I spent yesterday morning in meetings with the folks at Janus Henderson here in Denver. I’m a big believer in the idea that active fund managers will be worth their weight in gold (or should I say, bitcoin?) in the bond market as rates, global economic growth, and perhaps even inflation, potentially chart new courses in the coming quarters/years. The bottom line here is that London-based portfolio manager John Pattullo runs a strategic income fund with a macro-based theme approach and a strong record. As such, chatting with John and his Denver compatriots in the high yield/multi-asset class space was very productive.

At the mid-morning break, I checked in on the markets and was pleasantly surprised to see a double-digit gain on the S&P 500. When the meetings resumed, we chatted up the likelihood that the Case-Shiller data, the Richmond Fed Manufacturing Index reading, and the best Consumer Confidence numbers in 17 years were all contributing to the stock market’s rise.

As we were preparing to leave for lunch, I saw that stocks had advanced further. I learned that comments from Fed Governor Jerome Powell relating to the course of Fed policy and deregulation during his confirmation hearing to become the next Fed Chairman was the likely culprit for the spike to new highs.

Then, about the time the salads arrived, stocks began to nose-dive, losing about half a percent in fairly short order. After some brief exploration on our phones, we discovered that North Korea had decided to launch a new ballistic missile. A missile whose trajectory could purportedly hit Washington D.C.

Oh, and speaking of Washington, we also learned that the President had called off a meeting with top Dems to talk about averting a government shutdown on December 8th because, in Trump’s words, it didn’t look like a deal was gonna get done. Awesome.

Given that some volatility appeared to be returning to the corner of Broad and Wall, I immediately tuned into the business channels as I climbed into the car for the ride back to my office.

I then discovered that stocks had not only reversed course, but were spiking to new highs in a meaningful fashion. This move appeared to be sponsored by the fact that the Senate Banking Committee had voted to advance the GOP’s tax bill to a full vote in the Senate – a vote that could take place as early as tomorrow.

It turns out that Senator Corker had bargained for some sort of taxation trigger should reality not play out according to plan, which was good enough for him to get on board with a “yes” vote.

So, with the economy continuing to surprise to the upside, the new Fed Chair saying he’ll stay the course, and the potential for a tax bill to happen sooner rather than later, investors hit the buy button early and often yesterday afternoon.

From my seat, the word optimism appears to be the primary driver here. Optimism that the economy can finally break out of its long, post-crisis funk. Optimism that business-cramping regulations will continue to be reduced. And optimism that the Fed won’t make a “policy mistake.”

While I am not sure if yesterday’s action will become the impetus for a new Breadth Thrust Buy Signal (which, if history is any guide, could lead to the bulls remaining in charge of the game for at least another year), the action in the small- and mid-caps does suggest that optimism for the future is being priced into stock prices here.

So, all in all, yesterday was a productive day on several fronts. And here’s hoping that optimism continues to be the watch word going forward.

Finally, this just in… Q3 GDP was revised to 3.3% from 3.0%, which was above the consensus expectation for a reading of 3.2% and the best growth rate for the U.S. in three years. It is also worth noting that GDP has now topped the 3% mark for two consecutive quarters. And with the Q4 data looking good, the economy may be poised to make it three straight quarters of 3% or better growth for the first time since 2004-05.

THOUGHT FOR THE DAY:

You can’t live a perfect day without doing something for someone who will never be able to repay you. -John Wooden

CURRENT MARKET DRIVERS

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

    1. The State of Tax Reform

    2. The State of the Economy

    3. The State of the Earnings Season