The Put up-US Election Knowledge Assessment

I feel most of you had an excellent week.

DBS, UOB, and OCBC have introduced good outcomes, and in case you are a dividend investor, your portfolio will do extraordinarily properly.

If you’re invested sufficient into the election, your portfolios may even do okay.

We had our firm Pickleball event on the afternoon of the sixth of November. The Russell 2000 was up 1% versus the Nasdaq at 0.2%. That type of provides me a sign that, at that second, Republicans are doing higher.

Earlier than the event began at 1 pm, the Russell 2000 was up 4%.

The markets are actually environment friendly.

However it’s a bizarre day the place I’m up mid-5 digits in my web wealth, however I had a largely poor event with a horrendous match.

As I write this morning, the 4 important factors we misplaced in that final Bronze medal match nonetheless haunted me.

Anyway, post-election, right here is one thing that I paid consideration to. There are most likely one thing extra coming.

Tom Lee of FundStrat On How Stretched We Are

1. For the document, Tom didn’t assume that the election will take so quick to have a transparent winner.
2. We have to respect this sudden surge.
3. There generally is a 5 to 10% upside until year-end.
4. We’re going to have a prime available in the market not as a result of the market is dear or there’s going to be a recession. The primary cause is probably going that we’ve an exhaustion in firepower or expectations turned unhinged from the market.
5. Expectations could be translated to the diploma of margin debt used.
6. Margin debt is at present nonetheless flat. For the final 4 months, most market contributors have been de-risking, and margin debt could be seen as upside gas.
7. One other solution to view expectations is the VIX stage, and at present, the extent is simply normalized. Tom might be referring to the phenomenon that Cem Karsan additionally talked about the place market goes up however VIX can be going up on the identical time.
8. Tom additionally shares just a little behind the concept for his new ETF the Fundstrat Granny Pictures US Giant Cap ETF (GRNY)

Tom Lee Talks Additional a Day In a while Small Caps and Bitcoin

Tom Lee joins CNBC yesterday night Singapore time once more.

1. Fundstrat weren’t predicting Trump to win however lean in the direction of Trump by contemplating what the betting markets had been telling them.
2. Some huge cash pulled cash out as a result of uncertainty.
3. Individuals now know that the coverage modifications goes to profit Bitcoin, Small Caps, Regional Banks & Financials.
4. Small Caps Commerce at 10 Occasions Median Ahead Earnings.
5. Since 1987, Small Caps have traded at a PREMIUM to Giant Caps.
6. At present, Giant Caps Median PE is 17 instances.
7. Primarily based on this, Small Caps can meaningfully outperform within the subsequent two years by 100%.
8. They type of agree with Fed Chair Powell that the bond yields have gone up not due to inflation however a change in development expectations.
9. Tom explains that markets could also be pricing in that this time, President Trump could have extra expertise in constructing a workforce. Because of this market contributors assume it is going to be extra market-friendly.
10. Will probably be troublesome to repair the deficit with simply modifications to taxes and spending.
11. Bitcoin generally is a Treasury Reserve asset and if Bitcoin rises that may offset the liabilities on the steadiness sheet.
12. Six figures in Bitcoin value by the tip of this yr is feasible.
13. S&P 500 ought to be capable of to 6700 by a while subsequent yr.

Lori Calvasina: Not A lot Extra for Small Caps to Run.

RBC’s Lori Calvasina comes on CNBC to debate small caps (she was a small cap analyst) and recollect the surroundings in 2016 what labored and didn’t:

1. Lori mentions that one cause small caps can proceed to do properly essentially is the “Purchase the USA ” commerce. The second cause is Company Taxes.
2. Republican sweeps appears extra favorable to shares in the intervening time.
3. Tailwinds are previous election overhand approaches to taxes & laws.
4. Headwinds are taxes and inflationary impacts, additional rise in yields and USD.
5. There may be not a whole lot of room to run left however doubtless a minimum of just a little bit extra. Positioning and sentiment seemed stretched earlier than this week’s transfer.
6. After 2016, we are able to see a shift not from massive to small however extra worth to development, and when Biden bought elected we see a shift from development to worth.
7. The market could also be factoring with decrease taxes, this could increase the earnings (financially clever) and are pricing the markets accordingly.
8. Lori is seeing the 2018 playbook greater than the 2016 playbook as a result of she is seeing the defensive sectors main, supplies are lagging.

