Tomorrow is yesterday today

The adrenaline rush in US stocks has been on since the US election result came to a halt yesterday, as stocks in the US took a breather. John Authers, a Bloomberg columnist who I often refer to, has drawn parallels between now and the election of Hoover in 1928. He summed up the current situation rather well. Markets anticipate higher growth, lower volatility and inflation and a better American economy. Mr Authers compares the performance of the US stock market post-Mr Hoover’s election and the US market today in the days following the election results. The good news is we are in for a similar fall from grace as in 1929; we have a few months left to enjoy the rally. The one point Mr. Authers reiterates is that US stocks are not cheap by any measure you care to use.

Today may be the first dose of reality as we get the latest US Consumer Price Index reading. The latest CPI data is expected to show that US inflation moved essentially sideways in October as inflation continues to struggle to get back to the Federal Reserve’s 2% target. Economists surveyed by FactSet expect inflation of 2.6% year over year in October, up from the 2.4% rate logged in September. Inflation in the US is a bit like a golf handicap; getting from 10 to 5 requires some work but is relatively achievable, and getting down to 2 is, by some stretch, a lot harder. Core inflation is expected to measure 3.3%, the same rate as September. Tomorrow, we will get a raft of US employment data and producer prices; it will be interesting to see how bond and equity markets react if there are further signs of weakness in the employment market. The odds of a Fed December rate cut have been coming down, now just 60% against almost 80% a few weeks ago. Let’s see what the coming days do to those odds.

Despite valuations, US stocks hit new highs, according to the latest Merrill Lynch fund manager survey. Fund managers’ exposure to US stocks “surged” last week. Citigroup says investors last week pushed their exposure to the S&P 500 to the highest in three years. It feels like they are all into Trump 2.0.

A quick comment on yesterday’s UK employment data, which led to further weakness in the pound yesterday. Wage growth remains stronger than forecast, coming in at almost 5% year over year, and the unemployment rate rose more than expected. One thing I thought was interesting was that job vacancies decreased for the 28th consecutive period in three months to October, the ONS said. The number of vacancies declined by 35,000 in the quarter to 831,000. Another side note: there was a 20-year gilt auction yesterday; the yield at the last auction was 4.4%, and it was 4.8% yesterday.