Posts

Stock Market Update: Trumponomics

/in /by

Wednesday was volatile as Trump’s press conference induced a mid-day sell off, but stocks recovered after lunch to finish with moderate gains.  The S&P 500 rose 0.28%.

The markets are now experiencing “Trumponomics.”  The Sevens Report, a daily macro-economic report for financial advisors, just released it’s “Stock Market Update:  Investors Guide to Trumponomics.”

Stock Market Update

stock market updateStocks were basically flat throughout the morning yesterday in what was very quiet trading.  Trump really dominated the narrative all day yesterday as the Russian “dossier” story weighed on sentiment slightly pre-open on Wednesday, and that was made worse by the fact that there was no economic data or corporate news to distract from the Trump story.

So, stocks opened basically flat and chopped sideways ahead of the Trump press conference at 11 a.m..

As we said earlier this week, this event had the potential to move markets and, at least temporarily, it did not disappoint.

The press conference was full of figurative fireworks but the fact that there was absolutely no mention of fiscal stimulus or tax cuts hit stocks (as we cautioned it might in our preview on Wednesday). First, Trump’s left field comment about reducing the cost of drug prices sent biotechs into mini free-fall, and that took healthcare lower which weighed on the whole market.  Then, after a brief rebound, stocks rolled over again after Trump failed to imply a timeline for tax cuts of fiscal stimulus.

But, the market is giving Trump and the Republicans the benefit of the doubt and his omissions weren’t damming yesterday (yet).  So, stocks rebounded after lunch and rallied throughout the final two hours of trading to close basically at the higher of the day.  Oil, which accelerate higher during the afternoon, also helped stocks rally, as oil remains an important short term influence over stocks.

Stock Market Update: Trading Color

Trump dominated sector trading as well yesterday as this comments about “bidding” for drug prices hit biotech stocks (NBI dropped nearly 3%) and healthcare more broadly (XLV fell 1%).   XLV the only SPDR we track to finish negative yesterday.

But, it wasn’t just the biotech comments as the quasi disappointing press conference did cause some defensive outperformance as utilities rose 1%. Besides energy (XLE), which was up on the oil rally, utilities were the best performing SPDR in the markets yesterday.

Continuing that cautious theme, cyclical sectors also rose (again every SPDR except healthcare was higher yesterday) but banks, tech and industrials were up just .5%., so clearly there was no real, cyclical outperformance.

So, Trump’s comments (or lack thereof regarding tax cuts of stimulus) took some wind out of the cyclical led “Trump Trade” sails yesterday.

Bottom Line

Yesterday’s price action after the press conference gave us some important insight into how we can expect stocks to trade over the next few weeks:

The fact that there was no mention of tax cuts, infrastructure spending or de-regulation by Trump weighed on stocks temporarily Wednesday, and bigger picture that lack of specifics does threatens to undermine the post Election rally.

But, while stocks are lower this morning mostly because of that disappointment, yesterday’s press conference likely won’t cause a material unwind of the “Trump Trade” because the market is still willing to give Trump/Republicans the benefit of the doubt on a lack of policy specifics.  So, this morning’s dip aside, don’t expect lack of policy clarity alone to cause a pullback near term (it’ll take something additional like Chinese currency volatility, bad economic data, etc.).

But, beyond the short term (and I mean the next 2-4 weeks) the biggest risk to stocks is the gap between market expectations of tax cuts and pro-growth policies, and the potential political reality.  And, yesterday’s press conference did nothing to reduce that risk.

As I said in the Trump Press Conference Preview, if the market does not get some evidence that corporate tax cuts are progressing and forthcoming by the middle of Q1, that will begin to weigh on stocks.

In the mean time, the benefit of the doubt remains with the bulls but the S&P 500 is still at a valuation ceiling at 18X forward earnings, and it’s going to take evidence of looming pro-growth policies to help stocks punch materially through recent highs.

Thoughts on Healthcare

Trump’s surprise comments on bidding for drug prices caught markets by surprise and hit healthcare and biotech stocks yesterday, but at this point that general rhetoric isn’t enough to make me abandon my long position.

That may change once we get some actual policy specifics but for now that comments seemed more like populist rhetoric than anything actually concrete, and I imagine the complicated Obamacare repeal will likely dominate any healthcare related policy in the first half of 2017.  Put another way, they will have enough to worry about ensuring that coverage continues for Obamacare recipients, never mind changing national drug pricing structures to the detriment of biotech firms.

 

 

Chart of the Day: Trump Trips the Dollar

/in /by

The dollar index traded down to a one-month low yesterday as the markets grew cautious after Trump failed to divulge details of his administrations’ plans after inauguration, most notably corporate tax reform.

