Financial transmission - is creating velocity all over the place now. It's a totally bifurcated market; with the much-touted pundit FANG stocks of course really getting clocked (they were hiding places to hold Averages up in the long-running distribution); while long-downtrodden Industrials have sprung to life. Most of this is happening beyond the optimism you all know we'd suspected in-event of a Trump victory; and it's primarily because money is and will be flowing-in like mad. Couldn't know how it would unfold; but sniffed-that the media (part of the establishment) was not correct in presumptions. You could tell it in their Election night tone.
(That does not mean the market doesn't pullback, Veterans Day with the Bond market closed; or correct the excess as this rotation evolves. The focus is changed and the cover for fiscal action to create an easier path for the Federal Reserve's forthcoming interest rate hike is assisted too.)
Primarily it's because of the reasons I'd outlined in the two days before the Vote: inaccurate poll science, other than the USC / LA Times, IBD and interestingly Facebook polls that we showed; less enthusiasm from Clinton supporters; and her hobbled by of running on 'experience' rather than issues. Plus my view of it being almost impossible to have a Party retain a 3rd consecutive term. And of course some of Sanders vote was siphoned-off or abstained. We saw that in the unmodified Poll data.
As Tuesday night turned-into Wednesday the prospect of Congressional sweeps also came into-play, which suggested the stunning prospect of a functional Washington ahead. We didn't bemoan the nasty campaign; insisting then that should Mr. Trump become President-Elect Trump, the world changes if and only if he indeed showed graciousness and malice toward none; a Reagan or even Lincolnesque touch he hardly reflected.
He had told us he would govern for all the people; not special interests and not in a hostile way towards those concerned about Human Rights. Well few believed him as the propaganda was slanted (still is) against it being the case. A malevolent Trump, regardless of his shifts in the past, could be an effective President. We assume he wants his Presidency to be successful; not marred by stooping to lowest-common-denominator stuff, like he engaged in earlier during the campaign.
For this guy, 'success' means reconstruction of America; literally that's good for many stocks; bad for those hiding in yield-chasing plays we've warned of for months; and broadens things out to base industrial plays, not the concentration into a narrow universe of technology stocks. For now it's mediocre breadth and a two-way market, and it will shuffle. But although we couldn't do much at 3 am... we assessed the turn occurring as a 'Yankee-style Brexit' (panic followed by super rally). Now allowing for a setback, really don't expect much trauma, except for stocks in the wrong category (right now that's why negative breadth with new highs). So everything changed conceptually at 1:30 a.m. with that update; and reinforced once outcomes of both the Executive and Congress flowed.
There are caveats aside protectionist concerns: (detailed to members). Today Senator Elizabeth Warren firmly said she would back Trump if he moves to reinstate a variation of that. Sure, the President-Elect will draw upon Wall Street brainpower like Goldman just as Hillary would. That he is doing so is encouraging for those afraid of something far-detached. We weren't as I tried to convey a view of his surrounding himself with smart business-oriented guys and gals, throughout a political minefield.
It's all happening amidst the bond bubble cracking; which notably allows the Federal Reserve (reserved forward analysis and implications). The term-structure of interest rates has been artificially held down; and now dynamics can proceed to return to normal. As the Fed 'breathes easier' (more and a yield-curve comment).
Rates were held so low for too long; and this political backdrop gives us the perfect opportunity to come closer to an equilibrium by virtue of the shift in National priorities to 'actually' rebuilding our Nation, rather than talking about it, but not articulating action (and we don't entirely blame the outgoing Administration as they were inhibited by Congress). As we now have one Party control .. even if the President turns-out to be a 'closet Democrat insurgent' .. that's fine... they'll move to finally enact enabling legislation that allows this Country to become less restrained. (Last night I wrote about this as a new historic political dynamic.)
(Discussion of how all this follows for our GDP, for Energy, for relations with Russia, China, Israel and maybe a serious move to Peace in the always-challenging Middle East, as well as OPEC and the Saudi's, is a review which does effect Oil, currency and really everything. Redacted.)
This is the end of mandated headwinds against free spirits and growth; if the new regime lays-off antagonizing the social side of the ledger. I'm hopeful that (redacted). Of course Trump contributed enough nonsense himself. It now falls on his shoulders, sort of like a drunk coming out of rehab, to show us that the future will be unlike the past. We're all often asked by those who treated the addicted; to judge on how they perform after they return to the workforce. Perhaps a sort of political AA meeting essentially is what's happening (more follows).
I have occasionally said: 'the problem with the future is that its history is not written yet', and that's so true. But he's elected; the markets have responded; the statements so far tend to unite rather than divide. So, if this persists (and the wacko fringe doesn't dominate either side) there is a good chance for the future to be seriously attractive. I said before the Election: if this goes ideally (not an endorsement but a market reflection that was opposite earlier 'Wall St. likes Clinton' viewpoint ) you won't believe how bullish I'll get. (That does not mean chasing first rebound.)
Bottom-line: don't get too excited that I'm sounding awfully bullish now; even though I am on the long-term since the middle of Election night. If there are structural changes that I have addressed; yes, the Nation will do great, and many stocks that are or were until the last 48 hours very dormant, will advance over time. Of course the greatest initial response of the tectonic shift is impulsive and thus could run out of steam shortly; (action after noted). With China and Europe troubled; the Dollar stays firm overall as called for; and money chases the USA but not Treasuries or the plays of the past years. For investors, as this all sorts-out as we contend, guess what? America will be fun again!
