Everyday, Everyday I Have the Blues
By John Stoltzfus,
Chief Investment Strategist
Trend Analysis
Market Strategy Radar Screen Weekly January 23, 2017
In this article:
- We expect an unconventional presidency could serve as a catalyst for a constructive dialog among multiple levels of government and their diverse constituencies that moves the United States beyond the gridlock that has beset it for decades now.
People Get Ready
There’s a new sheriff in town as a new administration takes up the reins in Washington.
With the US presidential inauguration day now behind us, the ECB’s latest rate decision announced last week (they held rates steady), the Federal Reserve’s next FOMC meeting around the corner (less than two weeks away) and with the Chinese New Year and the S&P 500 Q4 earnings season under way, markets stateside and around the world may find an interim period ahead where they become prone to go into a “show me…I’m from Missouri” mode. (For those unfamiliar with that saying, please see the footnote at the end of this commentary.)
For all the skepticism about what’s been coined the “Trump rally” (or even somewhat condescendingly “the Trump Bump”), the markets closed higher on Friday (Inauguration Day) and remain decidedly higher from Election Day November 8th.
As of last Friday from Nov. 8, 2016 (US Election Day): the Dow Jones Industrial Average, S&P 500, NASDAQ Composite, S&P 400 (mid-caps), S&P 600 (small-caps) and Russell 2000 (small-caps) were up respectively 8.15%, 6.16%, 7.20%, 10.73%, 13.98% and 13.11%.
From the end of 2016 into the first three weeks of the new year through last Friday, those same indices have delivered somewhat mixed performances (respective returns of +0.33%, +1.45%, +3.2%, +0.91%, -1.24% and -0.39%), which we’d expect are derived less likely from any lack of confidence among investors in the capability of the US to manage a smooth transition of presidential power or concern about a fiscal stimulus agenda that is still in the planning stage. Most likely markets since the start of the year are reflective of a combination of rotation, rebalancing and some healthy profit taking by tax-sensitive investors.
A Change of Pace Feeling
While there has been no small amount of concern expressed by at least some pundits, commentators, members of the electorate and others about the dramatic change of style of the newly inaugurated president in communicating his message, it appears to us from our vantage point on the Market Strategy Radar Screen (a politically agnostic perch) that there is plenty of interest evidenced by news flow (from sources both pro and against the new administration) in engaging in dialog with the new president.
As market strategists we do not propose to be political strategists. However, having a professional interest in the reaction of the markets to political change (particularly that which could have significant impact on the economy and markets) as well as being practitioners of the discipline of strategic and tactical thinking, we cannot help but consider that much good might come from an agenda that has a stated commitment to effect:
- job growth and retention;
- fiscal stimulus directed to infrastructure repair and upgrades;
- lower taxes for individuals and business;
- reduction of onerous levels of regulation;
- revisiting trade agreements in recent decades that may have placed US workers and businesses at substantial disadvantage to our trading partners;
- and repatriation of profits held abroad by US multinationals.
All of the above, if broadly and successfully executed, would appear to us to have a good chance at benefiting workers, businesses, trading partners and our main concerns as investment strategists−investors and the markets.
Like rock n’ roll…it could get loud
In the months ahead we expect the noise level of political dialog and commentary to get loud at times. We do not believe it will be ultimately damaging to the stateside economy, the world economy or the markets.
Rather, we expect an unconventional presidency could serve as a catalyst for a constructive dialog among multiple levels of government and their diverse constituencies that moves the United States beyond the gridlock that has beset it for decades now.
Ultimately a distinctive change in approach and style, which has already rattled the establishment, could prove conducive to economic growth, progress and a boost to the standard of living across a broad segment of the population, including current supporters and members of the opposition.
Just over the last week we saw numerous news items that suggest there’s interest expressed from officials in China, the UK, Germany and Mexico to engage in dialog with the new president. Global business leaders less tethered to protocol began the process from as early November 9th.
For the complete report, please contact your Oppenheimer Financial Advisor.
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