Introduction

Global indices continue to cheer in the wake of the Trump victory, the market at least seems to accept the new paradigm. Two notable moves in today's action occurred in the Dollar Index and Dow Jones Transportation Index which both surged to new long term highs. Other markets held their ground, at or near last week's highs, while investors consolidate positions and prepare for a period of lower taxes, deregulation, infrastructure spending and rising inflation.

Asian markets were a bit mixed but most indices closed with gains. The Japanese Nikkei led with gains near 1.75%, trading there was boosted by better than expected GDP numbers. Consensus estimate of 0.9% was blown out of the water by actual results of 2.2% and the first strong evidence that Abenomics and negative interest rates are working to spur economic activity. Europe closed the day with most indices in the green although gains were small, in the range of 0.25% to 0.50%.

Market Statistics

Futures trading indicated a flat to mildly positive open all morning. There was no economic data or noteworthy earnings releases before the bell to impact trading so action was pretty dull. At the open trading was to the upside but very choppy, just above break even levels, and did little more than hold gains posted last week. Most of the major indices, except the transports as noted above, spent the day drifting sideways within ranges set in the early part of the day and were not able to break them. Sideways trading continued into the end of the day leaving the indices near the middle of their respective ranges, and the blue chips at a new all time high.

Economic Calendar

The Economy

No economic data today but lots this week including retail sales, PPI, CPI, housing data and much more. The most important may be the CPI and PPI but Wednesday's release of FOMC Minutes could easily steal the spotlight. Taken together we will get an X-ray look at the FOMC along with important reads on consumer and producer level inflation, the housing sector, the consumer and a couple of regional manufacturing releases that could add momentum to the Trump Trade.

Moody's Survey Of Business Confidence gained another 0.8% to hit 32.6 and a new 6 month high. This is the 5th week of gains and the 1st week post-Trump; Mr. Zandi says that the "shocking presidential results" have had no noticeable impact on global sentiment. Based on the market rally I'd say that there had been a positive impact on sentiment but who am I to judge? Regardless, according to his summary sentiment remains steadfast around the world; the US is strongest, the EU has shrugged off the Brexit and poor sentiment in South America appears to have at least bottomed.


Just over 91% of the S& 500 has reported earnings so far this season. Of those that have reported 71% have beaten EPS estimates and 55% have beaten revenue estimates, both basically in line with trends over the past few quarters. All 11 sub sectors of the S&P 500 have beaten earnings expectations.The blended rate for earnings growth is now 2.9% and looks like it will remain at or near this level into the end of the season; the earnings recession has come to an end.


Looking forward earnings growth remains positive and on the upswing, although outlook continues to dim. Fourth quarter growth fell -0.3% to3.6% and a new low; based on 4 year trends this is likely to rise to 7.5% to 8% by the end of the 4th quarter cycle. Full year 2016 outlook held steady at 0.2% for the third week, full year 2017 outlook fell -0.2% to 11.2% and is also a new low.


Diminishing earnings growth outlook is a concern but what I would call a brick-in-the-wall-of-worry. Outlook for earnings growth is positive and expands into the end of next year regardless of the fact that the amount of expected growth is declining. Add in the chance that earnings will run 4% better than expected, on average, for each quarter of the year and 2017 growth could be as high as 16%. Add in the Trump effect from tax relief alone and those expectations could easily top 20%.

The Dollar Index

The Dollar Index surged more than 1% to hit a new 1 year high, break above the 100 level and approach the all time high. The index is supported by expectations of increased inflation expansion driven by the Trump economy, hopes for the Trump economy and the need for FOMC interest rates hikes due to current economic conditions reinforced by expectations for the Trump Economy. Today's move is strong, looks decisive and is confirmed by bullish signals in the indicators. There may be consolidation of pull back following today's move but a test of the all time high near 100.50 and probably a new all time high look fairly certain.


The Oil Index

Oil prices remain under pressure as faith in OPEC evaporates like water in the desert. The cartel is calling for production caps and cuts that, at face value, should help oil supply/demand imbalances to stabilize but when compared to actual production levels and production level increases do very little to address the situation. As of last week's report OPEC is pumping oil at a new monthly record that would leave production well above the levels seen the last two times they talked the market up on hopes of stabilizing prices. Conspiracy or not they are adding serious volatility to the market. WTI fell more than -1.5% in early trading to hit $42.75 but managed to regain most of that loss before the close. Next downside target is $40, a break below here could spell trouble for the oil industry and next years earnings outlook.

My new theory for oil is that low prices could help spur the economy in this time of change and lead to increased demand. How low they go in the near term is hard to say but I wouldn't be surprised to see demand outlook begin to improve in the next few months and a true stabilization of oil prices.

