Trump’s market, a month later

Good day. Chevron announced It will reduce spending on rigs, drilling rigs and other equipment next year. like we said yesterdayDonald Trump can’t have it all: either he will get much lower energy prices or much higher American oil production, but not both. Which one will it end with? robert.armstrong@ft.com and Aiden.reiter@ft.com.

Trump’s market

On the eve of the US presidential election, we did some predictions on the market winners following a Trump victory, highlighting US stocks, banks and cryptocurrencies. We the winners under Kamala Harris – and therefore those who performed relatively weakly under Trump – liked the Treasury bonds, home builders, Mexico and emerging markets in general.

None of these predictions required much insight, and a month later, things played out mostly as we expected. However, the markets have provided some surprises. Let’s start with what hasn’t been surprising:

• US stocks have performed well. The S&P 500 is up more than 5 percent.

• Small caps have fared even better. With their greater domestic focus, they should benefit more from tax cuts and relocation of production.

• Emerging market stocks (except China) are weak, but not terrible. Trump’s policies primarily aim at a stronger dollar and higher Treasury yields. That tightens financial conditions for emerging markets.

• Oil and copper have been soft. The global growth setup is bad, from China on down, and the prospect of a trade war doesn’t help.

• Poor performance of energy stocks continues. Trump really wants cheap energy.

• Tesla has done great. The company is controlled by one of the president-elect’s closest allies and is up nearly 50 percent as a result. We’re stupid for not seeing it coming. Bitcoin, which is up just 43 percent, is jealous.

And now the surprising events:

• Seven Great Tech Stocks Are Outperforming the S&P. It’s not just Tesla: Apple, Amazon, Meta and Microsoft have also performed better. We would have expected these stocks to perform well, but the more cyclical stocks would be the stars. With the exception of the strong performance of the banks, that has not happened.

• Growth is outpacing value. Again, we would have thought that an internal growth agenda would have helped value more.

• German stocks are doing very well. Germany’s main index is up 5 percent, despite that country’s economic problems and Trump’s tariff threats. A weak euro to the rescue?

• Mexico‘s the stock market and currency have stayed there. This flies in the face of Trump’s threats of tariffs and border crackdowns.

• Treasury yields are about even with where they were on Election Day. Most surprising of all, bond markets have partially ignored the view that Trump’s agenda of tariffs, border security and tax cuts will be inflationary. Five-year breakeven inflation is also virtually at the same level as Election Day. Gold has fallen. The dollar has not changed. Expectations for Federal Reserve policy over the next year have not changed much.

The general message of all this? Markets may have concluded that on tariffs and immigration, Trump’s bark will be worse than his bite. At the very least, they have decided to suspend their judgment on the matter. If a sharp decline was expected in either area, more volatility would be seen in Germany and Mexico, in the US bond markets and in the dollar.

Are we really going to have a kinder, gentler Trump? Your guess is as good as ours.

Jobs

The fallout from Donald Trump’s victory looks like the biggest story in US markets right now. But the Fed’s dilemma could be just as important.

Progress on inflation has stalled; in fact it is ticking in some measures. Meanwhile, the job market is slowing. If the labor market continues to decline and inflation remains rigid (or worse), the Federal Reserve will be caught between its two mandates. The worst case scenario, stagflation, could be a threat.

Today’s jobs news is important not only because it is the last before the Federal Open Market Committee meeting in December, but because it carries the weight of two reports. October’s 12,000 new jobs were affected by the hurricanes and Boeing strikes. Today’s figures will include a revised figure for October. BNP Paribas estimates that the impact of the storms and strikes could have reached 100,000 jobs. But even that would still indicate a cooling of the labor market.

If the Fed wants to hold firm in December, a strong report is needed in November.

If we look at the indicators we have, we may not understand it. The ISM manufacturing survey showed employment contracting for the sixth consecutive month, while the services survey showed employment expanded at a slower pace than last month. The ADP jobs report showed 146,000 jobs were added in November, down from 184,000 in October and below expectations. The only notable positive sign was a virtually unchanged Jolts survey that included an increase in resignations, suggesting people are confident in their chances of finding another job.

in a interview On Wednesday, Federal Reserve Chairman Jay Powell emphasized the strength of the U.S. economy and the health of the labor market. The central bank “can afford to be more cautious as we try to find [the neutral rate]” he said, suggesting he might pause if the jobs report is firm.

The futures market shows that investors are leaning towards a cut:

Bond yields suggest investors aren’t quite sure how inflationary Trump’s policies will be. If the jobs report is terrible and the Fed needs to make another cut while prices continue to rise, inflation will suddenly return to the center of the conversation.

(I repeat)

a good read

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