Santoli: Stocks ping pong between Trump tweets, rising rates in a sign of what's to come for 2017

One day does not a year make. But there's a pretty good chance that the first part of 2017 could be roughly as noisy as this initial trading day has been so far. We have the push of economic data (strong right now), the tide of a few assertive macro trends (strong dollar, yields higher) and the gust of policy pressure from tweeting President-elect of the United States and response from corporate decision makers (trend toward protectionist/nationalist production/trade moves).

Here's what I'm watching heading into the closing bell:

Strong open fades

This reflex upside attempt at the open probably reflected the slouchy way the markets closed the year – no strong bids, a slight tilt away from risk, perhaps as traders had the memory of three straight January stumbles in mind. The ISM shows the manufacturing sector globally is riding tailwinds for now. The downward reversal in crude oil before noon took a lot of the oomph out of the morning rally. The ugly dump in natural gas suggests it really was a weather/momentum trade into year-end. Transports suffering (along with the peso) as the flaring anti-Mexico jabs being thrown by Trump and Ford undermine the rail stocks. Still a solidly (if not resoundingly) positive day at this writing (two-thirds of all volume in rising stocks) but the S&P's gain is somewhat overstating the gain in the average stock.

Worst to first

We definitely saw some mean-reversion/worst-to-first action, which is classic January action: Large stocks over small; healthcare bouncing; industrial metals spanked/precious metals boosted; Nike strong today because it was weak in 2016 and NVIDIA doing the opposite; 2016 laggards Facebook and Alphabet up more than 1 percent in an unimaginative catch-up trade. And now we await clues that whatever selling pressure built up for release in a new tax year, or any New Year inflows into stocks from rally-hungry retirement savers. Probably best not to draw many firm conclusions from today's staticky action.

Santa fails again

Santa Rally "indicator" on track for an unprecedented third straight downside warning signal. Without disregarding this entirely as one small hint of what's to come, it would make all kinds of sense for this seasonal "tell" to fail this year, along with last year's January Barometer, Sell in May and Summer Swoon. Not saying these are "broken," but they were never truly meant as bankable perennial patterns.

Sturdier than a year ago

I stick by the idea for a few weeks now that market conditions are much sturdier today than they were a year ago. The gamut from credit to oil to the earnings path to market breadth all are more supportive. This doesn't mean we're immune to, say, 3 to 5 percent slippage from the recent highs, the way it went late summer after a similar sharp rally that had flattened out. But something much worse than this would probably require a global financial accident (Chinese capital controls failing, outright currency hostilities, a Trumpian geopolitical provocation that unnerves the markets).

Trading Trump's tweets

Beyond the company-shaming tweets toward GM/Ford/Carrier and some gestures in response promising incremental U.S. jobs, the broad implication of the incoming administration's apparent industrial policy are fascinating and carry pretty high stakes for investors. Taken together, the Trump/ Ryan/Kudlow corporate agenda looks like this:

  • Lower headline tax rate, but make companies pay it.
  • Offer immediate 100 percent expensing of new domestic capital projects.
  • Get rid of deductions for interest costs (will discourage financial engineering).
  • Impose border tax to penalize global supply chains.
  • Browbeat companies to retain/increase lower-productivity/higher-cost US manufacturing.

It looks a lot like a forced regimen of capex spending and domestic hiring, in an economy not far from full employment and not obviously screaming for incremental real productive assets. It's very unclear whether the markets have priced in this sort of margin-squeezing, wage-inflating investment/hiring binge that seems to be the objective here. Stay tuned.