Market Commentary – Nov. 2016

What began as a nerve-wracking month for stock market bulls ended up as one for the bears. The U.S. election went against consensus expectation. Mr. Trump became President-elect. Again, contrary to expectations, stocks began to rally, anticipating corporate tax cuts, repatriation of corporate cash from overseas, stock buybacks, boost to Earnings Per Share (EPS), higher interest rates and a stronger dollar.  Gold was the biggest loser in the bargain. It gave up nearly 9% in the month. An agreement among OPEC countries to cut crude oil production boosted crude oil price. WTI crude was up 6% in the month. Therefore, commodities in general gained 2.8%.

Total returns from S&P 500 for the month was 4.4%. Emerging markets paid a price for the return of optimism about the United States. MSCI-EM dropped 4.3%. Among emerging markets, India fared the worst as, on the same day of U.S. elections, India decided to withdraw high denomination notes from circulation with immediate effect. MSCI India lost 7.8%. Political uncertainty returned to Brazil and it dropped nearly 7%. China lost 1.8% and Russia stood out with a gain of little under 4%.

Like EM stocks, EM bonds ended up on the losing side. JP Morgan Emerging Market Bond index lost nearly 4%. Developed country bonds were also big losers. US Treasuries (above 1 year remaining maturity) were down 3.5% and Eurozone government bonds were down 5.2%. All figures are on total return basis and in US dollars.

It will be tough to sustain the global and U.S. reflation trade too long into the New Year, if interest rates climb steadily.

[Please note that this is not an investment newsletter or advice of any sort. Usual caveats apply]


2 thoughts on “Market Commentary – Nov. 2016

  1. Dear Sir, will like your views on why the U.S. reflation trade will not last too long into the new year. As Mr. Trump has suggested things like rebuilding the infrastructure etc won’t it lead to higher inflation & subsequently interest rates going up in US? I agree the global reflation might not pan out but i think U.S. reflation can happen. Your contrary views will be insightful.


    1. Few reasons. Of course, I could be wrong. The economy is in its eighth year of expansion, technically. It would not need too many prods to tilt it towards a recession. Two, the stock market is overpriced. Three, not confident of the economy or the market’s or the investors’ ability to tolerate higher interest rates. That threshold has been lowered (to the point of being deadened) in the last twenty odd years. These are my reasons.


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