 

Stock Market Update: January 10th, 2017

/in /by

Stock Market Update excerpt from the Sevens Report: Stocks gave back most of Friday’s gains on Monday thanks mostly to digestion of last week’s rally ahead of some important catalysts later this week (Trump’s speech Wednesday specifically). A sharp drop in oil also weighed on the averages. The S&P 500 fell 0.35%.

Stocks started Monday mostly flat following a quiet weekend. There were actually macro positives yesterday, primary of which was the Chinese currency reserve data. But economic numbers from Germany were also strong Monday morning.

Then a drop in oil offset those positives, and as a result stocks opened lower and fell basically to the lows of the day within the first 30 minutes of trade, again thanks almost entirely to oil.

From those lows, stocks basically traded sideways for the remainder of the session. There were potential catalysts including Fed speakers and the Consumer Credit number at 3:00 p.m. yesterday, but none of it provided any material surprises, and nothing changed the general outlook for markets. Stocks chopped sideways in the afternoon before closing near the lows of the day.

Stock Market Update: Trading Color

Healthcare and super cap internet stocks were again the positive story yesterday, and five trading days into 2017 they are the clear surprise winners so far.

Healthcare was the lone positive SPDR yesterday, rising 0.42% again mainly on biotech strength. Meanwhile, super cap internet stocks (think FANG—FB/AMZN/NFLX/GOOG) rallied again yesterday and FDN, our preferred super cap internet ETF, rose 0.25%.

Away from healthcare and internet names, selling was broad yesterday as eight of the nine SPDRs we track declined. Energy was an obvious laggard due to the drop in oil, as XLE fell 1.45%. Oddly, utilities also fell sharply (down 1.3%) despite the decline in bond yields.

Financials, industrials and consumer staples all relatively lagged the S&P 500, but didn’t fall by more than 1% while tech was again another relative outperformer, with XLK down fractionally.

Single stock news was virtually non-existent yesterday,  and trading from an activity and volume standpoint was very quiet. General digestion remains the best way to describe yesterday’s price action.

Did you enjoy the stock market update excerpt?

To start 2017, I am continuing to extend a special offer to new subscribers of our full, daily report that we call our “2 week grace period.”

If you subscribe to The Sevens Report today, and after the first two weeks you are not completely satisfied, we will refund your first quarterly payment, in full, no questions asked.

To start your quarterly subscription, and see for yourself how The Sevens Report can help you grow your business, click here. 

 

Pullback in the 10 Yr. Yield (Chart)

/in /by

The 10 year Note yield became over extended in the wake of the election and so far in January has been correcting lower. Looking ahead, a continuation of that correction towards the 2.25% area should not come as a surprise.

Stock Market Update: January 6, 2017

/in /by

Stock Market Update from The Sevens Report: Stocks declined for the first time in 2017, but the losses were small, as disappointing retailer earnings offset more decent economic data ahead of the first big catalyst of the year… the December jobs report. The S&P 500 declined 0.08%.

Stocks were flat at the start of Thursday trade, as very poor results from KSS and M offset more decent global economic data. US data yesterday was mixed, but generally “fine,” as jobless claims dropped sharply (ADP missed estimates, but not terribly so) and ISM Non-Manufacturing PMI slightly beat estimates. In total, none of the data points altered the narrative around the economy or Fed expectations, and stocks opened flat and chopped sideways with small gains until the oil inventory number.

stock market updateThe weekly oil inventory report was taken initially as bearish, and that caused a pullback in stocks as the drops in oil at 10:30 and 11:00 led the break lower in the major averages, as oil remains a shorter-term influence over the stock market. But both oil and stocks bottomed for the day right around 11:30, and both began rallies that lasted until oil’s close at 2:30. With no other notable news (and an important jobs report this morning) stocks chopped sideways before closing slightly lower.

Stock Market Update: Trading Color

From a sector standpoint it was quiet outside of financials and retailers (more on those in a second). No SPDR we track moved more than 0.50% yesterday, and trading was mixed excluding financials. Three of the SPDRs we track traded higher (led by healthcare (XLV +0.45%) while five SPDRs were lower (led by industrials, XLI -0.30%). There was no notable news that caused the moves in these sectors, and most of it was just general positioning.

The same cannot be said for financials and retailers, as banks dropped 1.7% and financials fell 1.2% on the drop in bond yields, as the 30-year Treasury yield hit a one-month low.

