November 2016
Trump Triumphant
Stocks rally hard while bonds slump after Trump shock victory
US jobs report/GDP keeps Fed on track to raise rates in December
Consumer confidence skyrockets
The month of November was great for the U.S. stock investors, and not so great for the rest of the world. In the U.S., Small Caps ripped higher with a +11% gain, Mid Caps followed at +7.8%, Large Caps (S&P 500) were up +3.7%, and the NASDAQ Composite brought up the rear at a still-respectable +2.6%.  But Emerging and Developed international markets didn't participate in the gains, as the MSCI Emerging Markets Index dropped -4.4%, and the MSCI Developed Markets Index (EAFE) lost -1.8%. Bonds had one of their worst months of the decade, while gold fell precipitously. All in all, each market spoke in its own way and has pronounced an early verdict on the upcoming Trump era:
U.S. stocks have far outperformed all major asset classes for the last three and five years:


Donald Trump's victory in the US Presidential Election sent shockwaves around the world as most investors were caught on the wrong side of markets, just like Brexit in June. Stocks screamed higher, while bonds sold off hard. The common themes that have emerged since the election is that less regulation and lower tax rates will encourage economic growth, supporting higher profits and stock prices. This scenario is anathema to bond investors, who foresee higher inflation and growing deficits with the anticipated "infrastructure spend" that Trump has promised. This appears to be the start of the long unwind of over-valued bond prices. Higher interest rates look to be coming.
Economic data in November were supportive of the Fed's desire to raise interest rates. Consumer inflation rose at the fastest rate in 6 months, according to the latest Consumer Price Index (CPI) reading.  The Labor Department reported that the index rose +0.4% last month, after rising +0.3% in September. 
On an annualized basis, the CPI is up +1.6% - the biggest year-over-year increase since October of 2014.  The increase was in line with economists' forecasts.  Core inflation, which strips out potentially volatile food and energy costs, climbed +0.1% last month.  Annualized, core inflation is currently 2.1% - right in line with the Federal Reserve's 2% inflation target. The firming inflation along with the labor market approaching full capacity leads many analysts to believe that the Federal Reserve will have the green light to raise interest rates at its December 13-14 policy meeting.
The U.S. jobless rate hit a 9-year low of 4.6% last month, falling much more than expected as the economy added 178,000 new jobs last month.  Gus Faucher, economist at PNC Financial Services Group said " T he economy is close to full employment, and the Fed wants to start gradually raising interest rates before the economy reaches full employment and wage pressures accelerate too much and spark much higher inflation.
However, behind the headline number was the fact the unemployment rate dropped because the civilian labor force shrunk by 226,000, as more people dropped out of the workforce.  Many analysts prefer a broader measure of unemployment, known as the U6 rate.  That rate fell to 9.3% from 9.5%.  This measure includes part time workers looking for a full-time position, and job seekers who have recently given up looking for work. 
According to the Commerce Department, the U.S. economy grew at the fastest pace in over two years in the third quarter as both consumers and government increased their spending and exports surged.  The U.S. Gross Domestic Product grew at a +3.2% annual rate in its second reading.  The reading was the strongest since the second  quarter of 2014 and beat economists' estimates of +3.1%. 

Supporting the strong reading was an increase in consumer spending, which accounts for about two-thirds of the economy.  Spending rose +2.8% - stronger than the original +2.1% estimate.  In addition, business investments in structures like offices and factory buildings surged +10.1%, almost double the original +5.4% estimate.  Corporate profits were also strong, rising +6.6% and after-tax profits surged +7.6% (following a -13.3% plunge over the previous year and a half). (This is one of the critical data-points we are looking for to support rising stock prices, and it delivered in spades!) Exports of goods are the strongest in three years, while imports were down slightly from the previous quarter.

As the month of November ended, OPEC announced a coordinated global cut in production, leading to whopping 12% increase in crude oil prices. Volatility is back!

At the same time, consumer confidence figures were released and showed a sharp spike upwards, surging to 107.1 in November from 100.8 in October. Better still, confidence is back at pre-recession levels, and the Present Situation Index increased from 123.1 to 130.3. The Expectations Index also increased from 86.0 to 91.7. (And these figures were pre-election!)
This is another good piece of evidence that the consumer is set to do their part in helping the economic momentum move forward.
We'll be back to you in mid-January with our Annual Report. We wish you and yours a very happy holiday season, and a great 2017 to come!

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