Closing Thoughts for the Week

To this point, the markets have performed about how you might expect post-election. There’s one big difference this time around though - that stubborn issue of utilities and gold also outperforming large-caps. We didn’t see anything remotely resembling that in 2016. Unfortunately, the December surprise appears to be coming closer to fruition.

Global inflation might be the biggest theme of the week. If the BoJ reacts to this inflation reading and hikes unexpectedly in December, this could be the December surprise that triggers another reverse yen carry trade and potentially sinks equity prices. Even though the major averages were up this past week, there’s still a risk-off pulse in U.S. equities.

Risk asset prices appear to finally be consolidating following a strong post-election rally. This makes sense given how initial enthusiasm about Trump’s anticipated pro-business & pro-liquidity economic plans are giving way to the potential impacts of such policies. In particular, the bond market is adjusting. I still think Japan is a key market here.