Emerging Money Daily Audio Call - November 11 - This was an extraordinary week for obvious reasons and some that I’m not sure are as obvious.
Trump’s election win wasn’t just about impact on Mexico, fiscal policy, and alleviating head winds on drug companies and banks. The win is a reset for markets because there is an entirely new government order and no understanding of what the Fed will look like in 2016 let alone 2017. There now must be a reassessment of everything the market had grown hinged to in terms of expectations.
Interest rates are the biggest factor to watch and the Fed is still more important to me than the dreams and headlines of a brand new start for the economy. The positives that come from reduced regulatory pressure, tax reform, and re-allocation towards underperforming industrials, are at least counter balanced by a spike wider in credit spreads and volatility and potential geopolitical, geo-economic instability caused by a volatile rookie politician and a group of new cabinet appointments.
This week we saw a number of recent and long standing price sensitivities and correlations get turned upside down. That price action is concerning and may in fact revert. For example take gold: Vol spikes, uncertainty grows, inflation expectations spike , yet gold sells off dramatically. Others: Borrowing costs spike dramatically interest rate sensitive small cap stocks rally through the roof far outperforming the SPX and INDU.
The Dollar after a brief expected sell off on the Trump win, has rallied back 4% from those initial levels despite a fiscal ramp that will be financed by debt and potential the safe haven status will at least be under some focus if the Fed is recast. Emerging Markets despite the protectionist mantra from Trump, should do better if the US economy upshifts and there is an emphasis on infrastructure spending here and globally. EM has spent a couple years adjusting to the higher Dollar and while the Dollar moved up this week marginally (relative to the previous week when EM was rallying) its still down on a 1yr basis yet EM traded straight down this week 9%.
On the call today we give you our core thoughts on how you can protect your portfolio and where we see price action on all the sectors and asset classes above.
Tune into your account for more information and Happy Veterans day!
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