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Tuesday, January 31, 2017

Trump's Rally and Inflection Points

Trump has surprised many by fulfilling his campaign promises! These has kept the US market rally going and breaking new high .

When will this rally end? This blog believes that the market is awaiting the announcement of most interesting and potent policies that could give the US market the last 'melt up' . It's Trump's promised to slash the top corporate tax rate to 15% from the current 36%.

Trump’s plan to slash the top rate in half is unprecedented, the reason why any significant slash could be a boon for stocks is straightforward: It quickly could boost per-share earnings of profitable companies. That would make U.S. stocks look more attractive versus bonds and other global investments. The lower taxes leave more retained earnings available to companies that want to use it for investments or share buybacks, that’s also a boon for stocks. He has also promised to ease strictures on oil, gas and coal energy companies. Trump's policies promotes economic growth. The stock  market are already shifting away from consumer staples, utilities and REITs to financial services, manufacturing and energy.

Trump's ultra pro growth policies will continue to be a boost to the U.S dollar. Trump calls China a “currency manipulator” and threatens to impose tariffs up to 45% on imports from China. it sounds like he’d like the dollar to weaken versus the Yuan. But actually, most of his plans are likely to lift the dollar . It seems inevitable if the U.S. economby booms the dollar bull will continue.

Fed seemed to acknowledge finally that America has almost reached full employment. This suggests that there should be a bias towards tightening, and therefore “normalisation” of monetary policy, so long as wage pressures continues to rise. This raises the potential for a monetary tightening scare if wage pressures continue to rise in America and The Donald seeks to implement aggressive fiscal easing.

This blog expect a round of “quantitative tightening” by central banks in the 2nd quarter in the year to prove “risk-negative” for markets.

The bottom line is 2017 carries the potential for rising rates and falling earnings, a “complete reversal” of the falling rates and rising earnings that contributed to big gains for stocks. It's going to be tough for trump to hold up the  “second greatest bull market,” in US history.

In a Greek myth , Icarus ignored his father’s warnings and flew too close to the sun, melting the wax on his homemade wings and plunging back to earth.

Beware of 'Icarus Trade' , we are getting closer!

Have a blessed Lunar New Year . 'Gong xi Fatt chai '
All posts and charts are for educational and illustration purposes only

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