Thursday, November 10, 2016

The Dow surges to a new record while tech shares fall

Dow soared 218 (closing off the highs), decliners slightly ahead of advancers & NAZ dropped 42.  The MLP index was up 2+ to the 299s & the REIT index lost 6+ to the 318s.  Junk bond funds were sold again (after an excellent year) & Treasuries continued selling off, bringing the yield on the 1 year Treasury up to 2.17%.  Oil fell to the mid 44s & gold sank to the mid 1200s (more than 100 below its recent highs).

AMJ (Alerian MLP Index tracking fund)

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Live 24 hours gold chart [Kitco Inc.]

Federal Reserve policy makers are a bunch of “incredibly nerdy” technocrats who never discuss politics in their meetings, according to a senior official, while his colleague said the Fed shouldn't delay an interest-rate increase next month.  “I am not seeing enough volatility here to change my basic projection for the economy,” said Federal Reserve Bank of St. Louis pres James Bullard.  “We are basically on track, the same way we were before the election,” he added.  “Our view has called for a single rate increase and I think December would be a reasonable time to implement that increase.”  His comments came as officials closed ranks to defend the importance of the Fed's independence from political influence following the unexpected victory of Trump, who had been a harsh critic of the central bank & Chair Janet Yellen during his campaign.  The Rep shock win initially sent stock markets plunging, though equity prices have recovered & bond yields risen in anticipation of the tax cuts & infrastructure investment he promised voters.  Investors currently see an 84% probability of a qtr percentage-point hike at the Dec 13-14 meeting, according to federal funds futures.  Questions remain, however, over his attitude toward Fed independence & Yellen, whom he accused of holding rates low to aid Obama.  Fed officials stressed the institution is apolitical.  “It can be, to an outsider, very hard to understand all the things we get into, because we’re incredibly nerdy, incredibly geeky,” said San Francisco Fed chief John Williams as he described meetings of the rate-setting FMOC.

Fed on Track to Hike Next Month

Trump has started to translate some of his populist campaign rhetoric into policy statements, including the contention that big banks are still too big to fail & that one of his priorities is scrapping the Dodd-Frank Act.  After the gov answer to the 2008 financial crisis, the “big banks got bigger while community financial institutions have disappeared at a rate of one per day, and taxpayers remain on the hook for bailing out financial firms deemed ‘too big to fail,”’ says a statement posted on his transition website.  “The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”  The site outlines several policies that will be familiar to those who followed his remarks during the campaign, including his intention to declare a temporary moratorium on new regulations so they can be reviewed.  The site called regulatory reform “a cornerstone of the Trump Administration.”  It also broadly addressed a tax-code overhaul, saying the administration’s plan “can be summarized as lower, simpler, fairer, and pro-growth.”

Trump’s Transition Team Pledges to Dismantle Dodd-Frank Act

The federal gov began its fiscal year with a deficit of $44.2B in Oct, a decrease from a year ago because the month started on a weekend.  Tax receipts collected by the gov rose 5% from Oct 2015 to $222B, according to the Treasury.  Expenditures by the gov fell 24% from the same period to $266B, with the decrease largely coming from smaller Medicare & Veterans Affairs payments.  Those outlays went out in Sep because Oct 1 fell on a Sat this year.  The budget deficit is estimated to total $600B in fiscal 2017.  That would be up slightly from $587B last fiscal year, which ended in Sep.  The federal gov has run a deficit every Oct since 1955.

US budget deficit totals $44 billion in October

These are trying times for those weak of heart.  Dow is up a massive 1½K from the lows in overnight trading early this week when conventional thinking feared a Trump presidency.  A couple days later it is welcomed with unbridled joy.  All of sudden, a 19K Dow is in sight.  Meanwhile techs (many on the NAZ) are hit with selling pressure on fears of the unknown & market breadth is disappointing.  Go figga!!  The truth is that nobody knows where the sudden bull market is going or why.  However, following sudden wild gyrations over a short period of time are generally followed by these word, "Uh-oh."  Keeping cool & just watching makes the most sense for long term investors.

Dow Jones Industrials

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