Beyond Mere Alpha - November 2016

Friday, November 11, 2016 - 5:02pm

You need to go all the way back to the dark days of 2008 to find a stock market reversal to rival that of the last hours of November 8th through end-of-day on the 9th. In this Trump-victory-aftermath, the S&P 500 Index futures erased a 5% loss triggered by Donald Trump’s surprise presidential-election win. Bigger turnarounds have only happened three times before, twice in the final months of 2008 and another in October 1987, says Bloomberg. This was truly an historic outcome!

Stocks turned higher — much higher — on Wednesday (the day after the election) as speculation that the Republican will pursue business-friendly policies. This move offset some of the broader uncertainty surrounding his ascent. The intraday range of the S&P 500 was almost 145 points — or the staggering equivalent of 1,450(!) DOW points, had the Dow been trading Tuesday night as the election results unfolded. This was approximately a 6.2% trading range for one day. The chart on the left tells you just how “violently” the market rejected the “limit down” status of the S&P futures at 11:01 pm the night of the election.

What I am seeing now is some very interesting sector rotation: Based on the U.S. election cycle ending — and two sectors (Consumer Discretionary and Industrials) — moving out of the Lagging Quadrant and into the Improving Quadrant, I will be adding stocks in the Consumer Discretionary and Industrial sectors in the SMAs. Looking here at the SPX Sector RRG, you can see this rotational activity highlighted in yellow. As recently as last week, all but three of the eleven sectors were mired in the Lagging Quadrant. Although both the Consumer Discretionary and Industrials are only “timidly” entering the Improving Quadrant, if those sectors gain momentum, they could head in the Leading Quadrant as we head in the traditionally strong year-end and year-beginning time frames. We believe we can anticipate that over the next few weeks. I will have more for you in my Mid-Month Market Update in a week or so. 

Until December, keep in mind that we will continue to watch your accounts, ready to adjust as we think it necessary in this volatile environment. Please remember that we don’t just manage your assets, we become one of them!