1. Moving the Markets

Early market momentum followed yesterday’s theme with the major indexes heading south and vacillating below their unchanged lines for most of the session. During the last hour, buyers stepped in, as the VIX was crushed, and managed to push the major indexes back towards their break-even points for the day with only the Nasdaq actually closing in the green.

The Dow managed to hang on to the positive side of the equation for the month and scored  its first positive January since 2013, while the last hour ramp saved the Small Caps from losing value for the 4^th January in a row. On the other side, gold had its 4^th successive positive January and its 8^th in the last 11 years.

Here’s how Bloomberg’s Michael Regan summed it up:

It’s tempting to blame Trump’s latest statements for everything going on in the markets, but some big-name earnings make it obvious that equities would have struggled even if the President had taken today off. UPS showed the risk from the surging dollar last quarter and spoke of “continued softness in industrial production,” while Exxon Mobil’s $2 billion writedown shows that all the shoes from the oil bear market have yet to drop. Then there is Under Armour and Harley Davidson, which may not be sending any macro signals but are ugly stories regardless. About two-fifths of the way into the earnings season, the rate at which S&P 500 companies are beating estimates has slowed to 2.7% and the growth rate is 4%. A blockbuster earnings season may have helped the market look past the volatility in the White House, but at the moment it’s not providing enough of a distraction.

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1. Moving the Markets

I had to happen eventually. After a tremendous amount of hype and hope since Election Day, some sense of reality had to set in. It did today as investors worried that not all of the new President’s ideas and policies may be market friendly. Such was the case with the curb on immigration ordered by Trump, which caused protests and rallies over the weekend leading up to a sharp sell-off in the futures markets.

While equities dropped the most this year, it seems to me that traders and investors are of the mindset that records highs in the major indexes are now supposed to be a regular occurrence, which clearly points to Wall Street’s delusional sense of reality. Sure, Trump’s pro-growth proposals may be positive to economic activity but his ideas dealing with protectionism may not.

Clearly, the markets have been put on notice that complacency is no longer a valid state of mind. In the end, to us trend followers, none of the arguments matter, we’re only interested in the status of the long-term trend; and that remains bullish for the time being.

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1. Moving the Markets

Keeping the major indexes in check was a report showing that US economic growth slowed in the 4^th quarter expanding 1.6% for all of 2016, its worst performance since 2011. Sure, there were periods of stronger growth, such as in the third quarter, which clocked in at a 3.5% annual rate but, in the end, 2016 turned out to anemic. We now have to see if Trump’s campaign promise of delivering a solid 4% based on cutting taxes, reducing regulation and increasing infrastructure spending will actually come to fruition.

Here’s Deutsche Bank with some more details:

It appears that Deutsche Bank’s warning that the global economy is about to roll over was spot on, because moments ago the Bureau of Economic Analysis reported that GDP in Q4 rose only 1.9%, barely above the lowest forecast of 1.7%, and below both the consensus estimate of 2.2% and the whisper estimate of 2.5%-2.6%. The reason for the big miss, and nearly 50% drop from the 3.5% print in Q3: a collapse in contribution to GDP from trade (net exports and imports) which subtracted a whopping 1.7% from the headline number. So much for that soybean bumper boost to the US economy. The silver lining: Business investment picked up to 0.67% of the final print, potentially a harbinger for faster capital spending in 2017.

Then, BofA chimed in as to what has driven some of that rally in “Largest US Equity Outflows In 4 Months:”

While the S&P500 market may remain pinned just why of all time highs, this appears to be from ongoing short covering, and is not – at least in the latest week – the result of new money entering the market. Quite the opposite: according to the latest BofA fund flow analysis based on EPFR data, in the latest week, US equities saw $6.3 billion in outflows, the largest weekly redemption from US mutual funds and ETFs in four months, since before the presidential election. And as investors pulled cash out of US stocks, they quickly reallocated it back into bonds, with all major classes seeing inflows, with notable mentions for government bonds, which had the biggest inflows since July 2016, and TIPS, where the demand for inflation protection is now the highest since the great China reflation scare of 2011 (it proved quite transitory).

For the week, the major indexes gained and hit record highs while bonds ended barely unchanged. The US dollar fell for the 5^th week in a row and closed at 2-month lows. Silver spiked back to even while gold was slammed back below the $1,200 level.

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