November 14, 2016

The major stock market averages opened modestly higher this morning but quickly turned around (Dow -13 pts; SPX -.3%). Financials (esp. banks) are carrying the load, up 1.8% in early trading. But the Dow Transports are also up about 1.7%. Interest rate sensitive sectors (real estate, utilities) are selling off. The VIX Index is spiking a bit (+1% to 15). The dollar is sharply higher as interest rates continue to spike. So gold is down 1.2% and most commodities are lower. WTI crude oil is down under $43/barrel. Bonds are sharply lower. The 5- and 10-year Treasury yields are up to 1.68% and 2.24%, respectively. Both yields are close to 2016 highs. According to the average 30-year fixed mortgage rate is up to 3.75% from 3.5% just a week ago. 

The dollar is now up on the year, meaning the weakening trend has reversed. The stronger dollar is causing investors to pull out of emerging markets. The iShares Emerging Markets ETF (EEM) is down almost 10% from its September high. Inflation expectations are rising and investors are positioning for a big slug of fiscal stimulus from the coming Trump Administration. This, along with economic stability in China, is why copper and iron ore are up so much in recent days. And it explains why the Dow Transports are up about 8% this month. Foreign sovereign bond yields are headed higher as well. The German 10-year Bund yield is up to .36%. So we’re in the middle of a big asset rotation as a result of the election. A CNBC reporter characterized the shift this way: “Buy industrial, financial and healthcare stocks, and sell your bonds.”    

President-Elect Donald Trump was interviewed By the Wall Street Journal regarding his policy priorities. He said he’d like to keep certain portions of ObamaCare intact, including provisions to cover people with pre-existing health conditions, and a rule that allows parents to keep older children insured as part of their plans. Apparently, he shifted his stance on repealing ObamaCare after a White House meeting with President Obama.

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