Closing Thoughts for the Week

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.

The election of Donald Trump sent risk asset prices soaring on Wednesday, but continued into Thursday and Friday, suggesting there’s no letdown in sentiment. If we use 2016 as a roadmap, there’s certainly the potential for another sustained rally in equity prices here. It could even mark the return of small-caps. At this point, I don’t think it’s safe to assume that the Fed will cut by another 125-150 basis points over the next year even if it’s the base case scenario in the minds of many. I’m very worried by what we’re seeing in the Treasury market.

The markets were eagerly anticipating the October jobs update, but there were some mixed signals and caveats. This likely also locks in a quarter-point rate cut at next week’s Fed meeting. The AI boom is progressing well and the modest pullback in the mag 7 names was probably justified given the overall results. Of course, this coming week’s headline event is the presidential election.