It appears that the doomsday prophecies following Trump’s election are going up in smoke. European stocks & bonds rallied as the dust settled after a controversial Trump selloff. The MSCI All Country World Index gained while the Dow held steady at 19,000. This was a monumental rally that was completely unexpected. Precious metals also jumped, with gold & copper experiencing hefty increases. Unfortunately, this success didn’t spread to all commodities. Oil faltered at $48 a barrel as OPEC members scrambled to agree on output cuts.
Dust Settles After Trump Selloff
“We’ve finally broken through to new records,” said Heinz-Gerd Sonnenschein, an equity strategist at Deutsche Postbank AG in Bonn, Germany. “We can move on to pricing in the improving outlook: there are strong signs that the U.S. economy is in good shape and that bodes well for corporate earnings.”
Now that the US elections are finally over, the next big decision is the Federal Reserve’s interest rate hike. According to experts, this increase is guaranteed. The market implied odds of a December hike has now hit 100%. This news has emboldened investors in the face of a 5 quarter profit slump for US companies.
Trump’s promise to invest heavily on America’s infrastructure is bolstering US stocks. MSCI’s global gauge rose by 3%, hitting its biggest monthly advance since July. Both the S&P Index and the Dow average are poised for record highs. The S&P 500 Index rose by 0.2% to 2,202.90. The Nasdaq Composite Index & the Russelll2000 Index are joining the rally with record rebounds.
These bold predictions of a fresh manufacturing boom are making commodities do backflips. On one hand precious metals are skyrocketing while oil remains in limbo. Gold is quickly recovering from a 5 month low, reporting a back to back comeback. Copper also is on the rise, securing its highest close since July 2015. Oil fell by 0.5% as OPEC readies to implement output regulations. Allegedly the new deal is about to be finalized. Hopefully another oil glut doesn’t impeded this new era of infrastructure investment.
This fresh wave of optimism has officially spread to Europe. European stocks recovered after the Trump selloff eased. The Stoxx Europe 600 Index soared by 0.5% while Anglo American & BHP Billiton gained 4.8%. Enel SpA also jumpstarted gains by going public on their plan to cut costs by 3 billion euros. Bonds also made a valiant recovery across Europe after weeks of uncertainty.
Many European investors are holding their breath until the next ECB policy in December. Since the Federal Reserve has almost guaranteed an interest rate hike, the ECB needs to maintain the balance. Many high level officials have hinted that they have no intention to reduce monetary stimulus. These high hopes of maintaining substantial monetary accommodation are fueling this recovery.
Now that investors can avert their focus from politics, the market appears to be back on track. Goldman Sachs Group Inc. is advising investors to plan on higher prices as international manufacturing picks up. This is the first time the bank has bumped up the asset class in over 4 years. Many believe that this is paving the way for a new boom. The Fed’s interest rate hike won’t be a surprise, & ECB is poised to continue extending monetary stimulus. Once OPEC seals the deal on oil restrictions, the market may go back to normal.