- Indexes pause after strong start to week. (10:32am ET) U.S. equities are near flat in early trading, despite overseas markets trading mostly higher overnight and into this morning. Yesterday’s session saw the S&P 500 (+0.3%) close higher for the third straight day. Telecom (+1.5%) led the way up, while most sectors finished with modest gains; only energy (-0.1%) and utilities (-0.3%) fell. Asian markets closed mostly positive, with the Nikkei and Shanghai Composite both advancing 0.7%. European shares are following Asian markets higher in their afternoon session, boosted by bank stocks as the STOXX 600 nears its highest close since September. Treasury prices are staging a relief rally, with the yield on the 10-year note down to 2.35%, whereas the U.S. dollar is slightly lower following yesterday’s gain. Finally, WTI crude oil ($50.34/barrel) is lower by more than 1%, and COMEX gold is nearly 1% higher at $1,181/oz.
- More new highs across the globe. The Dow Jones Industrial Average made another new all-time high yesterday; this is now 11 new highs since the election (18 total days). The S&P has made only four new highs over this time, but it closed a point away from a new high yesterday. Not to be outdone, the Russell 2000 (small caps) and S&P 400 Mid Cap Index also made new highs. It isn’t just U.S. strength though, as the Russian MICEX closed at an all-time high, the French CAC 40 and German DAX closed at their highest points since December 2015, the Japanese Nikkei is near 2016 highs, and the Euro STOXX 50 Index is breaking above a downward-sloping trendline going back to early 2015. This type of broad-based global strength is another sign that the equity bull market is likely alive and well.
- Healthcare to get another test today. We will see how resilient the drugmakers and biotechs are today after President-elect Donald Trump said that he would work to lower drug prices. Although not as high of a priority as the issue would have been for Hillary Clinton, Trump did make comments during the campaign that suggested he may try to tackle the issue. Still, the general lack of punch from regulatory actions, competing priorities, and checks and balances may all work to limit the impact that Washington can and will actually have. Although we believe this risk may be priced in at this point, the near-term risk in healthcare increases with this statement.
- Trump trades keep working. The top and bottom of the sector rankings over the past week reflect the Trump policy theme, with financials (deregulation/higher interest rates) and industrials (infrastructure) solid outperformers, as they have been since Election Day. Another Trump trade, small caps (U.S. focused, lower tax rates), continued its strong post-election run over the past week. One Trump trade that has shown signs of stabilizing is emerging market (EM) equities, which matched the S&P 500 return over the past week after underperforming post-election on trade fears. Among these ideas, we have a slight preference for industrials. We would consider financials and small caps on weakness as short-term trades and continue to watch EM for opportunities after we get more clarity on trade policy.
 As measured by the S&P GICS Sector Indices versus the S&P 500
- India: Reserve Bank of India Meeting (No Change Expected)
- China: Imports and Exports (Nov)
- Flow of Funds (Q3)
- Eurozone: European Central Bank Meeting (No Change Expected)
- China: CPI (Nov)
- Japan: Economy Watchers Survey (Nov)
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