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30Jan2017 Market Close: DOW Closes Down Triple Digits, Trumps Policies Remain Front And Center, Gold And The US Dollar Slip From Session Highs, More Market Losses Foreseen

Written by Gary

Wall street posted their largest drop so far in 2017 (SPY -0.6%) as investors worried that a curb on immigration ordered by Trump was a reminder that some of the U.S. president's policies are not market-friendly.

Todays S&P 500 Chart

The Market in Perspective

Here are the headlines moving the markets.

S&P 500, Dow suffer biggest drop of 2017

NEW YORK (Reuters) - The S&P 500 and the Dow on Monday posted their largest drop so far in 2017 as investors worried that a curb on immigration ordered by Donald Trump was a reminder that some of the U.S. president's policies are not market-friendly.

U.S. consumer spending, housing data bolster economic outlook

WASHINGTON (Reuters) - U.S. consumer spending accelerated in December as households bought motor vehicles and cold weather boosted demand for utilities amid a rise in wages, pointing to sustained domestic demand that could spur economic growth in early 2017.

Trump order targeting business rules leaves key regulations untouched

WASHINGTON (Reuters) - President Donald Trump signed an order on Monday that will seek to dramatically reduce federal regulations, but the policy will not apply to most of the financial reform rules introduced by the Obama administration.

Ford, Goldman CEOs criticize Trump travel curbs

(Reuters) - The chief executives of Goldman Sachs Group and Ford Motor Co joined the criticism of President Donald Trump's order to halt arrivals from several Muslim-majority countries, as equity markets fell and the dollar slipped on Monday.

Snap selects New York Stock Exchange for IPO: source

(Reuters) - Snap Inc, the owner of the popular messaging service Snapchat, has chosen Intercontinental Exchange Inc's New York Stock Exchange (NYSE) for its initial public offering (IPO), a person familiar with the matter said on Monday.

Sanofi, Novo Nordisk and Lilly named in patients' price fixing suit

NEW YORK (Reuters) - Three of the biggest makers of diabetes treatments, Sanofi SA , Novo Nordisk and Eli Lilly & Co , were named in a class action lawsuit about price fixing filed by a group of patients.

Trump tweets drive day trading but leave math, computer whizzes sidelined

NEW YORK (Reuters) - Day traders love making bets on tweets from U.S. President Donald Trump, but some of the most prominent quantitative strategists from hedge funds and banks are not quite ready to make big, bold trades on his social media musings.

U.S. inflation getting Trump lift: Wall Street strategist

NEW YORK (Reuters) - Long hibernating price inflation is taking center stage in America's economy, in part because President Trumps' anti-migrant policies are fueling already rising wages, a top Wall Street asset strategist said on Monday.

Short sellers giving up on Twitter trade

SAN FRANCISCO (Reuters) - Short sellers have been closing their bets against Twitter Inc so far in 2017, possibly frustrated by a lack of volatility in the social network's stock price.

RBC: "It Is Crazy What Is Going On 'Under The Hood' When On The Surface It's So Optically Calm"

Having cautioned that the economic macro surprise rally of the past three months...

... has been mostly based on the back of "soft data" surprises, in other words, hope and moistly animal spirits, which "are driving the bulk of the US data surprises"...

... today, RBC's head of cross-asset strategy Charlie McElligott looks at the first sharp selloff, coupled by a vol spike and observes that one week after the first Trumpflation jitters, the Trump trade on Monday appears to be losing policy momentum, and as a result "profit-taking of longs ensues."

As McElligott notes, it has been an agitated market to start the week, with VIX seeing its largest intraday move so far in 2017 as we see thematic winners of the past three months being unwound.

It's not a puke just yet, as we are "still not getting that 'FTQ' bid we'd come to expect in the old "risk-OFF" regime, with USTs (and Dollar) essentially unch. This says to me that it is STOCKS which have discounted the most +++ inputs of potential Trump policy (see last Wednesday's price-action), and is thus the most ripe for a re-pricing of his ability to 'steady the ship' with suddenly-waning policy momentum."

The good news for bulls hoping that BTFD will quic ...

Flashback 2006: Senators Clinton & Obama Vote For Secure Fence Act, Bush Signs Bill

Submitted by Michael Shedlock via MishTalk.com,

Inquiring minds are taking a flashback look at the Secure Fence Act of 2006, signed by president Bush.

The Secure Fence Act of 2006's goal is to help secure America's borders to decrease illegal entry, drug trafficking, and security threats by building 700 miles (1,100 km) of physical barriers along the Mexico-United States border. Additionally, the law authorizes more vehicle barriers, checkpoints, and lighting as well as authorizes the Department of Homeland Security to increase the use of advanced technology like cameras, satellites, and unmanned aerial vehicles to reinforce infrastructure at the border. Congress approved $1.2 billion in a separate homeland security spending bill to bankroll the fence, though critics say this is $4.8 billion less than what's likely needed to get it built.

The final roll call shows both Barrack Obama and Hillary Clinton voted for the bill.

In 2008, Obama, Clinton Backed Off Border-Fence Law

Goldman Sachs: The Case For A Higher VIX

While low VIX levels may not, at least historically, suggest an impending market decline; Goldman Sachs are sympathetic to the argument that the VIX seems low. That begs the question, what has tended to get the VIX off the couch and moving again?

Historical perspective: VIX < 11 on 1.8% of trading days since 1990

The VIX closed at 10.6 last Friday, its third consecutive close below 11. Sub-11 VIX levels are actually pretty rare. We estimate that only 1.8% of VIX observations back to 1990 have dropped below 11 with less than 1% falling below last Friday's closing level of 10.6.


For historical perspective, we look at the percentage of time the VIX has close at various levels in the past in Exhibit 1.

While most investors think of typical VIX levels being around 20, the distribution of closing VIX levels shows that a large chunk of VIX levels actually occur when the VIX is in the low teens.

If we look at fairly granular one unit increments, we estimate that the VIX has closed between 10 and 11 about 1.7% of the time back to 1990.

The largest bucket in our histogram is the 12-13 range where the VIX has spent 8.6% of its time.

The case for higher volatility

The economy will eventually need to confirm the recent optimism in asset prices: While the "soft" survey data has been on the stronger side, the "hard" economic data will need to improve in order to justify the recent advance in risky assets as highlighted by Charles Himmelberg. That may be a tall order at a stage of the business cycle where growth headwinds could stem from limited spare capacity.

Policy uncert ...

The Coming Squeeze on Profit Margins

Just because companies' costs are rising doesn't mean they are going to be able to pass them on to consumers.

Apple's Secret, but Very Large, Profit Center

Apple's services unit bears watching in Tuesday's earnings report as the tech giant looks for new ways to boost margins and maintain growth.

Why Executives Are Speaking Out on Travel Ban and Why More Might Follow

President Trump's immigration order has mostly drawn criticism from companies with employees directly affected, but others may join them as they see international reputations threatened.

Airline stocks drop in wake of President Trump's immigration ban

Shares of airline stocks were knocked lower as concerns that President Trump's immigration ban, as well as the protests at airports across the country in response to the ban, would curtail travel demand.

Earnings Outlook: Hard times for handbags, but analysts pick Coach over Michael Kors and Kate Spade

Coach is many analysts' choice, ahead of rivals Michael Kors and Kate Spade.

Market Extra: Biggest gold ETF gets a sequel that removes dollar headwind

A new exchange-traded fund is designed to outperform in an environment where both gold and the U.S. dollar rise, as is widely expected to occur in 2017.

Summary of Economic Releases this Week

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Earnings Summary for Today

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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