The Trump rally developed a few holes overnight Thursday with only the blind opportunists on parts of Wall Street still seeing a financial nirvana for many companies from the President-elect’s policies – whatever they are.
The Dow and the S&P 500 rose sharply – again, but the Nasdaq was sold down. The Dow hit a record during the session, but came back later in the day.
The S&P 500 closed 4.22 points, or 0.2%, higher at 2,167.48 (running out of strength as the day went on. The Dow Jones Industrial Average jumped 218.25 points, or 1.2%, to 18,807.94. The Nasdaq Composite ended the session down 42.28 points, or 0.8%, at 5,208.80.
In Australia the boom like 3% plus surge yesterday vanished in futures trading overnight and the ASX 200 looks like opening flat to a touch weaker.
Many US investors now believe the Fed will go ahead and lift interest rates next month for the second rise in this cycle, with some forecasting two more rises in 2017.
There seems to be a realisation that Trump’s policies will end up forcing up inflation and interest rates. And that in turn will add pressure on Australian inflation and rates over the next couple of years.
Certainly any thought of further rate cuts in Australia are out the window and the next move will be up – still in 2018 – but up.
Mind you the supposed Trump policies are merely musings, words and vague statements from the candidate and friends, but that has never stopped many in the markets from assuming there is money to be made.
After a solid day’s trading in Asia (our market rose strongly with the ASX 200 up 3.2%), the enthusiasm ran out in Europe as the trading session moved through the day so that by the end there was quite a bit of red ink instead of green. The Stoxx 600 pan European index ended down 0.3% as major markets in London, Germany and France closed lower.
Wall Street saw another strong opening for the Dow and the S&P 500, but not the tech heavy Nasdaq which was listless all day and lost ground as investors avoided stocks with links to China, which Trump has criticised and threatened to discriminate against.
So all the action was in more conventional stocks such as materials, financials, some consumer related companies and infrastructure. US interest rates again rose with the 10-year bond topping 2.12%.
Gold prices fell, but silver and copper rose. Oil weakened because of the belief that the November 30 meeting of OPEC won’t bring agreement, and another stark warning from the Interational Energy Agency that the oil glut is not going away any time soon
The Australian dollar eased again, falling to around 76.14 US cents ad looking to go lower
Comex gold futures for December delivery fell $US7.10, or 0.6%, to settle at $US1,266.40 an ounce. Prices fell for a fourth-straight session. But Comex December silver jumped 35.9 cents, or 2%, to $US18.737 an ounce and December copper added 9.2 cents, or 3.7%, to $US2.551 a pound, after climbing 3.3% on Wednesday.
US oil futures fell for the first time in four days and December West Texas Intermediate crude futures lost 61 cents, or 1.4%, to settle at $US44.66 a barrel in New York. In London Brent crude fell 55 cents or 1.2% to $US45.11 a barrel.
The most accurate market reaction can be found in the fears shown in tech investors in Nasdaq – listed stocks. They, not the old line stocks have proven to be the drivers of US markets in the past few years (the so-called FANG stocks – Facebook, Apple, Netflix and Google (Now Alphabet). To that you can add giants like Microsoft. That’s despite rising casualties in the group such as Yahoo, Fitbit, Twitter and GoPro.
Tech investors fear these and a host of other stocks are facing problems if the Trump administration cracks down on China.
If that happens (and it may not, given the reality of being in government), then a sell off in this sector will drag all US stocks lower, except perhaps the usual defensives such as utilities and consumer-facing companies. But they will be battered by rising inflation and interest rates.
One group to watch will be the major ratings groups – Moody’s Standard & Poor’s, Fitch and DBRS of Canada. If the Trump administration proposes a rise in government spending and debt, will they cut America’s current AAA rating (except for S&P which has the rating at AA + stable)?
If that happens it will be a major reminder to investors everywhere of the realties of the new President’s weakness – debt and deficits and a lack of fiscal prudence.
