January 15, 2017
Weekly Market Outlook
By Keith Schneider
The US Equities Market paused this week after an almost 200 point intraday shakedown in the INDU on Thursday. Equities recovered and essentially left prices where they started the week.
NASDQ 100 was the exception as FANG stocks were hot, driving the NASDQ 100 to record highs.
This Friday, on my way into a popular Santa Fe eatery for a business lunch, I ran into an acquaintance who happens to be a distinguished foreign service diplomat. He was awarded 5 times for extraordinary public service including the Secretary of State Distinguished Service Award. The award was for standing up to Saddam Hussein, possibly saving American lives before the first Gulf war started.
An avowed democrat, he was quite nervous that the world and the financial markets are on thin ice starting next week with Trump assuming office. He is also an experienced investor and not a novice in the world of finance.
On the other hand, my lunch companion was my business partner, who is a world class investor, and ran one of the most successful merchant energy businesses in the US. The Merchant energy business model involves all aspects of buying and selling energy, understanding business cycles and allocating capital. He is poised and ready to deploy cash to equities after a drop, as he believes a good risk reward setup is not currently favorable. He wisely saw the dump coming in mid-2015 and went to cash. His current thinking is that a business-friendly environment under a Trump administration could spur GDP growth by 50% (from 2% to 3%) if Trump implements those plans.
These two widely divergent opinions coming from two very smart experienced people are playing out globally. Stanley Druckenmiller, a Soros disciple, bet and won big on the long side after the election. Soros, his former master and teacher, bet short and took some time before he covered. He lost a billion post-election.
One thing for sure (if anything is for sure) is how well Mish titled her 2017 Picks: Uncertainty is the New Sure Thing.
My takeaway is to follow the tape and let Mr. Market guide you. After all, if two masters cut from the same school had widely divergent opinions, what should one do?
The key metrics to watch is the volatility index which is extremely low, and as we highlighted last week, accentuated by a market close to showing irrational exuberance, (yet not quite touching those extremes.)
Watch Thursday’s low in the S & P as a swing point on the downside. Or, watch for a post-election climax if he VIX cash index touches 10.25
Increased inflationary pressure is rearing with Soft Commodities ,Gold Uranium and Copper showing excellent relative strength this past week and that could pressure US Equities if those trends persist. However, the Equities trend is still in powerful uptrend and very much intact.