WASHINGTON, December 12, 2016 – Though two of the three major averages we regularly track—the S&P 500 and the NASDAQ—are in stall mode today, the Dow Jones Industrial Average (DJIA) is still up just a hair today as we approach 2 p.m. EST. In other words, the Great Trump-Santa Claus Rally of 2016 is taking another pause today.
Evidence? The broader market averages are pulling back modestly once again from extreme overbought conditions, at least as far as our other favorite marker, the McClellan Oscillator (symbol: $NYMO on most chart systems) is concerned.
Just like the results of Election 2016 shocked all the usual Mr. Know-It-Alls, so, too is Wall Street’s unexpected Trump-Santa Claus Rally unnerving old-timers with its sheer irrational exuberance. Given the die-hard liberal (or worse) nature of the average pundits and stock pickers, it’s surprising that these allegedly experienced heads don’t get it.
True, a likely ill-advised tweet earlier by the President-elect, attacking Lockheed Martin (symbol: LMT) for charging the government too much for a controversial new aircraft, ended up clobbering the company’s stock mercilessly while tanking other defense contractors hard as well. But The Donald (can we still call him that?) will soon understand (we hope) that his words as President Trump carry far greater weight than those of the soon-to-be-former Mr. Trump. (On the other hand, maybe this is his way of jawboning the defense contractors via his favorite method of social networking.)
We return you now to our regularly scheduled verbiage…
Bull markets are actually driven by robust animal spirits that tend to get ignited when they detect an optimistic spirit. That’s just what we’re encountering here in December 2016.
After our long, gloomy nightmare journey to Obamanation, where ordinary middle-class people watched in horror as their jobs, families and future vanished almost overnight—largely due to America’s “fundamental transformation” into a socialist banana republic—light is once again flooding the financial and employment arena.
Today, there is genuine hope that the flamboyant, out-of-control TV reality show star that Flyover Country denizens elected, giving a big middle-finger to their wealthy elitist oppressors in the process—might actually liberate America’s businesses large and small to do what they do best: invent things and make stuff and hire bucketloads of out-of-work middle-Americans to help them grow and prosper.
All this may never come to pass, of course. The way ahead under such a known unknown as Donald Trump could be rocky. But right now, with the despicable Harry Reid headed off to the Nevada desert to wither away, and with Barack Obama preparing for limitless tee-times at the world’s finest golf courses, most Americans can be forgiven for indulging in a bit of economic optimism for a change.
On that note, at least one of the more respectable Mr. Know-It-Alls, Mohamed El-Erian, currently chief economic advisor for Allianz, has been on board with this brave new world pretty much since the election results were announced. El-Arian shared his view on America’s economic potential with CNBC’s talking heads Monday morning, the essence of which was posted on the cable financial channel’s website, CNBC.com:
“Post-election rallies in stocks and bond yields are the result of a ‘romance’ with President-elect Donald Trump‘s proposed policies of corporate tax reform, infrastructure spending and reduction of regulations, economist Mohamed El-Erian told CNBC on Monday.
“‘[Trump] has changed expectations about three things: liquidity, growth and inflation. And that has had a huge impact, not just on the stock market, but the bond market as well,’ Allianz’s chief economic advisor said on ‘Squawk Box.’
“Liquidity in the market, the ability to buy and sell assets without causing major disruptions, has been a major concern since the 2008 financial crisis. Low economic growth and low inflation have also been prevalent during the presidency of Barack Obama.
“‘What you’re basically seeing is a romance of reflation. It comes from the president-elect’s emphasis on pro-growth policies,’ said El-Erian, referring to reflation, or measures undertaken to stimulate an economy. ‘That has had a massive impact on what have been artificial pricing of the bond market.’
“El-Erian said he’s encouraged by Trump’s Cabinet picks on the economic side, including Wall Street veteran Steven Mnuchin for Treasury secretary and billionaire distressed asset investor Wilbur Ross for Commerce.
“‘[Trump] has picked … people who are committed to pro-growth, who have a feel for this,’ he said, adding there’s a feeling since the election that the gridlock that’s ‘paralyzed’ Washington for years may be about to abate.”
Hence, the endless display of animal spirits on Wall Street, expressed in the current, ongoing, healthy rally that seems to be taking a breather today.
The rally offers more evidence that small investors are finally re-entering the market after boycotting it for years, a phenomenon that many analysts have long viewed as the beginning of the end for any rally. But some time later this month, or after the turn of the New Year, we’ll have an opportunity to see if a re-energized Wall Street really has what it takes to Make America Great Again.