The Trump market rally in stocks continued last week, adding another 3%+ to some already impressive gains since the election.  Since November 8th, the U.S. dollar has surged to all-time highs, the S&P 500 is up 6%, and the DJIA is up 8% while the S&P Smallcap 600 is up an astonishing 18% and financials are up 19%.

Last Week’s Anecdotes:

  • Italians voted an overwhelming No on the highly publicized referendum last weekend. The prevailing “No” vote was essentially a referendum on Prime Minister Rezi who announced plans to resign from office after conceding defeat on the referendum.
  • The ‘No’ vote in Italy does throw the fate of several Italian banks and possible ripple effects very much into question. From a political perspective, while the Five Star party (anti-Euro and anti-European Union) gained prestige from the results, they still need significant gains in Parliament before they can enact a referendum on the Euro itself, or carry out other destabilizing policies.
  • Another closely watched election occurred in Austria last week. Centrist Presidential candidate Alexander Van der Bellen (of the Green Party) outperformed expectations to win the second-running of votes, 53.3% to 46.7%. Despite the ‘figurehead’ status for the office, the healthy margin of victory for the non-extremist candidate over the extreme Austrian Freedom party is a brief bout of relief for mainstream politics in Europe.
  • Draghi mania continued with the ECB announcement on Thursday. The ECB delivered a modified ‘taper’ with a decidedly dovish tone. They left the refi rate at 0%, deposit rate at -0.40%, and extended QE program at least until December 2017 (a big election year in Europe), albeit at a ‘tapered’ amount (reducing from €80b to €60b).  Last hurrah of unconventional monetary stimulus?
  • The Euro area reported GDP expanded 0.3% in the third quarter. European stocks are trading at their largest discount to the U.S. since 2009.
  • Because the DJIA is a price weighted index where the highest priced stocks carry the heaviest weighting, some are beginning to refer to the 115 year old index as the Goldman Sachs Industrial Average. Goldman’s 8.43% weighting and 32% rally has contributed 408 of the total 1282 point rally since the election. The next largest contributor is UnitedHealth Group at 112 points.
  • A widely quoted valuation metric (CAPE – cyclically adjusted P/E ratio) has risen to 27.74x on the recent market rally, a level many observers reference when making a case predicting subpar long term returns in the stock market (no room for multiple expansion). However, significant accounting changes cast some doubt on the conclusion as does the lack of short and intermediate term reliability this metric has delivered in past cycles.
  • The Economic Cycle Research Institute measure of future inflation (FIG – future inflation generator) rose to a 102 month high in the first week of December confirming that inflation pressures are still building. The 5yr/5yr inflation breakeven has followed suit, climbing from 1.7% on September 1st to 2.12% on December 9th.
  • EPFR data revealed leveraged loan funds took in $1.7b of inflows in the week ending 12/7 – the largest weekly haul since 2013.
  • The Wall Street Journal reported that company insiders have been selling the rally far more so than buying. There were 3,500 sellers of shares and only 467 buyers of shares across the Russell 3000 since the election.
  • Japan posted its 14th straight quarter of positive YoY nominal GDP growth, the best streak since the Japanese economy’s massive collapse and lost decade following in the late 1980s.