Despite analyst warnings that the markets were doomed if Trump won the election, equity markets have skyrocketed reports Yahoo Finance on November 16, 2016. On election night, as it became clear that Trump would win, the DOW dropped 5%. Overnight, those futures roared back to finish the day up 6%. Grant Williams, author of the research letter “Things That Make You Go Hmmm” said, “Any market that goes down 5% and up 6% on the same news is inherently unstable.” I completely agree. Bonds on the other hand, have tanked. Stock market indices moved back to near-record highs while 10-year Treasury rates hit Harry’s near-term target of 2.25% earlier this week, and are on the way toward the “Fixed Income Trade of the Decade.”
Thanks to Dent Research, provided here is our weekly information roundup ending the week on November 18, 2016. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news
Trumpflation Strikes the Nation… Bank and energy stocks took off, while interest rates leapt and tech companies dropped.
What it means – Investors have no idea what to expect after Trump’s inauguration. He called for massive spending on infrastructure, but claimed it would come mostly from private investors. He vowed to simplify the tax code and roll back regulation. Some of those proposals sound like pro-growth plans, but who can tell?
Hedging their bets, investors dumped bonds, bought up banks, and tossed tech companies that Trump had derided overboard. Unfortunately, there’s no way to know if these sentiments will continue next week or reverse. The name of the game for now is volatility.
Consumer Prices Rose 0.4% in October, Up 1.6% Over Last Year… Excluding food and energy, considered core inflation, the consumer price index rose 0.1% last month and increased 2.1% from a year ago.
What it means – Notice that core prices were higher for the month, but lower for the year. That weirdness reflects volatile energy prices. As we get farther from the dramatic fall in prices during 2015, the year-over-year effects will dissipate. Expect the headline number to rise closer to the core rate in the months ahead, giving the Fed more cover.
Unfortunately, we’re in for a bit of sticker shock on healthcare spending in 2017. The Affordable Care Act covers just a small sliver of Americans (11 million). But another 10 million or so buy their insurance on the open market. Their premiums will rise an average of 20% or more next year. This is the worst kind of inflation – higher prices without an equal rise in use or quality.
October Retail Sales Up 0.8%, Excluding Autos and Gas, Up 0.6%… The growth rate beat expectations of 0.6% and 0.3%, respectively.
What it means – The consumer isn’t dead! That’s a good thing, although we never expected consumers to completely give up the ghost. In addition to better-than-expected numbers for October, the September reports were pushed up a bit. All of this is good news for retailers, particularly as we enter the all-important holiday spending season.
The report also provides some cover for the Federal Reserve. Now the central bank can raise rates in December while pointing to the solid stance of consumers.
Housing Starts Shot Up 25.5% in October… After falling 9% in September based on a 38% drop in multifamily units, housing starts snapped back to their best levels since 2007. Multifamily unit starts jumped 69% last month.
What it means – I’m surprised by this big jump because home prices, while high, appear to be flattening out, and builders are offering bigger incentives to move inventory.
I can’t help but wonder if this marks the point where builders try to get as much to market as they can before things roll over. For those wishing for more real estate inventory, it looks like you’ll get your wish in three to six months.
Eurozone GDP Up 0.3% in Third Quarter, Up 1.6% Over Last Year… The growth numbers were in line with expectations, but highlight the continued weakness in the region.
What it means – The overall quarterly growth rate might be 0.3%, but it hides weakness in Germany where GDP increased only 0.2%, which is an annual rate of 0.8%. France plodded along in lockstep with Germany, and Italy was only a touch better, matching the overall rate of 0.3%. Spain was a bright spot at 0.7%. The numbers prove what we’ve been writing for a long time – Europe isn’t fixed.
Expect more pain in the months ahead, which should pressure the euro, bringing it closer to par with the U.S. dollar.
A Quarter of Car Trade-Ins Carry Negative Equity... That’s up from 19% in 2011.
What it means – Americans are payment buyers. We like to know what our monthly nut is going to be, especially when wages remain stagnant. In the world of car buying, this means that as prices go up, buyers must extend their repayment period, so they are building equity at a slower pace than in the past. Unless they hold onto the cars longer – which they aren’t – the result is that they still owe on the cars when they trade them in.
But don’t worry! The American car industry has a solution. Just roll your negative equity into your new car loan. Still need the same payment? No problem! Just extend the repayment period out even farther. This can’t end well.
More than 40% of Commercial Property Loans Due Next Year at Risk of Non-Payment… The trend could severely hamper the $11 trillion market.
What it means – The problem isn’t runaway prices in the current market, but goes back a decade. In 2006 and 2007, many companies borrowed money for commercial property using 10-year loans. Those notes are coming due, and a lot of borrowers can’t pay. Luckily for them, a lot of banks engage in “extend and pretend,” where they extend the repayment period and pretend the borrower will be good for it in the future.
This might keep the balls in the air for a little while, but eventually someone has to pay.
U.S. Dollar Near 13-Year Highs… The yen climbed near 110 per U.S. dollar while the Chinese yuan dropped to 6.89, the lowest level since the country broke the peg to the dollar.
What it means – This is going to leave a mark! Trump’s election threw the financial world into turmoil. His calls for stimulus spending with few budgetary restraints hints at higher deficits, which should fuel inflation and higher interest rates. At the same time, lighter regulation, lower taxes, and a friendly relationship with energy all point to growth. With the rest of the world suffering through low growth and low, if not negative rates, the U.S. economy presents a compelling place for investment.
As people move their funds to the U.S., they drive down other currencies, making it harder for those countries to buy imports. The trend might ease the minds of government officials since it makes exports cheaper, but it means inflation for locals, which is never popular if not accompanied by higher wages.
Next Week – The last full week of November includes reports on new home sales, existing home sales, and durable goods. It also includes Thanksgiving, a time for everyone to take a break – and a deep breath! – after the tumultuous election.
Thank you for the confidence you have placed in us by referring your family and friends.
We are currently accepting new clients in 2017.
As you come across someone seeking a second opinion from a firm that provides well-tailored service and independent advice that focuses on the needs and desires of retirees, we appreciate you thinking of us.
We want you along with every investor to be well informed and well invested.
We are on a mission to save your assets.
200 N. Westlake Blvd., Suite 109
Westlake Village, California 91362-3783
805.495.2077 800.266.2077 888.WHY.BEPOOR
The information presented here has been provided by HS Dent. HS Dent is an economic research company that uses various techniques to study the potential impact of various changes in demographic trends in our economy. No one person or strategy can accurately predict market movements. Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be place on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
The opinions in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.
Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is no guarantee of future results. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Securities and advisory services offered through National Planning Corporation (NPC), Member
FINRA/SIPC, a Registered Investment Adviser. Investors Advantage and NPC are separate and unrelated companies.