Where are the markets going? Was there the proverbial “buy on rumor and sell on fact” as now most will become focused upon transforming Trump’s words into action and policies? Will the averages be spooked if there is a delay in confirmations?
As noted yesterday, small business optimism increased by the greatest amount since 1980 and the index is at the highest level since December 2004. The reason for this surge…potential tax and regulatory reform.
Equities were posting a nominal advance until President Trump made the comment of “bidding out drugs” to get the best possible price. Drug and biotech shares fell on this statement. The press conference then became dominated by the Buzz Feed allegations, allegations that he vehemently denied.
I reiterate if there are delays in the formulation and implementation of The President’s tax and regulatory reforms, the averages will suffer. What are the odds? Many are focused on the confirmation hearings. According to Bloomberg, since 1796 there have been approximately 770 nominees for cabinet positions. Only nine have been rejected, four of the rejections occurred during the Tyler Administration over 150 years ago. Against this backdrop, the odds are very low that Trump’s picks will not be confirmed.
Many have become fixated on Dow 20,000. I think it is only a number that is only great for headlines and has little significance.
What I do think is significant is if the 10-year Treasury crosses 3.0%. This is around the level where QE2 commenced. Interest rates are the largest component of valuation formulas and a rise to this level will negatively impact the largest capitalized momentum growth issues and the income alternative stocks such as utilities and consumer nondurables.
I think the odds are around 75% yields will reach this level because of regulatory and tax reform amplified by an increase in monetary velocity or the turnover of money that will cause growth to exceed expectations.
Such an environment is conducive to the small and value stocks but is negative for yesterday’s must own issues.
Radical thought? I think the 22% rise in the small and value shares are a harbinger of things to come and such are in a nascent recovery.
Last night the foreign markets were down. London was down 0.03%, Paris down 0.01%, and Frankfurt down 0.40%. China was down 0.87%, Japan down 1.19%and Hang Sang down 0.46%.
The Dow should open The 10-year is
