Market Strategy Radar Screen Weekly January 09, 2017

  2017: Too Early to Tell…

But so far, so good.

Economic data points released over the course of last week broadly pointed to continued improvement evidenced in the ISM manufacturing PMI, ISM non- Manufacturing PMI, construction numbers for November, and December job growth, wage growth Y-o-Y and motor vehicle sales (to a new record high since October, 2001).

Minutes of the Fed’s FOMC December meeting released mid-week showed monetary policy makers positive on the US economy’s strength and the likelihood that the process of interest rate normalization would continue.

The FOMC minutes showed that the Fed sees uncertainty regarding the new administration’s fiscal agenda and Congressional follow-through.

The dollar eased against foreign currencies early last week and then regained some strength as the first trading week of 2017 neared a close. The yield on the 10-Year Treasury eased some falling to as low as 2.35% on Thursday only to close at 2.42% on Friday, just slightly lower from where it ended last year.

For the week the dollar moved lower against eight of the G-10 currencies and 16 of 23 Emerging market currencies.

Foreign equity markets as tracked by the MSCI EAFE (developed ex-US and Canada), MSCI Emerging markets and MSCI Frontier Markets advanced 1.77%, 2.18% and 2.05% respectively to broadly outperform the US equity benchmarks in the first week of the New Year.

We continue to expect that the dollar will moderate in strength as the year unfolds and economies outside the US will move forward in their respective economic recoveries.

Over the course of the last year the effects of broad improvements in foreign developed and emerging economies on the back of foreign central bank activity as well as from the leadership of the US economy appear to indicate that foreign economies and markets are worthy of increased attention from global investors.

On the stateside political front, President-elect Donald Trump’s tweets and running commentary on auto manufacturing trends garnered the attention of several major auto manufacturers, who in responding, provided further evidence that the Presidential elect’s “tweets” carry substantial weight not just in grabbing the public’s attention but in sparking dialogue and thus far influencing the automakers’ decision-making processes in investments tied to stateside manufacturing efforts.

With the non-farm payroll number and the December FOMC minutes behind it, the market will likely focus on portfolio-positioning ahead of inauguration day (January 20th) and the unofficial start of fourth-quarter earnings season when Alcoa (AA) reports results on January 24th.

From here forward we expect The Fed’s FOMC meetings to take on increasing importance to market behavior and outlook as traders and portfolio managers ramp up their Fed plays ahead of each meeting.

The volatility that could come with such projecting and positioning ahead of and after the Fed’s meetings in the months ahead could present opportunities as well as raise near-term risk levels as rotational shifts and tactical moves take place.

It’s our opinion that patience will continue to be rewarded as the markets do what they do they: fluctuate.

From our perch on the market radar screen prospects for fiscal policy infrastructure spending, corporate tax reform, tax cuts for individuals, a reduction in onerous regulation and the possibility of US multinational funds repatriation along with positive economic trends that were already working themselves through the system prior to the election should help investors weather interim storms that could come up as the Beltway, Main Street, Wall Street and Capitol Hill work through the process and details of administration appointments and the fiscal agenda yet to be fully defined and launched.

We suggest a mantra of “Rome wasn’t built in a day” to get through it all. We expect some increase in volatility likely to occur as the inevitable uncertainties of a transitional period surface in the day to drama likely to unfold on the road to the first 100 days of the new Presidency.

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