A Market Timing Report based on the 11-11-2016 Close, published Sunday November 13th, 2016

I deliver focused comments on the markets.  These are supplemented with “Tweets/StockTwits” (see links below).

1.  SP500 Index: Trump won the 2016 Election. The nation must now deal with that fact and cooperate with him where they agree for us to move forward.  All politics aside, what is happening so far?  Realize that “so far” does not mean it predicts what will happen next week; it simply means what the market has done since it knew of or suspected the Trump win.  I’ll tell you the “Moral of the Investment Story” at the end…

Stocks: Went up strongly (mostly) after an overnight stock futures swoon of over 5%.  That was after a previous dip, so the “Trump Dip” did happen as expected.  But it was fast and furious.  Yes, market timing that was not easy.  Now the market believes in higher growth AND inflation under President Elect Trump.

The big winners longer term (with some caveats) are likely:

A. Construction related stocks: Infrastructure repair and wall building.  This may be one of the best bets.  Both parties want the infrastructure part.  The wall is another thing, but the Democrats may not oppose it.  Caterpillar (CAT) soared on Wednesday but came off the prior low with some increase in volume on the Friday before the election.

B. Healthcare (XLV) and Biotech stocks (IBB): Drug stocks picked their winner Monday (XLV).  Other health stocks took off then too.  Look at the climb in Humana (HUM) on Monday.  I won’t chart it here, but look at it.  Investors were already betting on a Trump win on Monday.  Biotech (IBB): There was a bounce from support on Monday, but the big reaction came on Weds.  One catch for these two classes of stocks is that Trump wants to negotiate prices to keep costs of his new version of Obamacare down.  Let’s call it “TrumpCare.”  Follow the market timing charts, not the pundits, or you could lose big money on drug and biotech stocks!  See the ‘Moral of the Investment Story” below to be clear on this.

C. Financial Stocks (XLF): A few traders knew on Monday, but the huge reaction came on Weds. when Trump’s win was known.  Bank regulations are likely to be repealed to an extent that will help the financials. Clinton had declared war on the banks with Elizabeth Warren, so there is big potential relief there for that industry.

D. Defense: Aerospace and Defense Stocks (ITA): Rallied big, but not until Weds.  The twist here, which could hurt them and counteract some increased in spending is the cuts Trump may make to helping our allies. The market believes they are winners so far.

E. Small Caps (IWM):  Last but not least, small caps love the idea of U.S. based growth (America First slogan of Trump), as they would be less directly effected by a trade war, and benefit from an American economic boom.  Mid-caps are still my preference vs. small.  over time, mid-caps tend to outperform both large and small cap stocks at least in recent years.  They are more likely to survive another downturn. They are also outperforming large caps after the Trump win, although small caps have had a bigger bounce than mid-caps.

Not Really Winners:

A. Energy Stocks (XLE): Not really winners, but not losers either.  They are about where they started on Tuesday before the results were known, but up slightly off the prior base. They are helped by less regulation and more land to drill and frack, but not helped by increased supply.  My advice is to follow the ETF market timing charts, not “guru opinions” on what they will do!

B. REITS (a bit worse) and Housing (a bit better): VNQ and ITB did not react that well to the Trump win, but VNQ went down a bit and ITB went up a bit.  Higher interest rates don’t help either industry, but job growth can help housing.  A more vibrant economy can help REITs.

Losers:

A. Utilities: Fell on the news.  Higher growth means higher rates and more competition with utility stocks for yield. The fall here was much more than for REITs which is interesting.  Once again, follow the charts, not some complex argument as to why they should go up or down. 

B. Gold and mining stocks: GLD initially rallied when the market started out nervous about Trump but after hearing the conciliatory speech from Clinton, the markets turned to what I’ll call the “Trump GDP Growth Cycle.”  Read more to learn how growth hurts gold: HERE

Silver held up well at first and then on Friday tanked over 6%.

What’s the counter-argument?  If Trump’s government tax-cuts and spending on the wall etc. does not drive up interest rates as fast as inflation, real interest rates can then be negative and gold does well (read more at above link).

The summary for gold’s prospects is that it is an unknown.  We must follow the market’s decision.  I advised protecting profits last week and if you have not done so, consider selling if the April to June lows are violated, but ONLY if you are willing to buy it back on a recovery.  See the 3rd chart below.

C. Treasuries and Bonds: Both TLT (Treasuries, long dated maturities) and LQD (corporate bonds) fell.  Higher growth means higher interest rates, means trouble for bonds. 

The catch for all this is that the economy must turn around, or the numbers could drive stocks down prior to a rescue by Trump’s policies which could take many months to enact.  Also, the Federal Reserve wants to raise rates in December, which may be a virtual lock barring horrible economic numbers.  That could further upset the stock markets.

Please review the charts below, so you know where we stand…

SP500 Large Cap Index (click chart to enlarge; SPX, SPY):

Stocks like the Trump win.

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Survey Says!  Sentiment of individual investors (AAII.com) showed a Bull minus Bear percentage spread of +9.56%, was up from the prior week, which was about the same magnitude in the opposite direction.  The market recruited more neutrals to Bullishness than it did Bears.  There is room for more conversion toward Bullishness as a 20-30% spread toward Bulls is not uncommon in a strong Bull market.  The percentage of “Neutrals” is BELOW 40% this week (above 40% Neutrals is Bullish on a market timing basis for higher prices out 6 months from today per AAII studies of their statistics).  I said last week that investors were expecting a turnaround from “pre-election jitters,” and they got it.

2.  U.S. Small Caps: See above.  They are leading post-Trump.

Russell 2000 U.S. Small Cap Index  (click chart to enlarge; RUT, IWM):

Small caps zoom post-Trump.

3. Gold: Good growth is bad for gold (see above). If we get bad growth with high inflation, gold wins.  Hard call, so follow the market timing chart!

Gold ETF (click chart to enlarge the chart; GLD):

Gold drops on Trump after brief fake-out bounce when stocks initially fell a bit.

4. U.S. 10 Year Treasury Note Yield (TNX): The economy is still slowing…or was.  Now the market may anticipate the future being higher rates and higher growth (read above under Treasuries/Bonds). If the numbers dive in the coming weeks, rates may come back down.  This is a hard call, but the bias for rates may be up from here if the Trump growth plan works over the short term (first 1-2 years).  (Moral of the Investing Story just below this chart)

U.S. 10 Year Treasury Note Yield (click chart to enlarge; TNX,TYX,TLT,TBF):

Rates soar on Trump inflation expectations and higher rates.

The Moral of the Investment Story is… follow the charts on all of these “Trump Trades,” because some are complex and the final outcome may be different from the initial expectations as he shifts his policies.  As an example, I suspect that the net effect of Obamacare on drug stocks will be negative over the longer term as he and Congress seek to control health care costs in the new TrumpCare system.  Same problems, different President. 

Stay with me throughout the week for the LATEST via the links to Twitter/StockTwits above.  Feel free to ask me questions, comment, retweet etc.

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