Macro Observations

For as much as investors are focused on the big returns they’ve enjoyed since last week’s election, there’s one risk that seems to be flying under the radar. Again. That’s the reverse yen carry trade. And it looks like we could be headed for a repeat. This time around though, investors may be even less prepared for it than they were before.

This week, as investors focus on surging U.S. equity prices following the election, I’m focused on a situation that I think is far more serious. And confusing. That is the bond market. Over the past two months, this has easily been, in my opinion, the biggest WTF happening in the markets today. The big question, of course, is why. So let’s run down the potential culprits (and if you’ll bear with me, I’ll get a little conspiratorial too).

You may have already heard, but there’s a presidential election next week. If we look at history, the S&P 500 has a pretty good recent track record in the several quarters following presidential elections. Subjectively, it appears that the markets are pricing in a greater likelihood of a Trump victory. If the government continues to liquidity bomb the economy, that would be a significant tailwind for equities, assuming that economic growth remains positive.