Tired, yet still exuberant, they rested in the fourth week of the new dawn, undoubtedly a pause to refresh, the interlude perfectly timed to allow the neighbors across the pond to work out their issues, unsure if any result would continue to be a good result. And while top-line readings of the major domestic stock indices ended slightly lower on the week, trending down in orderly fashion, the list of surprises grew longer. It was a toss-up as to whether OPEC agreeing to a production cut was more of a shock than Vladimir Putin being the one who brokered the deal. Of course, it was no surprise at all that traders got caught short, violently reversing the commodity and the equities as well.
Meanwhile, China, Europe — yes even Italy and Spain, less so the U.K. — and of course the U.S., seem to be experiencing an economic revival, albeit in varying degrees, some admittedly requiring a heart rate monitor to assess rapidity of pulse but nonetheless a reversal of economic apathy. This has led to a backup in sovereign yields, a concern of ours for many months, the yield on the 10-year U.S. Treasury breaching 2.5 percent before pulling back below 2.40 percent to end the week, in our estimation a head fake before an extended run to 3 percent over the next six-nine months.
Consumer confidence remains high, investor confidence is strong, and the pall of negativism continuing to ebb, so evident in the retail sales figures on Black Friday and Cyber Monday, exceeding expectations leading to the biggest jump in the retail sector since 2011.
Are we witness to a transition from the safe haven of a three-decade bull market in bonds into equities? Even before 1,000 jobs at Carrier were saved, before one piece of tax reform was drafted? Could be. Timing is everything and the rally we have seen is part President-elect Trump — how else to explain the instantaneous response the day after the election — and part the synchronized global economic recovery. And that means the week was about industrials, energy, materials and financials – all the sectors that made investors cry out "loser" not that long ago.