Retail, meanwhile, got hammered courtesy of KSS and M, which plunged 19% and 14%, respectively. That dragged down XRT, the retail ETF (-2.4%). Notably, though, the broad consumer discretionary SPDR, XLY, declined only 0.11%, and that reinforces what I said earlier Wednesday that the KSS and M prints are a retail business model problem (i.e. too much brick and mortar, not enough online) not a consumer spending problem (and that’s a positive for the economy broadly). The traditional retail sector continues to face stiff structural headwinds, and I’m not interested in buying dips.

Finally, looking at tech, semiconductors continued to fall but they held support at 900 in the SOX. A break of that makes me short-term nervous on stocks. Meanwhile, our old friends the FANGs (FB/AMZN/NFLX/GOOGL) all traded well and FDN rose 1.1%. While not as powerful as they were in 2015, owning super-cap internet stocks continues to make sense for longer-term investors, as those companies continue to be on the edge of innovation in tech.

Looking ahead to today, the risk here is for a soft jobs report due to ADP and if the report but unless the S&P 500 breaks support at 2239 the short term trend remains higher.

 

Why Chinese Yuan Volatility Matters to You

One of the more important, but underfollowed, stories in the financial media this week has been the surge higher in the Chinese yuan. That move caused the dollar drop yesterday, and it’s an uncomfortable reminder of yuan-inspired stock volatility in January 2016.

Understanding yuan trading dynamics is about as exciting as reading stereo instructions (and in some cases just as complicated), so I’m not going to bore you with the details.  But, it is important you understand 1) What’s happening with the yuan, 2) Why it’s a risk to stocks and 3) How to hedge against a yuan-inspired decline in stocks.


What Happened: Since the election, the yuan weakened relentlessly vs. the dollar. And as we started 2017, it was in danger of breaking the psychologically important $7.00 level. A break of that level is a problem for two reasons. First, it would provide fodder for China hardliners in the Trump administration to get tough on trade, because the currency would be so weak. Second, it would put stress on China’s ability to control the yuan, as a break of the level would invite more selling of the yuan.

So, to support the yuan, Chinese authorities intervened in the markets starting on Wednesday, and continued on Thursday, and the results were significant—the yuan surged nearly 2% in two days, the biggest two-day move since 2010.

Why It Matters: There have been two periods in the last two years where we’ve seen this level of yuan volatility: Aug/Sept ’15 and Jan ’16.  Both periods saw deep, sharp and scary stock market pullbacks, because the yuan gyrations caused a loss of confidence in the Chinese economy/authorities. Fearing a Chinese “hard landing,” global investors sold first and asked questions later.

Today, the causes of yuan volatility are different, and I don’t think we’re on the precipice of a yuan-inspired pullback in stocks just yet. But, the chances are rising.

The reason why is the yuan declines aren’t over. That’s because the decline in the yuan is a product of 1) Fears of trade disputes with a Trump administration hurting the Chinese economy and 2) A relentlessly rallying dollar, which will force the yuan lower and risk a recession in China.

Everyone knows both these longer-term trends (higher dollar/weaker yuan), which is why Chinese citizens are trying to exchange yuan for dollars or other currencies. And it’s why the Chinese government has imposed capital controls preventing citizens and companies from doing just that!

Near term, Chinese authorities can support the yuan and continue to defend the $7.00 level by selling foreign currencies from their massive forex reserves (when you sell a currency against the yuan, the yuan goes up). But that can’t last forever, and if their forex reserves drop below $3 trillion, markets will start to get nervous about China’s ability to keep the yuan stable. This is particularly important, as over the weekend China will release its currency reserves for December. That number better be above $3 trillion, or Monday could be a down open.

How We Position for It:  Again, I’m not saying this yuan volatility will cause a pullback, but the chances of a one-time, large yuan devaluation are rising, and that could cause global macro volatility in Q1. From a positioning standpoint, the best way to hedge against a China-inspired pullback in stocks is EUM, the inverse emerging market ETF. That ETF protected portfolios in Sept/Aug ’15 and Jan ’16, and I’m confident it will do so again if China/yuan volatility causes a pullback in stocks.

Bottom line: The yuan volatility is not a problem for stocks yet, but I do want everyone to understand the context in case we do see a big, one time devaluation of the yuan in Q1 2017, as that might cause a knee-jerk, “risk off” trade of lower stocks/lower commodities/lower dollar/higher Treasuries.

Going forward, the two key numbers to watch are $7.00 yuan/dollar (a break above that level is bad) and $3 trillion Chinese Foreign Cash Reserves (a break below that number would be bad). If either occur, chances of another China-inspired pullback in stocks will rise.

Did you enjoy the “Stock Market Update” excerpt from The Sevens Report, please sign up for our updates or subscribe and get a two week money back guarantee.

