Monday, January 30, 2017

Thoughts {01.30.17}

Well that's certainly been a tumultuous first week of the new Trump Administration wasn't it!  While the media has been focused on the new policies and inevitable mistakes coming out of the White House, the markets have been focused on the economy.  In case you're wondering how that's doing. I'll characterize it as more of the same.  We're muddling along with things getting slightly better.  GDP growth came in for the 4th quarter at 1.9%.  That's 1.6% growth for 2016, the 11th year where annual growth failed to reach 3%.  Obama becomes the first President ever to fail to reach the 3% hurdle during his Presidency.  Not sure how much of that is his fault but it is a fact that on his watch the economy consistently failed to reach this milestone.

The market's have so far shrugged off the early going Trumpian contretemps.  In fact all of our major stock market indices are up since the Inauguration.  I wonder though how long investors will be willing to look through all of this.   Unless we start to see some progress on tax reform and some of the other economic issues investors care about we might see markets wobble a bit.  Futures are weak this morning as this is being written.  However, stocks are overbought by our work short-term and this could be an excuse for some profit taking regardless of the headlines.

All new Administrations make mistakes as they become accustomed to power and their new roles.  Remember though that the major conduits of news in this country absolutely hate Trump and they will do what they have to do to paint everything he does in a negative light.  Remember that as we focus on what matters to the markets.  Markets will care about economic results for the most part.

Without much fanfare the yield on bonds has been rising.  We've seen the yield on the 10-year Treasury rise almost a 100 basis points or one full percentage point since last summer.  A big chunk of that gain has come since the election as this chart from Bloomberg shows:

At some point rising rates become competition for stocks as yields become more competitive with stock market potential returns.  Also take a note that the Federal Reserve meets this week.