Market Context

Good day all,

November is done and I won’t mince words here, I am glad it is over. The markets were scared stiff with October being a bloodbath thanks to Fed Chairman Powell. Leaving it to President Trump to put Powell’s job on the line the day before he is to speak and all of a sudden, we have a dovish Fed.

The markets took off and last Friday’s low of 2631 in the SPX seems like a distant memory. Closing the week and the month of November at 2760. That’s quite the jump, so now are we free and clear to keep heading higher? I had mentioned to subscribers that we should test the 200 day moving average earlier in the week which is currently at 2761, well we tested it and now it’s really all up to the results from the G20 summit this weekend.

I have played out 3 scenarios, and here they are:

1. The trade wars continue with a verbal promise of some sort by President Xi to reduce the trade deficit and the US agreeing to put a hold on any additional tariffs, so some formal progress made.

2. President Trump doesn’t even get to the dinner. Having seen the fact that the President has no issue in canceling meetings (the one with Putin), add the attendance of hawkish negotiator Navaro, it does little to settle my concerns of this dinner being cordial. (Markets tank)

3. Considering the fact that President Xi’s focus should be on his people. His declining economy, the potential credit bubble and the level of wealth inequality should be his primary focus. China’s high demand for soybeans and LNG, which they get from the US, should be enough to have them strike a deal.

Will any of this matter once the unknown is out of the way? I think the focus will shift to the potential government shutdown and a hawkish Fed. It is unlikely for President Trump and Fed Powell to play the Grinch, and steal the Christmas rally, but stranger things have happened.

Risk & Reward

Having placed our last 2 hedges for credits and yielding on both, the appearance of volatility will allow us to do much of the same. Having in excess of -100 SPX points and still yielding a profit? To quote Toy Story, volatility ” You got a friend in me”.