1. Moving the Markets

Fed chief Yellen was in the spotlight during her congressional testimony at which time she pointed out that the election outcome has not changed the Fed’s plan for a rate increase “relatively soon” and absent any dramatic changes, a gradual pace of hikes thereafter.  Sounds like the same rhetoric we’ve heard all year long.

Living costs have not only surged the most since 2007, but also increased at a faster rate than the Fed’s mandated 2%, which means a hike in rates would sure be justifiable based on this matrix. Especially energy and the overall cost increases associated with housing/shelter rose by 3.5% year over year, hardly a negligible number.

Bond yields spiked again and, as Horseman Capital pointed out sharp yield spikes have preceded every major crisis in the past 20 years. Here’s the chart they are referring to:

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1. Moving the Markets

It was a mixed day with the S&P meandering slightly below its unchanged line caused by Wall Street digesting a healthy dose of economic data points. Industrial production tanked again and has now contracted for the 14^th straight month, which is its longest non-recessionary streak in 96 years. To look at it another way, this is the biggest 2-year decline since the middle of 2008.

At the same time mortgage applications crashed 30% to 10-month lows, which was not really a surprise considering that mortgage rates surged and approached 4%.

Given that, it came as a total surprise that the December Fed rate-hike odds are now near 100%. Yes, that is not a misprint; even deteriorating economic data don’t matter as the anticipated spending wave to be implemented by the new incoming Trump administration takes priority.

It sure does not make sense when looking at this chart, courtesy of ZH:

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1. Moving the Markets

The major indexes extended their post election really with the Nasdaq being the winner of the day with a gain of +1.10%. The Dow managed to again creep into record territory while the S&P added a solid +0.75%.

Energy stocks provided the fuel with oil racing ahead with a gain of +5.82% in anticipation of the scheduled OPEC meeting the end of the month. As we’ve seen in the past, there is much hope attached to the outcome of the OPECers, but it’s far from certain as to whether their jawboning results in actual production cuts.

Helping the mood on Wall Street were improved retail sales over recent months, which suggests that maybe more spending will cast a positive light on the holidays and provide a much needed boost to the economy and the next GDP reading.

After some devastating losses over the past few days, bonds finally closed up as yields pulled back, although I think that this is just the beginning of the bursting bond bubble.

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1. Moving the Markets

It was a tale of different markets. While the DIA made a new all-time high, the Nasdaq dropped as the rotation continued out of tech into financials, industrials, energy and transportation, all being powered by expectations that Trump’s economic policies might be beneficial for those sectors.

The dollar surged as emerging markets got crushed and bond yields surged to their highest levels in months based on increased inflation expectations. What is concerning is the speed with which the yields have been rising, which could lead to a deeper fallout in the interest rate markets and subsequently affect equities negatively.

While this rise in yields has come from very depressed levels, improved domestic growth can only be achieved with a corresponding widening of the deficit and higher inflation causing investors to demand even higher yields (lower bond prices) due to the erosion of real returns, which could then turn into a never ending vicious cycle.

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