A Huge Week

A huge week for the Republicans and a huge week for the markets. The Republicans shocked many after the election gave them not only the presidency. But also control of the House and Senate. After Americans expressed their deep dissatisfaction with the last 4-years. I hope the nation can heal, get past the hate and rhetoric, remembering that we are all Americans.

The markets turned in a huge week with the S&P 500 up 267 points or 4.66%, its 48th record high this year after posting the best post-election day in its history. The NASDAQ added 1,047 points or 5.74%, while the DOW jumped 1,937 points or 4.61%. As expected, following the latest FOMC Meeting the Fed cut interest rates another ¼%. However, odds of additional cuts plunged after the election falling to just two 1/4% cuts in 2025.

Tariffs?

Trump has repeatedly stated that he favors tariffs to solve our trade imbalances and fix the economy. But will it work? Many a pundit and economist view tariffs as something of a “dirty word”. Trumps claims that foreigners will pay them, while containing some truth. Will in the end drive up prices as the manufacturers will increase the cost of the tariffed item. The general rule of thumb is that a 20% tariff will increase the cost of a finished good, a refrigerator for example, by about 8%. Rising prices by definition is inflation. So, any tariffs will have to be balanced by their inflationary effect. Historically they worked very well in the past. Therefor, there is some evidence to suggest that they could be an effective strategy.

Extend and Pretend?

Where have I heard that before? The condition of commercial property in the post Covid period that sparked the work from home trend, is going from bad to worse. Default and delinquency rates are climbing steadily for office, and to a lesser extent retail properties. Hence the return of the bank practice known as ‘extend and pretend’ popularized during the GFC of 2007-2009. That has delayed a write-off reckoning but may hide a growing systemic risk. Lenders are trying hard to work out problems with these loans, but if rates don’t come down soon the window of opportunity will close. Paging Fed Chair Powell. Thanks to the FDIC and Bankregdata.com for the chart.

Which Way Goes The Market?

A little something on the lighter side for the weekend. All sorts of methods have been used in an attempt to predict the direction of the markets. After all, if successful it would be a license to print money, legally of course. Tarot, the position of the planets, chicken bones, all sorts of crazy stuff including technical and fundamental analysis. With limited success, I might add. With nearly 30-years in the business I don’t often come across novel ways of predicting the markets. This week, low and behold I found another one. The Rain, or more specifically rain in NYC. As it turns out if it’s dryer than normal, that’s bad for stocks. If it’s wetter than normal, happy days are here again for the Bulls! Don’t ask me why as I have no idea 😊. Thanks to McClellan Financial Publications for the chart.