Tuesday night’s surprise win for Donald Trump ranks right up there with Brexit as one of the most stunning events of the year. Besides showing clients the value of discipline for staying in the market even after nine consecutive down sessions, Wednesday’s market action also contains some interesting clues about the potential direction of stocks as we close out the year.
The most important thing I’m seeing is stocks rising, even in the face of higher rates.
Have we finally reached a point where rallies are not entirely dependent on dovish Fed action? That may be the case. Last month’s release of third quarter GDP numbers showing 2.9% growth was certainly encouraging.
It is also positive to see the yield curve finally steepening (i.e., long-term rates rising more than short-term rates). A move like this should be a boon for bank stocks, making it easier for to profit from lending activity.
Finally, the seven-hour long bear market we had overnight was obviously too short to take advantage of. However, risk positions are working well on Wednesday, and Wednesday’s action bodes well for the rest of the year.