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Market Lab Report - Premarket Pulse 11/14/16

Major averages finished the week mixed on lower, but above average volume. The Dow Industrials closed at new all-time highs while the Russell 2000 is a breath away from doing the same. Meanwhile the NASDAQ Composite remains just below its 50-day moving average while the S&P 500 continues to hold above its own 50-day line after regaining it on Wednesday.

The big sector rotations that came after Trump was declared the victor were notable in the institutional footprint left behind. Of course, it remains to be seen whether Trump will be able to induce favorable legislation for such sectors but without congressional gridlock, the odds are improved.

Inevitably, the market will do whatever it likes, which is why when so many cross currents exist, it is always best to focus on the information one is given in real-time then act accordingly. And while the market has tried to become increasingly challenging with each passing year since QE began in 2009, we have managed to stay ahead of the curve by adjusting to material changes in the markets in terms of what we buy, when we buy, and when we sell.

That said, it seems July-October of this year was maybe a final straw which featured a market that could barely make any meaningful progress in either direction as we wrote in this report: https://www.virtueofselfishinvesting.com/reports/view/market-lab-report-mega-frustrating-markets-not-necessarily, but also included routine gaps higher and lower, adding to the level of risk, thus perhaps the corner in which central banks painted the markets since 2009 got so tight that the US market had no choice but to escape via a Trump victory? At least the steepening yield curve, the potential for increasing capital spending on infrastructure, and favorable business and tax policies seems to be pointing us in the right direction.

Goldman Sachs CEO Lloyd Blankfein made a post-election statement saying he felt Trump's policies are supportive of the market. But time will tell. After several years of this QE-driven bull market which began in 2009, a serious stock market correction driven by another rate hike or two is not out of the question as history has shown in 1929, 1987, and 2000. Stock markets during all three periods were in bubbles and given the unprecedented levels of QE that have pushed the US market higher since 2009, today's market is arguably also in a bubble. The question remains whether the Fed can unwind QE by hiking rates without it resulting in a hard-landing, ie, a correction well exceeding -20% not seen during these QE-manipulated years.

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