Thursdays article alluded to the possibility that markets will come under pressure as Trump fails to deliver campaign promises of Fiscal stimulus. This was a possible prediction for the future however it materialised today as the S&P took a sharp drop reaching 2,430, a valuation where many speculate to be the new support price. Many also speculating that the S&P is on it’s last legs after rallying throughout 2017, are we seeing signs of weakness or is it at it’s support price?
Arguments in favour of a long position is underpinned by the fact that no hikes on the horizon, the release of the Fed minutes was viewed as dovish while a mixed message came from how policy members view inflation. A rate hike puts pressures on equities as the cost to borrow money increases, however we did see Financials fall today as the prospect of higher interest rates suggests they will no longer be squeezed. Ideally the S&P won’t continue to rally, as stated on Thursdays article, valuations and fundamentals don’t appear to match up. Equities rallying on the prospect of Trump delivering his policies is dangerous territory. It’s anyone’s guess where the market is going, we believe broadly it will be based on these factors however.
Investors perhaps should be looking towards central banks who are in more focus, granted the Fed are always in the spotlight however investors will not wait for 2018. Inflation came in as expected for the Eurozone which keeps the the concept of tapering a possibility in September. The Bank of Canada is in focus today as inflation data is to be released, inflation has dropped somewhat in 2017 however another rate hike is priced for 2017. The bank of Canada raised rates for the first time in seven year in July as the bank faces similar obstacles as other major central banks, as Poloz outlined that monetary policy has no predetermined path, it’s data depended, focus is on inflation.