It’s time for Goldman to go ahead an update the old (and now the “new”) “trading days without a 5% S&P correction” chart. As noted earlier this week, we broke a record on that score amid the best start to a calendar year since 1987. Here’s the updated version:
Relative to realized vol., we just witnessed the best start to a year since 1967. Happily for those trying to convince themselves they don’t have a gambling problem, the tax bill-related surge in earnings estimates means the forward multiples haven’t risen with stock prices.
Although a sudden uptick in inflation and the assumed hawkish policy response that would engender from central banks remains at the top of the worry list for investors, the prospect of a trade war grabbed headlines this week following Trump’s decision to slap tariffs on residential washing machines and solar equipment. Those fears intensified meaningfully starting on Wednesday when Steve Mnuchin decided it would be a good idea to jawbone the already beleaguered dollar lower upon touching down in Davos.
Of course none of that bodes well for the NAFTA talks or really, for trade negotiations in general. Here’s what we said on Thursday:
Mnuchin’s weak dollar comments came less than two days after Trump decision to slap tariffs and solar equipment. The timing is obviously not a coincidence. Taken together, this would appear to mean that the administration is getting serious about Trump’s campaign trail trade rhetoric – and at just the wrong time. NAFTA negotiations are ongoing and according to Reuters (out this morning), the U.S. “hasn’t moved an inch“. Rumors are circulating that China is considering whether they might be able to hit the U.S. where it hurts in retaliation for any aggressive trade measures by paring purchases of U.S. Treasurys at a time when supply is set to rise (think: the tax bill ballooning the deficit) and the Fed is winding down its balance sheet. Additionally, the dollar is already coming off its worst year since 2003 and is sitting at its lowest level since 2014.