 

 

 

Dollar Index Approaches Tipping Point (Chart)

/in /by

While the longer term uptrend in the dollar index remains very well intact, the steeper, post-election uptrend has neared a “tipping point” on the daily chart.

 

Stock Market Update: 01/04/2017

/in /by

Stock Market Update excerpt from The Sevens Report.  Stocks surged to start the new year as a resumption of the Q4 “Trump/Reflation” trade, along with strong economic data sent stocks moderately higher to start the year. The S&P 500 rose 0.85%.

Stocks were higher from the outset Tuesday in part because they needed to play catch up to foreign markets, which rose on Monday while the US was closed. But, even without the foreign tailwind, US stocks would have  been higher Tuesday as there was a clear resumption of what outperformed in Q4. Cyclical stocks, the dollar and oil were higher while bonds were lower. That “reflation” trade accelerated following the open after strong December ISM Manufacturing data.

Stock Market UpdateMarkets lost a bit of momentum midday as politics interjected into yesterday’s trade (a theme we should all get used to in 2017). Trump’s tweet about GM (he mentioned border taxes) helped stoke some worries about trade issues for 2017 (although the announcement that Ford was keeping a plant in the US was met positively).  The Stock Market drifted lower on general digestion, and hit the lows for the day up just 7 points in the S&P 500. However, stocks bounced off intraday support at 2245 and rallied during the final 30 minutes to finish with solid gains.

Trading Color

Volumes and activity still muted yesterday, and while certain sectors did mimic Q4 performance (cyclicals did outperform), it wasn’t overall compelling outperformance. The major indices all finished with similar gains (there was no Russell 2000 or Nasdaq outperformance).

From a sector standpoint, there was cyclical outperformance as financials (XLF) and energy (XLE) both rallied more than 1% while utilities dipped 0.25%. However, it wasn’t a true out-of-safety, into-cyclicals rotation, as consumer staples had a decent day, up 0.40%, and REITs rose 1.33%. Finally, healthcare traded well to start the year, with XLV up 1.3%. The sector remains one of my contrarian ideas for 2016 due to negative sentiment and overblown political fears.

Did you enjoy the “Stock Market Update” excerpt from The Sevens Report?  Please sign up for free market updates or subscribe and get a two week money back guarantee.

 

 

Stock Market Update: 12/28/16

/in /by

stock market update

Here is an excerpt Stock Market Update from The Sevens Report.  Stocks rallied in quiet trade to start the final week of the year yesterday, as the Nasdaq reached a new all-time high. The S&P 500 gained 0.22% on the day.

Futures were flat early yesterday, but once the bell rang stocks jumped higher out of the gate thanks to economic data that showed an increase in home prices and a spike in consumer confidence.

But with attendance so low between Christmas and New Year’s holidays, and as Hanukah continues, the rally failed to gain any traction and the benchmark averages began to slip from early highs into the lunch hour.

News flow remained extremely quiet, volumes were down and attendance was thin, which allowed stocks to continue to bleed lower into the afternoon until they closed basically in the middle of the day’s trading range.

Technically speaking, the Nasdaq composite hit new highs; however, Dow 20,000 remained elusive for another day despite a run to within 20 points of the psychologically significant level.

Trading Color

Yesterday was slow from both a macro and micro standpoint, as both index and sector movements could best be characterized as drifts. The Russell 2000 and Nasdaq both outperformed the S&P 500, but only slightly, up 0.5% to the S&P 500’s 0.22%.

Internally, the rally was broad as all nine SPDRs we track finished higher, although none came close to rising more than 1%. Basic materials and tech were the two outperformers, up 0.5% and 0.45%, respectively. Materials

were up on the general lift in the commodity complex, while tech rose thanks to preliminary indications of strong holiday sales. AMZN in particular rallied more than 1.5% on reports of strong Amazon branded product sales (Alexa in particular). NFLX also was nearly 2% higher on news of strong holiday subscription sales.

More broadly, there was slight cyclical outperformance yesterday as consumer staples and utilities finished basically unchanged on the day while the aforementioned materials and tech sectors outperformed. But again, the moves were minimal and can be chalked up to random trading noise.

Bottom line, Tuesday was a quiet day in the markets, and with a barren calendar looming for the remainder of the week we can expect more of the same going forward.

Bottom Line: 4 Events To Watch in Q1 2017

In Monday’s issue, I pointed out four policy errors that could adversely affect markets in 2017. With that in mind, I wanted to point out specific events and dates that will give us color on those potential policy errors.

To a point, this is a preliminary catalyst list for Q1 2017, although obviously we will be adding to it as the weeks go by. As we start 2017, though, these are four key dates/events to watch.