The Oil Index remains range bound. The index fell to test support near the middle of the 7+ month range and managed to rally from there but still closed with a loss for the day. Price action created a small white bodied candle, just above support, with indicators consistent with range bound trading. Current bias is to the downside, support at 1,120 could be tested or broken, if broken a move to the bottom of the range near 1,090 is likely.


The Gold Index

Gold prices are tanking. The surge in the dollar is overcoming any kind of physical support that exists and pushing gold prices down to long term lows. Today's action saw spot prices dip another -0.5% to touch a new 5 month low just above $1,200. Momentum is to the downside, next target for support is $1,200 and likely to be reached in the short if not nearer term. If prices were to rebound for some reason first target for resistance is $1,250.


In The News, Story Stocks and Earnings

Fall out from the election is plaguing some big names. Facebook is one. The social media giant is coming under fire for how it handles posts, particularly political and fake news posts, and the reliability of the information contained within. Some are saying that Facebook helped to influence the election by allowing the rampant spread of completely false propaganda, an allegation Zuckerberg denies. A twist in the story is the apparent existence of software designed to prevent such abuses that was not used for fear of its affect on, among other things, the election. Shares of the stock fell -3% to hit a new 6 month low, extending losses incurred following the release of earnings.


Apple is feeling the sting of a possible trade war with China. China's government issued a statement through a state backed newpaper saying they would retaliate with tariffs and restrictions of their own, and cited Apple's iPhone as a specific target. The statements went on to say that the government of China does not believe it will come to a trade war calling the threats campaign rhetoric and citing laws limiting the Presidents power to impose such tariffs. Shares of Apple fell -2.5% to hit $105 and 2 month low where there is potential for support. If so, this could be the Trump Entry for Apple. A cooling of rhetoric or, best case scenario, a warming of relations between China and Trump could send this one back up to test recent highs.


Boeing was also named in the Chinese news report as a target of retaliatory trade practices if a trade war were to be engaged. The paper says that a number of orders for Boeing planes would be replaced for Airbus aircraft instead, the news however did not have material impact on the company's stock prices. Shares actually rose in today's session, gaining nearly 1%, to tickle a one year high and were further supported by late day reports Warren Buffet was buying airlines.


The Indices

Today's market action was largely without significant move, at least in terms of the major indices. The one stand out is the Dow Jones Transportation Average which gained nearly 2.20%. The transports have come late to the party but are making up for lost time, gaining nearly 10% in the last 8 days to break above resistance levels and set a new 18 month high. The index looks poised to continue this move and eventually retest all time highs set almost exactly 2 years ago. The indicators confirm and support this move, both showing strength and suggestive of higher prices. Next upside target is near 9,000 and a consolidation range just beneath the current all time high.


The next biggest gain in today's session was set by the Dow Jones Industrial Average, a mere 0.11%, and enough to set another new all time high. The blue chips are moving up on expectations of infrastructure spending, expanding US economic growth and the spill-over effect of expanding global economic growth. The index created a small doji candle that could be a shooting star but is most likely a spinning top, we'll see. A consolidation at this level should be expected now that the index is trading above previous all-time-high-resistance. In the near term, provide we get some follow through in the market, upside target is roughly 850 points above today's close. Longer term, Dow 20,000 does not look unlikely.


The S&P 500 made the smallest loss in today's session, -0.01%. Price action looks like consolidation beneath current all time high levels and gearing up to make a run to test resistance. The indicators are bullish and confirm the move, a reconfirmation in the indicators and break to new highs would be very bullish in my opinion and could easily lead the index up to 2,400 in the near to short term. For now, upside target is near 2,200 and the current all time high with support rising along with the short term moving average near 2,140.


The NASDAQ Composite made the biggest loss in today's session but only -0.36%. The move appears to be part of consolidation along support levels consistent with the short term moving average and could lead to further upside. The indicators have confirmed the bounce and suggest prices will continue to rise in the near term. First upside target is just above today's close, near the current all time high, and may not be broken unless the market follows through on the Trump Rally. A break to new all time highs would be bullish and could lead the index up to 5,500 in the near term.


Today's action was a consolidation of last week's Presidential Rally and the indices look poised to extend that move into the near, short and long term. Supporting this outlook is ongoing economic recovery, positive and expanding earnings growth outlook, low oil prices and a general acceptance that the Trump presidency will bring a period of unfettered growth for the US economy. Unless something completely unexpected hits the market I just don't see any reason to expect the onset of bear market conditions. As for the FOMC, they and their rate hike don't seem that important anymore. Important yes, but not as important as they were even a week ago. Not to discount them but it seems assured that rates are going to begin rising very very soon. On the market, I'm still cautious, but cautiously bullish, looking to buy on the dips and preparing for what could be a long ride upward.

Until then, remember the trend!

Thomas Hughes