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Staying focused on what we know post the US Election

Erica Szczech - Nov 10, 2016
There is no question investors are going to have to grapple with increased volatility as the election dust settles. At this point, it is impossible to answer whether candidate Trump will be different than President Trump. Thus far, the futures have i

Canaccord Genuity's, Tony Dwyer - US Analyst, says Stay focused on what we know.

There is no question investors are going to have to grapple with increased volatility as the election dust settles. At this point, it is impossible to answer whether candidate Trump will be different than President Trump. Thus far, the futures have impoved to being down just 2%, and as highlighted when we upgraded our market view, our fundamental core thesis should remain in place. Absent a clear sign of recession - that currently does NOT exist - we believe that while markets don't like uncertainty, investors should embrace should embrace heightened volatility as intermediate-term opportunity.

 

Although there will be so much written over the coming days about what President Trump might do, we will stay focused on what we know: The only time to expect a significant decline in broad equity prices is following very tight credit conditions that cause a recession. Time and again, as the market corrects, fear of pending recession and 'it's different this time' clog the inboxes and airways. Over the past 65 years (including the current cycle), there has not been a US recession while:

              1. The Real Fed Funds Rate remains negative,

              2. The Yield curve remains positive,

              3. With no stress priced int the Chicago Fed's National Financial Conditions sub-indices

 

Although anything is possible given the election outcome, it is pretty hard to make a sustainable negative economic case with (a) stable inflation, (b) a still historically accommodative Fed that is slow to act, (c) a demographic tailwind, (d) a turn in the global picture, and (e) a positive trend in S&P 500 (SPX) EPS and valuations.

 

To read Tony Dwyer's the full report, click here

 

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