Market Briefing for Friday, December 23

Definitely no 'lumps of coal' for stocking stuffers; however, based on all the retail and other data, this could be a classic 'return or re-gifting' season. In the stock market it's a similar story; lots of trimming out there gives more of an illusion of persisting strength while many stocks are behaving more or less in mundane fashion, 'as if' they prices may return to lower levels later.

Just paraphrasing our market perspective, which for several days has been one of less sanguine short-term optimism while believing the longer-term as we've outlined, has potential to be extremely transformative, and beneficial to many segments of business and society in-general. But it's a process and isn't going to be sorted-out on a dime, though likely will be 'in-time'.

That suggests a misfit; the market's gift of our totally supported rally lifting a lot of forgotten basic industrial stocks (and Oils) for the past 6-7 weeks, was and is based primarily on prospects that are yet to be carved in stone. That IS likely to occur, though (especially with regard to taxes), we continue with the view that they should go all at once, not plan a gradually-phased shift. If they do it gradually, the full benefit won't be seen, for business or markets.

Basically we lean toward the idea of a correction 'in the wings', whether that starts (as we've suspected) almost as soon as you can sell for settlement in the new 2017 tax year (benefiting from both an extra year and the presumed lower tax rates), or whether it's choppier than that to kick-off the new year.

The anatomy of next year's market can't yet be dissected as everything has been based on subjective reasoning of how the mood will be transformed in a dramatic fashion (like a foot lifted-off market jugulars as I described it from the start last month). That occurred and now the ramifications (including the responses from China and others, as well as the 'trade' and 'manufacturing' positions being delegated to basically 'tough cookies' that will well-represent American interests), are being better understood.

That includes realization a 'protectionist' tone, 'border-tax', or even potential trade-war environment becomes a possibility. That in itself can contribute to 'second-takes' on near-term market performance itself, and that's essentially been our point over the past week; on-top of the reduce tax expectations. It isn't exactly casting a pall over the market; but is tempering the enthusiasm.

Initially, as debt continues to grow and Fed-bumped interest rates return as well as the persisting (forecast for 4 years) strong Dollar lets rates gravitate toward more normal levels, interest spending is slated to become the fastest growing part of the Budget; and few are focusing on Debt Service concerns. This crunch could impact state, businesses, municipalities, and individual households in a big way as well; and that contributes to the ongoing slowing (or even recession) that we've believed tracks from roughly July of this year. Sure, that will all reverse, but nearer-term could sober some enthusiasm.

In-sum: we recognized that recent years have been extremely difficult for a Fed saddled with doing the only heavy lifting, absent serious fiscal moves in a roadblocked Congress. Excessively persistent central bank intervention of course propped-up the stock market at the expense of most of 'main street' improvement (not saying the 'real economy', because FANG and areas that did receive a focus, even as they often destroyed by jobs than created), are part of the 'real' economy too. But all this happened primarily at the expense of middle class security, at the expense of jobs, or yielding less confidence.

The market's projected 'Tectonic' shift in the event of a Trump win presupposes a carrying-forward of his economic plan, trying hard to distinguish that from a social agenda which could hamper or even be a blight on his Presidency (not his agenda, but that perceived by some based on a couple advisors not his personal views, which I continue to believe are generally 'centrist').