A fourth week of gains on the cards

Wall Street closed for Thanksgiving and so for the most part do the rest of the trading markets. With half a day’s trading to go today, it would appear global stocks are on for their 4 weekly gain. The Vix index now trades back at historic lows, the yield curve is stabilizing and money is flowing back into equities. The dark days of late summer seem forgotten as capital markets become more convinced a US economic recession can be avoided and the monetary handbrake will slowly be eased. Some will now start to question, as US equity indexes, reach their previous peaks, is this a “big dead cat bounce” to use the market term, or the beginning of the next bull market. Have we had the Santa rally a  little early? It is hard to see, as I said earlier in the week, what form of catalyst can drive equities on again. The pain trade in early November was obviously upwards. Hedge Funds, according to an FT article have been hit in November as heavily shorted positions have strongly outperformed.

What is very noteworthy this year is the gap in relative performance between the Russell 2000 index of smaller-cap US stocks and that of the S&P 500. So far the recent rally in stocks has resulted in the S&P 500 up almost 20% year to date, the Russell 2000, until a week or so ago was down on the year, now registering only a small gain. I am not sure historically what that means for either index when one has so drastically outperformed the other, but it is another example of the influence a few stocks have had on the S&P 500.

I think a word on the budget, CEOs are expected to underpromise and overdeliver, not the other way around as Mr Hunt managed this week. Having read for weeks about how the government wanted to ease the burden of tax help and support a new era of business growth, the whole thing was a damp squib. As more workers fall into the higher bands, as a result of the freezing of allowances people and businesses are unlikely to be much of a benefit from Wednesday.

Lastly an interesting development on the political front as the Netherlands elected what many are describing as its own version of Donald Trump. His election will send shock waves through the rest of Europe as they fear it could spur the rise of the Far-right parties in places like Italy and France, and increase tensions within the euro region.