In the Global Week Ahead, the ‘Trump trade’ should march ahead, heedless to current conditions. Some observers say the incoming Trump administration over-promised what it can do for the U.S. economy and could under-deliver.
But who cares about that right now?
As this self-confessed climate softy prepares to board a plane from LA to Chicago, I can see I am headed into an early Polar Vortex. Here’s the National Weather Service--
BLOWING AND DRIFTING SNOW IS EXPECTED TONIGHT. WIND CHILLS OF 20 TO POSSIBLY BRIEFLY LOWER THAN 30 BELOW ARE EXPECTED LATE TONIGHT THROUGH MONDAY MORNING.
Something eerily similar can be written about stock markets right now. Financial market conditions are rougher out there than most traders realize.
Momentum trading has pushed S&P 500 valuations to the upper end of a range, when compared to anything previously seen in this bullish cycle. The forward 12-month P/E ratio for the S&P 500 is 17.1. This is based on a 2262 S&P 500 index price and operating EPS of $132. That last number ($132) is also super bullish.
Here’s the rest of the crummy weather few equity traders are looking at…
The U.S. economy has undergone a significant tightening of financial conditions. This takes 3 forms: a simultaneous shock of a much higher U.S. dollar, higher WTI oil prices and rising long-term bond rates.
Note: The broad trade-weighted U.S. dollar marks a 14-year high. This value is on a par with heights reached at the peak of the dot-com bubble.
Note: The 10-year U.S. Treasury yield has almost doubled since July. This is the highest level in a couple years. Acceleration is also an issue.
That is the current financial market reality. Brrrrrr.
What bullish trader momentum and a dovish Fed have done has become evident long before President-elect Trump’s fiscal and regulatory changes arrive.
As one Canadian strategist put it -- a strategist that knows a thing or two about winter conditions, by the way -- “this tightening of financial conditions has come well before any [Trump] tax cut gets inked, let alone spent, well ahead of any Trump budget being passed to show how it will all be financed in the context of raising the debt ceiling, long before any Trump shovels go in the ground, and longer yet before it begins to impact data on growth, jobs and wages.”
The battle then turns to just braving the current crummy financial conditions in the hopes of clearer market skies ahead.
Fly on bravely and blindly, Mr. Market!
I don’t want to challenge this blind optimism. Maybe I should pack suntan lotion for Chicago in December?
Top Zacks #1 Rank (STRONG BUY) Stocks—
(1) Mastec MTZ: This building products/heavy construction industry stock also carries a Zacks VGM score of A. It is a $3.3 billion market cap stock.
Mastec is one of the largest providers of construction services to the telco industry in the U.S.
The Company's principal business consists of the installation and maintenance of aerial, underground and buried copper and fiber optic cable, underground conduit, manhole systems and related construction for local telephone companies, including Regional Bell Operating Companies (RBOCs).
(2) Ocwen Financial OCN: This financial-mortgage & related services industry stock also carries a Zacks VGM score of A. It is a $641 million market cap stock.
Ocwen Financial is a financial services holding company. It is engaged in asset acquisition and resolution, residential finance, commercial finance, investment management and hotel operations.
The Company primarily specializes in the acquisition and resolution of non-performing or underperforming loans.
(3) Tailored Brands TLRD:This textile-apparel industry stock also holds a Zacks VGM score of A. It is a $1.3 billion market cap stock.
Tailored Brands is a specialty retailer of men's suits and provider of tuxedo rental product primarily in the U.S. and Canada. The Company provides suit separates, port coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories.
Tailored Brands, formerly known as The Men’s Wearhouse, is based in Houston, TX.
Traders have a calendar light on macro data next week -- and thru Xmas and New Year’s. However, there are monetary policy events to pay attention to.
Last week, the Fed did hike rates 25 basis points as expected, and the FOMC’s ‘dot-plot’ forward guidance was more hawkish, with 3 hikes in the cards for 2017, not 2.
On Monday, Fed Chair Yellen speaks on the state of the U.S. job market at the University of Baltimore 2016 mid-year commencement. She is a noted labor economist in a previous academic life.
On Tuesday, while the Fed held trader’s focus last week, it cedes to the Bank of Japan (BoJ) this week. That central bank should leave its -0.1% negative deposit rate alone.
Sweden, Taiwan and Thailand also announce rate decisions next week.
On Monday, Germany’s IFO indices come out. Business Climate should get to 110l.30 from 110.40. Current Conditions should get to 115.7 from 115.6, and Expectations to 105.3 from 105.5. All of these readings are strong.
Russia’s unemployment rate is 5.4%.
The Fed’s Yellen speaks in Baltimore.
A 2-day BoJ monetary policy meeting starts. The overnight rate is not supposed to move from -0.10%.
On Tuesday, BoJ head Kuroda issues a policy statement and holds a press conference.
Retails sales in Mexico should fall from +8.1% y/y to +5.5%.
Brazil’s long-term rate the TJLP could get to 7% from 7.5%. That’s a policy-driven rate cut. Brazil’s IBGE inflation rate should fall to 6.72% from 7.64%. That is the underlying macro dynamic to know about here.
The Riksbank announces it policy rate in Sweden. The repo rate is -0.5%.
The Bank of Thailand announces its policy rate, now at 1.5%.
On Wednesday, US existing homes sales should get to 5.45 million from 5.6 million. Last month, winter had begun.
On Thursday, the central bank (CBC) of Taiwan announces its policy rate. A 1.38% benchmark rate is in play now. The unemployment rate in Taiwan is 3.9% at the moment.
U.S. durable goods orders come out. A m/m fall to -6.3% follows a rise of +4.6%. This is volatile data. There is likely to be nothing to the latest move.
3rd quarter GDP growth in the USA should be confirmed as +3.2% q/q annualized.
Mexico’s CPI should get to +3.42% from 3.32% y/y.
On Friday, consumer spending in France should be +1.5% y/y. Anemic. French GDP in y/y terms is looking to grow +1.1%.
The unemployment rate in Poland is 8.2%.
The unemployment rate in Mexico is 3.75% in seasonally adjusted terms; 3.95% otherwise.
The Univ. of Michigan sentiment index should be 98 in the USA. That’s a strong reading.
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