Lori did make feedback earlier than the election outcomes on her RBC podcast right here:

1. In our conversations with buyers and overview of firm earnings name transcripts, it has been obvious to us that many have change into “caught” resulting from uncertainty concerning the election and that this uncertainty is appearing as a restraint on each buying and selling and firm habits. Merely getting previous the occasion could assist enterprise exercise get going once more.
2. In our consumer conversations, buyers have been involved a few prolonged contested election and rightfully so, because the 2000 election noticed the S&P 500 fall practically 12% between election day and its December low.

Simply how Large Was this Influx to the IWM?

IWM drew $3.94 billion in inflows in a single session this week, the biggest day by day influx in a minimum of a decade.

What Occurs after a Better than 5% Hole up within the Russell 2000 ETF (IWM)?

Because the votes had been tallied, the Russell 2000 futures jumped from 0.2% to 1% to 4% to five%.

What occurs when the opening gaps within the Russell 2000 was this robust?

This was the 4th-largest hole up within the IWM, Russell 2000 ETF historical past.

The 2008 hole was a rug-pull, however apart from that one, we’ve fairly good run-ups within the subsequent three months.

Small Caps Over Giant Cap Season Begins in Mid-December

JC Parets over at All-Star Charts identified the seasonal sample of small caps.

By Mid-December to March has at all times been the strongest interval for the Small Caps relative to the Giant Cap. That is defined by taking the ratio of the Russell 2000 divided by the Russell 1000 (largest firms).

JPM on the Implications of Larger Yields on US Regional Banks

“Yields are up 85bps in 5 weeks.

Can regional banks actually take this? Can small caps who have to refinance?”

“Bear steepening of the yield curve ought to profit web curiosity margins (NIM), particularly when mixed with a fee minimize anticipated to be delivered as we speak and one other in December.

Mix this with a extra nuanced view of business actual property and assume Regional Banks make one of many extra compelling investments.”

“On the refinance query, we’ve not likely seen firms shut out of capital markets and lots of the debt offers are oversubscribed

Tangentially, the debt maturity wall that was presupposed to hit in 2024 has been pushed out given the power for firms to refinance in an surroundings that seems to have limitless demand.”

“I do anticipate the Russell 2000 to proceed to understand into year-end. Whereas positioning isn’t as gentle, the view is that Trump’s tax minimize for American-focused companies retains this lengthy play lively till we all know in any other case.”

The Affect of Curiosity Expense on Small Caps vers Giant Caps

Liz Younger Thomas, the Chief Strategist at SoFi posted the curiosity expense as a proportion of whole debt between the Russell 2000 and S&P 500:

The affect of rate of interest change impacts the S&P 500 much less as a result of they’re much less dependent over debt however within the final couple of years, the curiosity expense, relative to the whole debt has not gone down since 15 years in the past.

Small Caps are Buying and selling At a 25% Low cost to Giant Caps – Which isn’t the Norm.

John Huber of Saber Capital identified this low cost to massive caps, which he thinks there are attention-grabbing alternatives for inventory pickers:

The S&P 600 are the small caps with some earnings in contrast to the Russell 2000 that are dominated by the Biotechs with no earnings.

This chart type of validates what Tom Lee stated: that small caps traditionally commerce at a premium to massive cap.

Valuation and Margins are Stretched In response to Jurrien Timmer

Jurrien Timmer over at Constancy factors out that valuation, both based mostly on equal-weight, cap-weighted or smaller vs bigger firms, isn’t low-cost.

A price-earnings of 25 instances trailing PE is a “excessive hurdle” to beat. Hurdles could be leapt throughout, but when the expansion fee is peaking and margins are already at a excessive finish, that hurdle may be proved to be reasonably difficult.

The dominant sector within the large-cap index has excessive margins and which may clarify how they’ll push the large-cap index combination margins increased and better. However how a lot might they frequently push it.

What Could Drive Yr Finish Seasonals.

DataTrek says that US fairness buyers bought earlier than the election.

However they’re doubtless again now and this will result in highly effective forces in the direction of the tip of the yr.

Warren Pies of 3Fourteen is one other who felt that these fund managers who underperform could FOMO into the year-end if their performances have lagged all year long.

Micro-Caps within the US is Doing Nicely as Nicely

In case you assume the Russell 2000 has been lagging, the even smaller firms (Small-Caps is a minimum of 2 to 9 billion in market cap) are lagging much more:

The IWC did 1.1% this morning, which is among the many strongest index this morning. They spiked 6% on that election vote counting day as properly.

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