Saturday, November 12, 2016

MAD Economic Review - Presidential Election Edition 11/12/16

What a historic week!  This was an election for the ages, and it definitely was entertaining. I'm glad it's over and I'm sure others are too.  A lot of people finally came out to vote which is awesome. Let's hope that momentum keeps up. Approximately 130 million people voted in this election which sounds good, but that's only 57% of people eligible to vote. I take no excuse that you were to busy, or forgot.  With early voting and mail in ballots it's easier than ever to vote, and I expect it to get easier. Exercise your right! There are a lot of men and women that died either fighting for that right, or never could exercise it at all. Remember that.

Sadly this election brought out the worst in a lot of people. The fighting at rallies all year manifested itself into post-election fights, squabbles, burning of perfectly good shoes that should have gone to charity, and name calling. Unsurprisingly it turns out both Democrats and Republicans enjoy being violent towards one another. Not the way to solve problems, and definitely shows some people are not accepting of our democratic process.

Overall I'm disappointed in the way
America reacted. There is no one to blame but yourself for the despicable actions you take.

Onto what we all came here for - Economics and Market News! The economy and markets are what shape our politics, not the other way around.Yes I know these topics don't get people as riled up as politics, but keep reading and you'll find this is how you make a difference in your pocketbook. Not by following the people in Washington DC, unless  of course you live there. 

The Markets

At approximately 7pm on November 8, 2016 - the markets went into shock.

It seems everyone was so shocked since literally the whole world was calling this election to go the other way. The pollsters and Wall Street all made claims contrary to what actually ended up happening. Ironically I think this helped create all the social and market unrest. No One Expected It!

S&P 500 futures traded on CME's Globex fell from 2152 to 2028, or 5.7% in less than a few hours! A lot of us thought we'd have a huge down market the next day.  Just goes to show what thinking does! Then all of us woke up to a much recovered futures market, and at the end of the day equities were actually in the plus column!

When it was all said and done the Dow Jones actually hit a new all time high this week. Oddly the Nasdaq and S&P 500 didn't. I think that's telling. There's something lying underneath that the market is trying to tell us. Clearly owning the bluest of blue chips was seen by investors worldwide to be extremely important this week. We shall keep our eye on the other indexes to see what they tell us.

The big winner this week was small caps. The Russell 2000 Index surged 10.1% in just a few days!

                     Weekly % Change                YTD % Change    
DJIA -                     5.4%                                  8.2%
S&P500 -                3.8%                                  5.9%
Nasdaq -                  3.8%                                  4.6%
Russell 2000 -         10.1%                                12.8%

I've been a student of the market for a long time.  It teaches you for one to expect the unexpected. So I take it all in stride as it comes a long. I treat these events as learning opportunities, and buy or sell opportunities when appropriate.  You have to be pragmatic in this game. Otherwise you're left in the dust.

I do know that I bet most retail investors missed this huge move this week. Especially the small caps 10% surge. That's a normal full year gain in 1 week! That's why it's essential to stick to your game plan which I'll explain briefly below

Now I don't know what next week will bring. Neither do other people.  But I do know that following and sticking to your investing game plan is what makes the difference.  Ask any trader or investor. They'll all say it's when they break their rules they realize the most financial pain.

Sticking to the plan is essential.

The Goliath Bond Market

Most people focus on the stock market, but more importantly we need to focus on the much bigger bond market. Yep that's right. The stock market is the David to the bond market Goliath.  The US 10 Year Treasury Note suddenly sprang to life this week and hit 2.15%. It hasn't traded above 2% since the beginning of this year.  In this case I don't think it's a good thing. For one higher interest rates will be bad for federal and state budgets already pushed to the max. I mentioned before we could be in a massive bond bubble. 





I think it's pretty much a lock that Janet Yellen will raise interest rates in December. That should provide another volatile shock to the stock and bond markets, in both directions! Although that shock should be extremely short lived. It's been well projected that a rate hike is coming.  All I know is I think she waited to long. Clearly she doesn't. We can agree to disagree.

This week was light on economic reports thankfully.  We did receive a JOLTS report that showed 5.4 million jobs up for grabs. It's just tough being an American I guess.

A lot of those jobs are in good paying professional fields such as finance, healthcare, education, and government. So there's no real reason in my opinion to complain about lack of job availability. Get the skills and you shall be rewarded.

Have a great weekend!

The MAD Consultant

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