1) Trump’s Policies – Will They Meet Very Lofty Expectations (Jan. 20)? Don’t be surprised if we see a “Buy the president-elect, sell the president” market reaction in 2017, as investors could book profits once Trump assumes office. That’s because the single biggest question for markets is whether the actual policies put forward by the new government will meet the very lofty market expectations, and there is serious risk of a disappointment.

We’ll be focused on leading indicators that will tell us whether these policies look likely, because if they don’t, stocks could drop sharply after the inauguration.

2) Fed Meeting (Jan. 31). It’s not a coincidence the hawkish December Fed meeting basically arrested the post-election rally. By the time the January Fed meeting occurs, we’ll have a lot more information on inflation and growth, and it’s entirely possible that the Fed signals another rate hike is coming. If that happens, the 10-year Treasury yield could surge to 3%, and that will hit stocks, regardless of what Trump is doing.

3) Semi-Annual Currency Report (March/April). What if Trump starts a trade war with China? I’m not saying it’s going to happen, but the market is so enamored with potential pro-growth policies that it’s largely ignoring the fact that Trump wants to take a hardline stance on trade. Last week, Trump appointed Peter Navarro, author of the book Death by China, to head a new trade council.

If the Treasury Department labels China a currency manipulator in this Currency Report, automatic tariffs are imposed and a trade conflict could easily ensue.

4) Fed Meeting, (March 15). At this point, we’ll know a lot more about the policies coming out of Washington, and if we’re going to see a lot more fiscal stimulus, then Yellen herself has said the Fed will react with higher rates to prevent inflation.

This March Fed meeting is the first of 2017 with an updated “dot plot,” so if the Fed wants to communicate more hikes in 2017, this is the first opportunity to do so. That will send the dollar and bond yields sharply higher, which will be a headwind on stocks.

 

 

Can Trump Fire Yellen?

/in /by

pic_giant_012916_trump-yellen

Can Trump Fire Janet Yellen?

I was asked that question at a Christmas Party on Saturday night by a local real estate agent.

He’s not an active investor (he has an FA) but he does follow the markets, and he was nervous that Trump may fire Yellen because Trump said he thinks interest rates are too low (and rising interest rates are obviously not good for the real estate business).

Before telling my friend that Trump can’t fire Yellen, I asked him if he asked his FA the same question (I try not to directly contradict peoples’ advisors unless they are just outright wrong).

He said he did, but the FA gave this vague answer and dismissed the question. My friend got the distinct idea that the FA didn’t know the answer.

Now, that’s not a knock on the advisor.

In today’s ultra-competitive money management industry, advisors simply don’t have the time to spend doing the research needed to understand the Fed and the implications to all assets.

That’s why we make sure we do the work for them and deliver our daily research note to them at 7 AM every morning and keep it readable in 7 minutes, so they can spend their time on the things they are compensated for:

  • Building client relationships,
  • Increasing AUM, and
  • Closing prospects. 

To that point, I doubt this advisor’s firm provided her the direct explanation as to why the President can’t fire the Fed Chair, and I also doubt her brokerage firm provided much research on the Fed outlook for 2017 (beyond recapping last week’s FOMC Meeting).

But, as our focus turns towards 2017, there is the potential for even more Fed related market volatility as one of the biggest unknowns that has the potential to shake markets and the economy is the relationship between Fed Chair Yellen and President-elect Trump.

For the first time in my memory, we could be looking at a publicly adversarial relationship between the President and the Fed chair, and no one knows what that means for markets.

Since last Wednesday (the FOMC Meeting), we’ve been the Fed “expert” for our paid subscribers, and given them the talking points they need to 1) Explain why the Fed is causing bond yields to surge even higher and 2) Demonstrate they understand what more rate hikes in 2017 means for all client holdings: Stocks, Bonds, Currencies, Commodities.

At parties and events this past weekend, our paid subscribers had the talking points they needed to be able to turn my friend’s question into an opportunity to get a new client!

That’s what we do for paid subscribers every trading day at 7 AM, and it’s why we believe we’re the best value in the independent research space.

It’s important that everyone understands the context of the Trump/Yellen relationship, because that helps to look past the media hype and bluster to accurately assess what the changes in the Yellen/Trump relationship mean for markets. We’ve included an excerpt of that research as a courtesy.

Yellen vs. Trump

Potential differences between the two have been apparent for months, as Trump criticized the Fed on the campaign trail in two specific ways. First, he said the Fed has kept rates too low for too long, and has created multiple bubbles to prop the economy up.

Second, he said the Fed kept rates ultra-low to support the economy and get Clinton elected.

