11.21.2016
By John D'Antona

TRADING THE WEEK: Market Moves Higher Under Trump and Embraces Fed Action

With the election results behind it and the eventuality of a hike in interest rates almost certain, traders embraced the current landscape and continued to trade.

Since October the U.S financial markets have been dealing with swells that looked to be ready create an after election wave ready to drown the markets. However that was not case last week, as the breakwaters held and the markets moved higher – so much so that the Dow hit record highs and the S&P 500 nearly broke its record close.

U.S. economic data, according to Larry Peruzzi, Managing Director of International Trading at the Mischler Financial Group, only helped to allow the market to move higher. Retail sales improved, he noted, as PPI was tame, housing starts and building permits showed some expansion but not enough to cause inflation worries.

“Now with the election out of the way, the markets have returned to watching what the Federal Open Market Committee,” Peruzzi said.

So far Fed Funds are showing that there is a 98% chance of a 25 bps hike at the December 14th meeting. Patrick Harker, president of the Philadelphia Federal Reserve, last week publicly stated last week that he sees an argument for an interest-rate hike in December and a “steeper path” of increases next year if the incoming administration stimulates the economy through fiscal policies. Harker also warned against political interference in the Fed’s operations, saying that the “independence of the Fed is crucial to making the best decisions possible for the American economy.”

Also, Fed Chair Janet Yellen made it clear to lawmakers that the election hasn’t changed the central bank’s decision-making process and signaled that an interest-rate hike is likely in December. She defended the Fed’s independence and said she will serve out her full four-year term, which ends in January 2018.

Most of the week’s market and company specific news was merely a sub plot with the main event being the election fallout. Joseph de Maistre wrote “Every country has the government it deserves” and “In a democracy people get the leaders they deserve.”  So the markets and investors were left trying to decipher exactly what kind of government and leader that will be.  While that answer will no doubt be hotly debated over many Thanksgiving dinners market longs have to be slightly optimistic over the Equity market’s reactions these last 8 days.  Fed watching has been replaced by Presidential transition team watching.

Trading on U.S. equity exchanges dropped slightly after the election day boost seen last week. Trading levels averaged 8.61 billion shares per day for the week ended November 18, according to Bats Global Markets data. That’s compared to an average of 9.24 billion shares in the week ending November11.

“We look head to this week’s short Thanksgiving week. Historically, it’s a bilateral week characterized by light volumes and muted moves pre-Thanksgiving and very light but exaggerated moves on Friday,” Peruzzi said. “Friday’s actions are normally driven by early Christmas sales predictions (check the traffic at malls while driving in on Friday) and Thanksgiving travel figures. Wednesday carries most of the economic releases with Durable goods, initial jobless claims, new home sales, consumer sentiment and the granddaddy of November 2 FOMC meeting minutes released at 2 pm.”

And while the FOMC meeting minutes have been closely followed this year, Peruzzi warned that since hey are coming out a 2 pm on the U.S’s busiest travel day may make them irrelevant.

Peruzzi added that while there could be some pockets of volatility spikes – as measured by the VIX index – the last 6 weeks of the year will be a very import time for many managers.

“This month we are seeing the largest cash flow disparity between equity assets (positive) and Fixed Income (negative) ever” Peruzzi said. “So for the most part this week we will be getting that turkey ready while thinking on how we deal with the last 6 weeks to ensure our portfolio wasn’t a turkey in 2016.”

In other market news, Snapchat-maker Snap has made a confidential filing with the Securities and Exchange Commission for what could be the biggest initial public offering in the US since Alibaba Group Holding went public two years ago, people familiar with the matter said. The company would be valued at between $20 billion and $25 billion. The additional shares, should the company go pubic this year, could juice trading in the final 7 weeks of the year.

The Commodity Futures Trading Commission’s clearinghouse stress tests found that the top five it has jurisdiction over could withstand extreme market price changes and volatile market conditions across multiple asset classes. Chairman Timothy Massad said failure of one clearinghouse wouldn’t necessarily bring down others, noting that the stress tests “found quite a bit of diversification.”

 

This Week’s U.S. Economic Indicators of Interest:

Monday Fed’s Stanley Fischer Speaks
Tuesday Redbook Retail Sales

Existing Homes Sales

Richmond Fed MFG Index

Wednesday Durable Goods

 

Jobless Claims

 

New Home Sales

 

PMI Purchasing Mngrs

Thursday Markets Closed
 

Friday

International Trade

 

NYSE Closes at 1pm

More on Trading

Related articles

  1. FOMC takes historic actions to combat coronavirus and stabilize financial markets.

  2. Colas remains keen on the US and Emerging sectors in particular.

  3. Fed repo market action boosts cryptos.

  4. She begins term effective October 1.

  5. The New York Fed has hired search firms Spencer Stuart and Bridge Partners.