What we have is a seriously 'bifurcated' market that rewards grasping a unique situation for recent times: a return to clearly swinging sectors in different directions concurrently. That's exactly how you get the S&P up while the NDX (Nasdaq 100 or 100 largest) tanks.
In-sum: trading the swings becomes more exciting; while investing will see rotation as discussed (heavy infrastructure that benefits on coming reconstruction and less reliance or allowance for foreign interlopers that try to get involved in our domestic projects yet to be clearly delineated).
It is not out of question that the S&P gets overdone here near-term, as it ironically masks the transition; in a way different than it masked historic distribution over the past year. This can allow (as a second take on the credit market break is perceived) for equities to (redacted projections).
An aside: since I'm so optimistic about the big picture for America; one member sent in a summary of opposing views. With permission I share it, and we can call it 'counterpoint' to my points:
When Trump tries to renegotiate trade deals, the Repubs (controlled by the multinational corporations) will fight him every step of the way. When Trump proposes infrastructure spending, Congress will give him half of what he asks for and the rest will go to worthless pork barrel projects (none in districts where the congressman opposed him).
Congress will gladly pass a tax cut for the wealthy and multinational corporations (larger the better - the only one of Trump's promises likely to be kept) but they will invest nearly all of it outside the U.S. He will never deport the bulk of illegal immigrants because the agricultural industry will scream bloody murder. Democrats will propose doing something for education and worker retraining (desperately needed by those who supported Trump). Republicans will oppose it because "it would bust the budget." Obamacare will be repealed but never replaced. 25 million people will lose their health insurance. Republicans will cheer.
Russia will get everything it wants and Trump will brag about a few crumbs that he "negotiated for. Trump will be reviled throughout the world and America's reputation will sink to its lowest level in decades.
~
Well I said I'd be broad-minded; and that sounds like an opposing view.
But I'm 'bullish on America', and astoundingly so; especially if enough believin the darker view gives us a substantial further shakeout in most technology and other stocks that I'd love to own again at lower levels. I continue to expect that for those type of stocks; so far so good. There is no argument about avoiding a correction as (forward view redacted) and then 'if' there's no upheaval (like a petition to the Electoral College vote) and Trump doesn't appoint radicals; markets will (redacted forecast). So sure, with too many probably jumping-in now; we get a buying climax prospect; at the same time as the stage is set for (again projections).
Daily action - viewed bifurcation all over the map dominating Thursday action; with huge swings out of FANG-type stocks; mostly into perceived 'values' in the category of infrastructure and financial areas. That's how you get the DJIA up over 200, while breadth is negative by 200, and the Nasdaq 100 (led by Apple) losses 3 points.
Beneath superficial achievements by the Dow Industrial's; suddenly the market is painting (further discussion about the evolution and future).
Conclusion: people were bearish on financials while super bullish on technology; most of it has been flipped upside-down. And while that will consolidate, there is likely more (though hard to measure) to be seen in terms of consolidations after the 'relief rally' as was suspected following the Brexit-like (initial panic and recovery forecast. As it corrects they'll start looking at 'protectionist concerns', and so on (particularly next year). A good sign was the Mexican Foreign Minister today; she proudly stated they won't pay for a 'wall', but said they ARE open to modernizing the NAFTA Agreement with their US trading partners. You have to wonder if you would hear 'even that' had Trump not just won.
However we are skeptically optimistic and more enthused about a sort of international reconciliation which will give us a better climate to focus on economic rebuilding rather than global conflict (detailed outline).
Actually the first solid indication of the cooperation that's coming was a significant agreement today between Israel and Russia to jointly fight the terrorist challenge on a broad front. (More discussion of prospects.)
e recognize lots of uncertainty needs lots more 'proof in the pudding' evidence before anything goes seriously up. The main issue aside fiscal spending coming; and inflation; is a negative implications for Bonds and favorable for the Dollar. Hence variations in 'what works'. What worked here is what has not worked. Other than that; breadth divergence does support the idea of a pause coming; literally at any moment now.
Prior highlights follow: (mostly redacted in fairness to subscribers).
Without a doubt - one of the more momentous Elections has occurred in the thick of doubt, reflections, hostility or even shell-shocked attitudes in many places. Whether it's students demonstrating in downtown New York or Chicago today; or (more) we've got a major transformation.
Let's say as far as the young who have grown up almost solely under Obama in their formative years; and maybe vaguely recall someone named Bush, calm down (hopefully) a bit and recall an old saying that might explain part of what has just happened:
"If you're not idealistic at 20, you've got no heart. If you're not slightly conservative at 50, you've got no brains".
An exaggeration for sure, as some are one or the other throughout life; but it makes a fairly pertinent broad point, given it was defections from the candidate selling 'experience' to the one clearly promising 'change' (not the same as the last), that turned the tide. So we respect all points of view, and as Americans we congratulate Mr. Trump, with prayers that he uphold the broadly supported parts of his campaign; shun the rest or the temptation to fall backward upon them. We honor this Veterans Day for which so many sacrificed so our Republic may survive and thrive.
In-closing, let me reiterate last night's prophetic quote that I hope is forthcoming, so that those so freaked by this Election are able to be calmed and we can go forward without lasting domestic discord:
"Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less."
Marie Curie
The process of an 'epic unwind' has been telegraphed and continues evolving amidst now what is a dramatically-bifurcated sector rotation. It's a catalyst to move money around; as markets seriously consider what may be changing in America and in markets.
Honor Veterans Day (and join us as well !)
Gene
Gene Inger