Since he won the election, Trump has stayed quiet on the Fed, although there were a lot of us watching Twitter following Wednesday’s FOMC meeting to see whether Trump would respond to what some interpreted as criticism by Yellen towards Trump/Republican fiscal policy.

We want to explore those comments and explain 1) Why they were hawkish and 2) What they mean for the Yellen/Trump relationship going forward.

Yellen’s Hawkish Point #1: It’s too Late For Fiscal Stimulus

Yellen was very explicit in the FOMC press conference in saying that large-scale fiscal stimulus was not needed now that the economy is basically at full employment, as it would risk igniting an acceleration in inflation (she is basically saying that fiscal stimulus now would do more harm than good, a direct contradiction to what the new administration is saying).

To understand her reasoning, imagine we’re trying to keep a fire going that’s almost gone out (the economy post 2008). To get the fire roaring again, we need kindling and wood (0% interest rates & QE) and a match (fiscal stimulus).

But, we don’t have any matches (there’s been no fiscal stimulus since ’08, and if anything, over regulation has inhibited growth). To keep the fire alive we keep heaping kindling (QE) and wood (0% rates) on top. And that partially works, and the fire doesn’t go out… but it doesn’t really grow, either (2% GDP growth since ’08).

Now we are left with a small fire, but a tower of wood and kindling above it that hasn’t caught on fire yet.

Then, after years of this we begin to see the fruits of our labor start to pay off as the lower logs are finally catching fire (full employment and an uptick in growth in 2016). Now we’ve got a fire that’s starting to grow, but we’ve got way too much wood and kindling on top of it, so we begin to remove the wood to make sure the fire doesn’t burn out of control (removing wood is equivalent to rate hikes).

Then, all of a sudden, someone comes along with a flame thrower (large-scale fiscal stimulus) and the risk is if they hit our tower of wood with this flame thrower before we can remove some of the logs, we’ll have an out of control inferno (surging inflation).

That’s basically the reasoning behind Yellen saying the economy doesn’t need large-scale fiscal stimulus right now (we needed it several years ago, before the theoretical tower of logs got too big). Now, I’m not saying I necessarily agree with that logic, nor am I endorsing it, but that is why she said what she did.

The reason this is a potential problem with Trump is because if Yellen stays on this message, then she is basically contradicting the administration and saying it’s doing the wrong thing economically.

And we all know how publicly criticizing Trump has gone over during the last 18 months—he yelled at the Pope, so I doubt Yellen is off limits!

Point being, there is the potential here for a very public disagreement, and that’s not good for investor sentiment or the markets.

Hawkish Point #2: The Fed Isn’t Trying to Overheat the Economy

As we stated last week, Yellen’s tone in this press conference was oddly defensive, and we can reasonably conclude it was in response to criticism of the Fed’s policies during the campaign season.

Specifically, Yellen very pointedly said the Fed was not trying to run the economy “hot,” i.e. keep rates lower than they should be solely to generate strong growth while ignoring the potential negative effects of inflation.

That comment was her rebuking Trump’s assertions that the Fed has 1) Kept rates too low to prop the economy up via the creation of asset bubbles, or 2) Kept rates too low to support growth so that Clinton could get elected. Again, this was surprisingly pointed, and the takeaway is clear. Yellen is aware of Trump’s criticisms, and apparently isn’t going to take them without response (although obviously never directly).

Bottom Line

Quite simply, I (and no one I’ve spoken to) remembers a time when a public spat between the president and the Fed chair was this likely to occur. That will have implications across assets: stocks, bonds, currencies (especially the dollar) and commodities (esp. gold and oil). And, this dynamic leaves us with some strange questions to ponder as we enter 2017:

  • Will Trump accuse the Fed of political motivation if they continue to hike rates, and if that hurts growth?
  • If the Fed hikes faster following fiscal stimulus, will Trump see it as undermining his economic plan, and will he then launch a Twitter attack?
  • Will Trump mock or belittle Yellen publicly?

Shocking as it may sound, these all are real questions that will likely be answered early in 2017, and we need to understand the implications of those answers if we’re to start 2017 off on the right foot.

Again, all this matters for one specific reason: Interest Rates.

So far, stocks have weathered a huge spike in interest rates because markets expect economic growth to accelerate. But, rates keep rising at this pace, and the 10-year yield moves to and through 3% in Q1 2017, then that will have the potential to cause a potentially nasty pullback in stocks!

So, as we start 2017, make sure you’ve got an analyst team working for you who is focused on: Stocks, Bonds, the Dollar, Gold, Oil and Economic Data, because there will be volatility in 2017 (and potentially a lot).

We make sure our paid subscribers have the daily market intelligence and talking points across assets, so that they are never blindsided by a client question, and can turn any conversation into an opportunity to get a client.

