In the latest macro update from JPM's Adam Crisafuli, the strategist writes that the Trumpflation rally which more than doubled the market's YTD gains since the Trump election, has gotten ahead of itself and that "it seems like a lot of headwinds that have been accumulating below the surface for weeks are quietly moving to the fore."
Here are the details:
Specifically, the initial Trump/Ryan fiscal enthusiasm is getting tempered as investors focus on the details of tax reform, the likelihood of infrastructure spending, and the potential for negative trade actions (this has been discussed throughout the press over the last week).
Note that while investors haven’t been without Trump skepticism, most of the doubt concerns timing (when the Trump policies will be enacted) and not magnitude or efficacy (i.e. it is still the overwhelmingly consensus view that Trump’s “pro-growth” agenda will materially help growth once it takes effect) although this dynamic is starting to gradually adjust (there is more anxiety around efficacy).
Meanwhile, the conciliatory and anodyne nature of Trump’s initial post-victory rhetoric has shifted back to the pre-11/8 tone and the tweeting is actually growing more frequent.
Away from domestic politics, China worries continue to mount as CNY weakness persists (currency outflows are expected to intensify during the opening months of ’17 as quotas get refreshed) and Taiwan/Washington tensions build.
Bottom Line – the SPX hasn’t really moved since ~12/8 and all the major US indices will finish the year w/respectable gains. However, the Trump/Ryan enthusiasm (which has by far been the biggest contributor to the stock rally) is certainly waning (or at least suffering more scrutiny).
And as a bonus, here are JPM's key preliminary catalysts for 2017:
- CES – the Consumer Electronics Show formally runs from Jan 5-8 in Las Vegas but “media days” take place Jan 3-4.
- US Dec jobs report Fri 1/6.
- Obama “farewell speech” on Tues Jan 10.
- ICR consumer conf. Jan 9-11. Orlando.
- Yellen will host a town hall meeting with educators from across the country. There will be a Q&A. Thurs 1/12 7pmET.
- US bank earnings season kicks off Fri 1/13 (BAC, FHN, JPM, PNC, and WFC all report that day).
- Earnings - week of Mon 1/16 is the first big one of the CQ4 earnings season.
- World Economic Forum 1/17-20 in Davos.
- ECB – first ECB decision of the year will occur on Jan 19.
- Trump inauguration Fri 1/20.
- Trump priorities – Trump will have a finite stock of political capital but a broad agenda, including tax reform (individual and corporate), infrastructure spending, deregulation (ACA,
- Frank, fiduciary rule, etc.), immigration reform, trade deal adjustments, Supreme Court nominees (at least one). What parts of the platform are prioritized and which get deemphasized?
- Trump fiscal specifics - what are the particulars of the tax reform bills – rates, deductions, etc.? How will the fiscal priorities be sequenced? Will corporate and individual tax reform get tackled separately, in which case the latter may not happen until the end of ’17 or early ’18? Will Republicans utilize “reconciliation” to pass tax reform (which could limit the scope of fiscal stimulus given the need for any legislation passed in this manner to be deficit-neutral) or seek the support of some Democrats (which could dilute GOP priorities)? Can Republicans secure relative unanimity in the Senate to even utilize reconciliation (the GOP will have 52 seats in 2017 but at least 8 of them could raise objections to some parts of the Trump fiscal agenda)?
- Fed appointment decisions – Trump has two appointments to immediately make to the Federal Reserve Board. Also, Yellen’s term as Chair ends 2/3/18 and she will likely serve until that date although speculation of her replacement should kick into high gear around the spring/summer of ’17.
- Foreign policy - does Trump unequivocally express support for important and historic US military alliances such as NATO? What actions are taken in retaliation for cyberattacks waged against the US over the last several months? Where does Trump go on his first foreign trips (these are usually seen as a signal of foreign policy priorities for any incoming president)? Trump will quickly need to formulate specific policies w/regards to China and the South China Sea, North Korea’s nuclear program, and Russia’s behavior on its western border. Does the recent antagonism towards China over the “One China” policy persist? According to media reports, Obama has communicated to Trump how the NK nuclear program is the single largest foreign policy challenge facing the US. Also it will be interesting to hear Trump’s view on sustaining the sanctions against Russia (for the unlawful seizure of Crimea) and retaining the Iran nuclear deal.
- Oil – OPEC and non-OPEC committee preparing Jan 21-22 Vienna meeting
- Japan – there is speculation Abe could call elections in the Jan timeframe.
- US banks – the Fed will prob. publish the ’17 CCAR/stress test criteria around the end of Jan (the criteria was released Jan 28, 2016 for the last testing cycle).
- US GDP – the Q4 GDP number will be published Fri 1/27.
- Italy – Italian Constitutional Court to hold hearing on legitimacy of Italian electoral law on Jan 24.
- Fed – first Fed decision of the year will occur on Feb 1.
- Netherlands will have national elections Mar 15.
- Fed meeting – first press conf./dot plot decision of the year is Mar 15.
- G20 Fin Min/central bank governors meeting Mar 17-18 in Germany.
- China’s National People’s Congress (NPC) usually takes place in mid-Mar; the gov’t will formally publish its 2017 economic objectives at this event.
- US debt ceiling - the debt limit has been suspended since late ’15 but is due to be reinstated on Mar 16, 2017.
- EU Leaders Summit Mar 25 – this could be the forum at which the UK formally triggers Article 50.
- WFC’s “living will” – WFC will resubmit its living will in the Mar timeframe. Normally this wouldn’t be a major event but if WFC’s living will is deemed inadequate again the Fed could raise the company’s capital requirements.
- France first-round presidential election Apr 23 (run-off is May 7).
- US Treasury publishes semi-annual currency report around Apr timeframe (investors will watch China’s designation closely and if it gets labeled a currency manipulator).
- US gov’t funding – current spending legislation will keep the gov’t funding until Apr 28
- G7 Leaders Summit May 26-27 in Italy.
- Italy – new elections are likely in the June timeframe.
- China/MSCI - MSCI will announce the result of the China A shares inclusion proposal as part of the 2017 Market Classification Review in June 2017.
- G20 Leaders Summit Jul 7-8 2017 in Germany.
- German elections – the next German elections will be held between Aug and Oct 2017.