Hold On!

We almost always overreact.

While there may have been still riots on the main streets of the USA, there is a rally on the Wall Street.  Or is there?

Cases in point:

Amid the resolution of the election, the S&P 500 has gone up 2.80%, the Dow Jones Industrial 3.96%. On the other hand, there has been a bond market selloff, the 10-year interest rate went from 1.80% to 2.35% with a -5.47% return.

Amid the campaign promises from both candidates, the iShares Aerospace and Defense ETF (ITA) soared over 8%.

Amid the dismissal of Clinton’s promise of controlling skyrocket drug cost, the badly beaten pharmaceutical stocks, the iShares NASDAQ Biotechnology ETF (IBB), have rebounded 12% from the previous 30% loss.

Amid the promise to deregulate the financial industry, i.e., repeal Dodd-Frank and the unorthodox presidential open interference with the independent Federal Reserve, 10-year Treasury yield has soared from 1.86% to 2.30%.  Both financial and bank stocks have enjoyed a more than 10% rally.

Query?  Mr. President-Elect, does Madam Yellen still need to raise the interest rate before she leaves the office?  It seems that the market already did it for her.

Amid higher interest rates in sight, the Vanguard REIT ETF (VNQ) lost 1%.  The Vanguard Utilities ETF has also lost 6%.

Amid Trump’s tense relationship with the Silicon Valley, in terms of repatriating foreign cash reserves and tightening immigration, not participating in the rally, the NASDAQ index has been down around 2%.  The usual famed stocks such as Facebook and Apple were down 10%.

Amid the rise of trade protectionism, the Dollar index reached a 52-week high.  It has also raised the inflation expectation which contributes partially to the 50 bps increase in 10-year Treasury rate.  Most US multinational stocks are having a tough time now.

The only sensible fundamental news, suggesting that the underlying economy has been strong, is released today (11/15/2016):

The Census Bureau’s October report on retail sales showed sales rose 0.8% over the prior month, better than the 0.6% improvement expected by economists. Excluding autos, sales were also up 0.8%. September’s numbers were also revised up to 0.7% from 0.6% at first print. There are strong readings from non-store retailers — where sales rose 1.5% over last month and 12.9% over the same period last year — as well as building supplies dealers, and sporting goods stores.

The numbers were so impressive enough that economists are already revising up their estimates for GDP.

Current stock market  rally reflects the post-election risk-on and pre-election risk-off asset allocation moves of the institutional investors.

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