And, we do it all just $195 per quarter ($65/month). It’s why we confidently believe we offer the best value in the independent research space.

I am so confident in the value our daily macro report provides that I’m continuing to extend a special offer to new subscribers of our full, daily report that we call our “2 week grace period.”

If you subscribe to The Sevens Report today, and after the first two weeks you are not completely satisfied, we will refund your first quarterly payment, in full, no questions asked.

To start your quarterly subscription, and see for yourself how The Sevens Report can help you grow your business, click here. 

Value Add Research That Can Help You Finish 2016 Strong and Start 2017 on the Right Foot!

Our subscribers have told us how our focus on medium-term, tactical opportunities and risks has helped them outperform for clients and grow their businesses.

We continue to get strong feedback that our report is: Providing value, helping our clients outperform markets, and helping them build their books:

“Thanks for your continued insight; it has saved my clients over $2M USD this year… Keep up the great work!” – Top Producing FA from a National Brokerage Firm.

“Let me know if there is anything else that you need from us. Thanks again for everything. I really enjoy the Report – it is helping me grow my business and stay on top of things.” – Independent FA.

“Great service from a great company!!” – FA from a National Brokerage Firm. 

“Great report. You’ve become invaluable to me, thanks for everything…! – FA from a Boutique Investment Management Firm. 

Subscriptions start at just $65 per month, billed quarterly, and with the option to cancel any time prior to the beginning of the next quarter, there’s simply no reason why you shouldn’t subscribe to The Sevens Report right now.

Begin your subscription now by clicking the button below to get redirected to our secure order form.

Finally, everything in business is a trade-off between capital and returns.

So, if you commit to an annual subscription, you get one month free, a savings of $65 dollars.  To sign up for an annual subscription, simply click here.

Best,
Tom

Tom Essaye,
Editor of The Sevens Report

Stock Market Reaction & Strategy to Trump’s Win

/in /by

Stocks saw their biggest drop since Brexit early this morning while currency and bond markets made historic moves overnight, and I have no doubt that clients are calling you asking:

“What do we do?”

I basically didn’t sleep last night making sure we could help our subscribers answer that question when clients called today.  

So, in today’s paid edition of The Sevens Report (which was delivered shortly after 7 a.m.), we explained:

1.    Whether the Trump victory is a “Lehman Moment” that requires massive de-risking across asset classes (We do not think so at this point).
2.    What key index and level we are watching to tell us when this might become a potential “Lehman moment” and require much more defensive positioning.
3.    What we would consider buying TODAY amid the volatility.
4.    What specific level we would consider buying this dip in stocks based on valuations (it’s lower than current levels).

I never like to see markets down like this, but I am happy that our “Election Preview” detailed, specifically, what would happen if we got a surprise Trump victory, and so far, much of our preview has been spot on.  

So, despite the hysteria in the financial media today, our subscribers were not blindsided by that result and I’m sure that’s helping them today in conversations with their clients.  

Going forward, everyone wants to know how this will affect markets and the amount of uncertainty regarding a Trump administration will be significant.  

We will cut through that noise for our subscribers and deliver the information they need to successfully navigate this environment.  

While the financial media (both TV and online) is going to be hysterical for the next few days about the impacts of this historic vote, there are three key issues we need to watch to tell us what to do from an allocation standpoint:

•    Does the uncertainty of a Trump victory paralyze the markets for the rest of 2016?
•    Will the Fed delay a rate hike due to stock market turmoil?

•    Will the selloff in Treasuries accelerate and send the 10 year yield to and through 2%?

If the answers to all three of these questions are “No,” then the market impact of this will be temporary -and we will be watching each of these issues for our subscribers and will alert them to any changes.  

That’s how we will help them cut through the noise and navigate this market.  

Mornings like today are why I created The Sevens Report, so that our subscribers can turn market volatility into an opportunity to demonstrate their value to their clients, and in doing so increase AUM via more allocations and more referrals.
 
While some advisors are avoiding client calls or searching for something to tell nervous clients, our subscribers know what is driving the markets and are using this as an opportunity to show their clients they are in control of the situation.

The most important thing for financial advisors to do in this volatile
environment is to show clients that they:

•    Know what is going on in markets,
•    Are in control of client portfolios, and
•    Know what to expect next.

Because if you don’t, you will lose those clients to someone who does.

Today will be a difficult day in the markets and we want to make sure people have a clear understanding of what’s actually driving markets and what the key catalysts are going forward.  We’ve included an excerpt of our post-election research as a courtesy below.  We hope it makes your day a bit easier.

 

What the Election Means for Markets: Sevens Key Takeaways.


