now that one party controls both the Oval Office and both houses of Congress.
On the most general level, this likely means that Washington will approve a large infrastructure spending plan early next year. This will have two consequences. It will create demand for labor at a time when the country is already at full employment. This means that wage growth, which already looks to be expanding at an increasing rate, will continue to accelerate. At the same time, the presence of fiscal stimulus will remove some of the need for the Fed to keep interest rates at intensive-care lows. Both aspects imply that short-term interest rates may begin to rise at a more rapid than anticipated clip.
The idea of spending on roads etc. means higher demand for basic materials and for construction machinery. Rising rates are bad news for government bonds, and for bond-like securities such as REITs. So, too, is the possibillity that wage-driven inflation may emerge as an issue as soon as 2017. On the other hand, rising rates tend to be good for large banks, which were among the best performers yesterday.
–income tax reform that lowers corporate rates (good for full-tax payers like healthcare companies) seems likely next year. Republicans seem particularly eager to repeal/replace Obamacare, which would arguably be good for healthcare providers
–the oil and gas industry is one that has been traditionally in the Republican camp. Trump has promised to stimulate oilfield activity.
Let’s see what today brings.
I’ve just updated my Keeping Score page for October S&P results.
I’ve just updated my Keeping Score page for September’s S&P 500 performance.