Is there any more that I need to say besides that Donald Trump was elected President of the United States of America? Probably not, as it is old news by now. However, as expected we saw a bit of panic and then the markets resumed their upward trend. The only surprise was that the panic was very short lived as the stock market opened higher the very next day despite the pre-market futures being down as much as 4% overnight. The Mexican Peso was the biggest loser as a result of Trump’s election as it fell by as much as 13% the very next day.
We had an excellent guest speaker event last week with Anthony Scaramucci, a member of the US National Financial Advisory Committee and a key participant on the President-Elect’s transition team. He provided us and our guests with more detailed insight on how Mr. Trump is planning on accelerating US growth. The event was a success with tasty refreshments and a wide array of new and old luxurious exotic cars to experience.
Other than his most commonly known plans of cutting taxes and re-negotiating trade agreements, there was an emphasis on regulations and how to balance safe guarding the economy and not stifling growth at the same time. An example that was given would be the extremely loose restrictions used by the Bush administration that caused the 2008 recession and the extremely tight restrictions put on by the Obama administration coming out of the recession. Both of these were prime examples of extreme right wing and left wing politics, while the new administration’s goal is to find a happy medium in between these two extremes. This is amongst the many details that were discussed, but we can say that we are less concerned about Mr. Trump then we were before this event.
Oil prices got a lift on the very last day of November as OPEC finally agreed to oil production cuts with Saudi Arabia making the biggest concession.
In India, the government made a huge stand to eliminate tax evasion and other illegal activity when they removed from circulation large bills. Citizens have only 30 days to deposit bills in the denominations discontinued before they expire worthless. A huge move, which we see China possibly following suit in order to reduce its underground economy and increase its tax payer base.
Let’s see how the markets have done.
The most notable developments this month have been the following
This month Canada got a lift from energy companies soaring. With OPEC’s deal paving the way to higher oil prices that are necessary for Canada’s oil producers, along with Trump’s positive position on the construction of the Keystone XL pipeline. However, we are waiting to see what kind of effect the new President will have in the coming months as he has distaste for the current North American Free Trade Agreement (NAFTA).
– Recent well performing sectors are Basic Materials, Energy, Industrials and Financials.
– The TSX was up in November by nearly 2% with Energy leading the way.
– The Canadian Dollar up this month against the US greenback at $0.762.
– Positive growth in exports this quarter suggests that the economy bounced back from the sluggish 2nd quarter.
– Oil prices rose this month from $46.88 to $49.44 equalling 5.46%, but the low was $43.94 at one point making the OPEC decision to cut production a significant boost for prices.
– Unlike black gold (oil), gold itself has had a terrible month falling from $1,273.10 to $1,173.90 equalling 7.79%.
– Employment numbers were on the rise, but so far most of it came in the form of part-time employment.
– Bank rate remains at 0.75% as expected and it should remain at that level for the foreseeable future (however RBC and TD increased their prime rate).
Instead of the market going down predicated by Donald Trump being elected, it quickly rallied on the next day post-election, closing up 1.5% on that day. By the end of the week the markets had the best week for stocks in the past 5 years. All 3 of the major stock exchanges posted new highs for the year. Unlike the stock market, the bond market had a difficult month as rates have risen in the past few weeks and in the short term have hurt bond prices. It will be very difficult for the bond market as it is entering a new phase in the rate cycle.
– Recent well performing sectors are Industrial, Energy, Basic Materials and Financial.
– The S&P 500 was up 3.70%, Dow Jones 5.88% and NASDAQ 2.80% respectively for the month of November.
– Donald Trump wins the US Presidential elections on November 8th.
– Republicans will hold power in all 3 branches of government giving them a lot of power in the coming term.
– No rate hike by the Federal Reserve for the month of November, but it has been expected that December will be the month they raise it by 0.25%.
– Post-election the US dollar surged, as the trade-weighted (Relative to All Currencies) US dollar is now within touching distance of its all-time high reached in early-2002.
– Full-time positions as a share of total employment is rising towards pre-recession levels and wage inflation now seems to be gathering pace setting up the consumer to contribute to the growth of their economy.
With the election results in the US, it created some uncertainty around the world, especially in emerging markets. It is too soon to tell if there will be any impact to current trade agreements allowing these countries to produce products at a much cheaper price as per lower standards of living and devalued currency. However, the latest numbers show that the global economy stabilized somewhat in the 3rd quarter. At the time of writing this, we know that Italy’s referendum did not destabilize Europe even more, as 60% voted to stay part of the European Union.
– India’s government suddenly declared all 500 and 1,000 Rupee notes worthless earlier this month. The country of 1.25 billion people happens to be a largely cash economy, so the Prime Minister made a surprise announcement to help stop corruption, counterfeiting and black market commerce. This will also increase the number of people that will have to start paying taxes for the very first time. We see a sudden slowdown but the overall long-term growth prospects are great for India.
– For all you gold bugs out there, India has proposed to ban all gold imports which has been the reason gold prices have fallen. If the proposed ban is made into law, we can see prices continue to drop as India would be doing this for the same reasons as they did for point above.
– OPEC which is made up of countries outside of the United States decided to cut oil production by 1.2 million barrels per day in a resolve to boost prices. Saudi Arabia has taken most of the brunt of the cutting, while Iran did not have to cut any of their production.
– The European Central Bank decided to maintain its overnight lending rates, while the equity markets remained stable.
– Despite ongoing challenges in China mainly due to the economy rebalancing and soft export demand, their economy continues to expand thanks in part to government stimulus. Data showed growth of 7.6% annualized over the past 2 quarters, which are the best in 2 years. However we still see a slowdown in the future as the focus on becoming a consumption based economy.
Eye on the month ahead
– We are expecting the US Federal Reserve to raise rates by 0.25%. The market believes so as well, so we will be watching in case it does not happen.
– As Trump gets closer to his inauguration, we will be on alert to see who he is appointing in key areas that may affect the economy and what policies look more likely to be at the fore front of his first 100 days in office.
– Saudi Arabia is taking the lead on the OPEC oil cut initiative, though Russia agreed to cuts, we will wait and see if they follow through with it.
We continue to believe that a globally balanced portfolio is the best approach. Equities favored over fixed income as bonds enter into a difficult long term environment. We favor the US over Canada unless there is an event to derail their growth, this could be the “Trump” factor but it is looking less likely that it will have a negative impact on the market.
Konrad, Justin and Merriel
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