WASHINGTON, November 18, 2016 – Thursday and Friday morning market action amply demonstrates that traders, ranging from individuals to corporations to hedge funds to HFT algorithms are just plain confused as the week draws to a close. It seems as if in the course of just a few days, markets have gone from a surprising, irrationally exuberant post-election, pro-Trump rally to a state of utter confusion.
It’s all as if the stock market, having cheered the election of an actual capitalist to the White House, has now sobered up a bit after its nearly week-long party as traders face what seems to be a near-inevitable interest rate goosing by the Federal Reserve. That seems to have dampened the animal spirits a bit in Friday trading, as an ever-strengthening dollar, if sustained at this level, could slow those all-important U.S. export numbers, putting a lid on the price of large-cap stocks that conduct business and trade 24/7 around the globe.
On the other hand, for bulls who want the Trump rally to continue, maybe it’s a good idea to take a few days off to digest the first sharp up-move they’ve just experienced. If the market’s mildly overbought symptoms can be relieved a bit, the rally might just shift back into gear once again, sustaining and adding to what may have been the first leg of an early-arriving Santa Claus Rally, a jolly holiday-time tradition that we didn’t actually experience in 2015’s year end trading action.
The dollar vs. euro trade now pegs Bucky at $1.05 and a high fraction vs. the European currency, making U.S. goods more expensive over there but making the prospect of European vacation get-aways more appealing to U.S. travelers than it has been since roughly midpoint in the Bush II administration.
The strengthening dollar also has a yin-yang effect on the price of oil, which is off again today largely as a result of dollar strength. A stronger dollar buys more oil per buck, thus making it cheaper at the pump (when vendors decide to lower the price, that is). This in turn erodes the dollar price per barrel of crude, which then puts a crimp on oil drilling and extraction companies’ profits, usually persuading them to cut back on exploration and production.
It’s all a weird and vicious game, particularly since OPEC itself is now confused and unsure if or where to hold the line on prices and production.
Yes, it’s all getting entirely too confusing. Best bet right now is to hang around in the Candy Land of bank and value stocks right now. Both areas, while tepid today, will likely benefit from the Fed’s likely interest rate increase, something the market seems to fear far less, post-Trump, than it did during the reign of King Barack I, whose days in power are blessedly withering away—hopefully like the Marxist, globalist, not-so-sovereign state he sought to establish here.
The economic terrain is very likely to move in 2017 in the kind of positive direction we haven’t seen since before the peak of the Great Recession. There is optimism out there, but it’s a cautious optimism. Even for those business interests eager for the launch of a pro-business Trump Administration, it’s still like Ronald Reagan once said: Trust, but verify.
We’ll see you next week.
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