TGIF! December 9, 2016

This week marked the 75th anniversary of the day that will live in infamy.  Pearl Harbor was attacked by Japanese fighter planes on December 7, 1941, which officially brought us into World War II and changed the world landscape forever.  Over 100 survivors returned to Pearl to honor the occasion.  4 of the 5 survivors from the USS Arizona were among them.  Most of them are in their 90’s, with a few over 100 years old.  One of the attendees, Jon Gordon, lives in Walnut Creek.  He referred to December 7, 1941 as the day “we were all called to save the world”.  They certainly were and they absolutely did.  America was united.  

3 score and 15 years later, the world remains a dangerous and challenging place.  But opportunity always presents itself.  Strong leadership is required.  It was the case in the 1940’s.  It’s the case right now.  Foreign relations are under great stress as global elections are leaning back towards nationalism.  Global leadership is essential.  It requires strength and resolve with diplomacy.  It’s also needed at the national level.  Today, America is deeply divided.

President-elect Donald Trump is demonstrating leadership and asserting himself in many areas already.  Clearly, not everyone agrees with him, but he is certainly leading.  His initial focus has been on business and trade.  He has directed his attention directly at China.  He’s also directed attention towards US companies, namely Carrier and Boeing.  Trump has shaken things up and disrupted the status quo. That is a powerful thing and often necessary.  One thing nearly all Americans agree upon is that Washington is broken.  Change was needed.  Change is here.  TIME Magazine named Donald Trump Person of the Year.

So far, the Market really likes what it sees.  There has been an explosive rally since the election.  All major indices keep setting new, record highs.  Seasonality is certainly playing a role, but the underlying strength seems very real to us.  Earnings growth has returned, with Q2 looking to be the trough from a 2-year hiatus.  Importantly, revenues are driving the growth, a true sign of demand.  The US economy has accelerated, now growing over 3%.  When you combine lower taxes and less regulation, it makes for a pretty nice brew for stocks.  The rally has caught so many off guard, and a lot of people simply don’t trust it.  What we see is a real rally and the strong likelihood that those that are underinvested and were positioned the wrong way are being forced to chase and drive this Market higher still. Sellers have been absent.  Investors are likely holding back on taking gains until the new year, when tax rates are expected to decline.

The Fed meets next week.  It’s a virtual certainty that a rate hike is coming.  Interest rates are finally rising for the right reason.  Under the hood of the US Stock Market is the cleanest, strongest engine we’ve seen in years. Importantly, leadership keeps rotating, and momentum is building.  It’s very healthy.  We absolutely expect some back and filling at some point to digest the big gains.  But we do see higher levels ahead well into 2017.

Have a nice weekend.  We’re all over it.  We’ll be back, dark and early on Monday.



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