The events of last night largely met our “Ugly” scenario, and as such we saw a “Brexit-style” reaction as markets traded sharply lower overnight, although notably they are well off those lows this morning.

From an analysis stand point I want to focus on immediate takeaways and trying to answer questions you may have (or questions you may get from your clients regarding this event):

Takeaway 1: The Trump victory is not a bearish game changer for markets, at least not yet. From a macro standpoint, we are seeing that “sell first/ask questions later” reaction from markets that we predicted. But, despite the reaction we do not view the Trump victory as a material, bearish gamechanger and we are not reducing medium/longer term allocations to stocks on the news or market reaction.

I say that for one main reason: Beyond the short term, with total control of government, Trump will be able to enact potential pro-growth policies and the new US government will be business friendly, which longer term is a positive.

Takeaway 2: Does the Trump win imperil a yearend rally in stocks? Yes. To put it lightly, a lot of policy uncertainty needs to be clarified over the coming months. So, from a practical standpoint, that uncertainty means a material year-end rally is unlikely. While some analysts are calling for a Brexit-style bounce following this initial selling, as the market digests Trumps pro-growth policies, we do not see that happening this year (i.e. the remainder of 2016) as there are simply too many unknowns about his policies and the makeup of his administration.
From a broad level, until the market knows more, stocks will have a very hard time rallying materially.

Takeaway 3: The Fed may not hike rates in December. Treasuries are down sharply this morning but the longer-term decline in bonds has potentially stalled for 2016, as we don’t know whether the Fed will hike rates in December given this political upset and market fallout. We are not adding to inverse bond positions although longer term the trends of inflation and growth should continue to push yields higher.

Takeaway 4: Gold is a clear winner, and will likely rally until there is more clarity on Trump’s policies, and that’s one of the clear winners of this outcome.

Takeaway 5: Make Sure You Have a Tactical Hedge in Case this Market Rolls Over. Restricted for Subscribers.

Takeaway 6: Sector Winners and Losers:
Restricted for subscribers.

Takeaway 7: Which Two Sector ETFs We Are Buying Today. Restricted for Subscribers.

Takeaway 8: What Makes This A Bearish Game Changer.
Restricted for Subscribers.


Having daily, accurate, up to date information on the key leading indicators for this market will be the only way to successfully navigate this environment, and that is what we are going to do for our paid subscribers.  

If you are not confident that your brokerage supplied research or subscription research will help you successfully navigate his environment, then please consider a subscription to The Sevens Report.  We will make sure our paid subscribers have the independent and timely analysis they need to turn the coming volatility into an opportunity to strengthen client relationships and grow their businesses!  

Given the market volatility, we are extending a limited time, special offer to new subscribers of our full, daily report that we call our “2-week grace period.”

If you subscribe to The 7:00’s Report today, and after the first two weeks you are not completely satisfied, we will refund your first quarterly payment, in full, no questions asked.

Click here to subscribe and ensure you have a team of analysts working every day to help you and your clients navigate this difficult market environment!

Increased Market Volatility Will Be an Opportunity for the Informed Advisor and Investor

We aren’t market bears, but we said consistently that things were going to be volatile in 2016 and we were right! 

As we enter this critical stretch into year end, the advisor who can confidently and directly tell their nervous clients what’s happening with the markets and why stocks are up or down, and what the outlook is beyond the near term (without having to call them back) will be able to retain more clients and close more prospects.

We view volatility as a prime opportunity to help our paying subscribers grow their books of business and outperform markets by making sure that every trading day they know:

1)  What’s driving markets

2)  What it means for all asset classes, and

3)  What to do with client portfolios

We monitor just about every market on the globe, break down complex topics, tell you what you need to know, and give you ETFs and single stocks that can both outperform the market and protect client portfolios.

All for $65/month with no long term commitment.

I’m not pointing this out because I’m implying we get everything right.

But we have gotten the market right so far in 2016 and it has helped our subscribers outperform their competition and strengthen their relationships with their clients.

That’s our job.  Each and every trading day. 

And, we are good at it.

We watch all asset classes to generate clues and insight into the near-term direction of the markets, but our most important job is to remain vigilant to the next decline.

While we spend a lot of time trying to identify what’s really driving markets so our clients can be properly positioned, we also spend a lot of time identifying tactical, macro based, fundamental opportunities that can help our clients outperform.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, click the button below to begin your subscription today.

Finally, everything in business is a trade-off between capital and returns.

So, if you commit to an annual subscription, you get one month free, a savings of $65 dollars.  To sign up for an annual subscription, simply click here.

Best,
Tom

Tom Essaye,
Editor of The Sevens Report