Is the Market Response to the French Election Telling Us Anything?
While I don't watch much financial media (CNBC, Bloomberg, etc.), I do check in from time to time. The idea is not to become an "information junkie," but not to live on a deserted island either. So I checked early Monday morning (around 5:30 AM), and found stock markets around the world and U.S. futures jumping (over 200 points), with the commensurate fall in prices of Gold and the Long Bond. For a brief moment I wondered what caused this semi-rattling action, until I remembered the French election, held over the weekend.
Coverage of that election here in the U.S. was typically spotty (a/k/a "half-assed"), while in Europe, apparently all eyes were on France. Sifting through the usual uninformative comments that tell us what we already know ("Stocks rose around the world in response to the results of the French election"), we did find one comment from what seemed a reasonable reliable source that simply said the jump made little sense, as the results reflected what was expected: The establishment was rejected in favor of Center-Right (Le Pen) and Center-Left (Macron). We concluded the brouhaha was likely much ado about nothing. The thinking here was clear and the comment wasn't mealy-mouthed, so we gave it some credence.
But since prices did move sharply, is there anything we might look for going forward? The question springs from the idea that sometimes events serve as triggers for underlying trends rather than the cause of any trend. Sometimes trends take a rest and await some outside event to trigger either a continuation or reversal of the existing trends. With that in mind, we're keeping our eyes open as follows:
Re Stocks: Prices drifted down in recent weeks, but there was no substantial correction after the averages hit all-time highs subsequent to Trump's election (the so-called "Trump Trade"). With the post-French jump, will this serve as a break-out that propels stocks back into the bullish trend that has persisted since 2009?
Re Bonds: After the Trump Trade rise in yields, a significant reversal saw yields drop to around 2.20 on the 10-year. Another significant number we watched was the market value of TLT (a long-bond ETF). It had previously broken above 123.47, possibly signalling a continued fall in yields. That was halted post-French election. Does that mean the break-out above 123.47 was a "false breakout" that simply fools you into thinking yields will continue lower? Or will this reversal prove to be temporary?
Re Gold: Gold had been exhibiting strength this year, and finally broke above first 1265, then 1275, both indicating continuing strength. We were looking for the next level: a breakout over 1300 which would have more firmly established what may be the resumption of the great long-term bull market that began in 2000-2001 correcting in 2011 - 2016 - a perfectly normal corrective trend given the enormous (actually historic) strength in Gold for over ten years. Then came the French vote and a fall below 1275. Similar question here: Will this fall undermine what seemed to be a resumption of that Gold bull?
Re US Dollar: The Euro jumped, so naturally the USD went the other way. That doesn't really tell us much. However, we've been watching the NBOT:DX, a USD Index Spread index to see if the USD would break below 99 after its mild correction from previous strong bull action. While it had already previously touched 99, it never sustained that level. Post-French election, it did drop close to 99, in fact falling below the previous low. If that holds (this time vs. last time), we may be looking to reevaluate our current investment stance. But it's too early to tell yet.
As the week progresses, we'll get some answers to either some, most, or all of these.
Coverage of that election here in the U.S. was typically spotty (a/k/a "half-assed"), while in Europe, apparently all eyes were on France. Sifting through the usual uninformative comments that tell us what we already know ("Stocks rose around the world in response to the results of the French election"), we did find one comment from what seemed a reasonable reliable source that simply said the jump made little sense, as the results reflected what was expected: The establishment was rejected in favor of Center-Right (Le Pen) and Center-Left (Macron). We concluded the brouhaha was likely much ado about nothing. The thinking here was clear and the comment wasn't mealy-mouthed, so we gave it some credence.
But since prices did move sharply, is there anything we might look for going forward? The question springs from the idea that sometimes events serve as triggers for underlying trends rather than the cause of any trend. Sometimes trends take a rest and await some outside event to trigger either a continuation or reversal of the existing trends. With that in mind, we're keeping our eyes open as follows:
Re Stocks: Prices drifted down in recent weeks, but there was no substantial correction after the averages hit all-time highs subsequent to Trump's election (the so-called "Trump Trade"). With the post-French jump, will this serve as a break-out that propels stocks back into the bullish trend that has persisted since 2009?
Re Bonds: After the Trump Trade rise in yields, a significant reversal saw yields drop to around 2.20 on the 10-year. Another significant number we watched was the market value of TLT (a long-bond ETF). It had previously broken above 123.47, possibly signalling a continued fall in yields. That was halted post-French election. Does that mean the break-out above 123.47 was a "false breakout" that simply fools you into thinking yields will continue lower? Or will this reversal prove to be temporary?
Re Gold: Gold had been exhibiting strength this year, and finally broke above first 1265, then 1275, both indicating continuing strength. We were looking for the next level: a breakout over 1300 which would have more firmly established what may be the resumption of the great long-term bull market that began in 2000-2001 correcting in 2011 - 2016 - a perfectly normal corrective trend given the enormous (actually historic) strength in Gold for over ten years. Then came the French vote and a fall below 1275. Similar question here: Will this fall undermine what seemed to be a resumption of that Gold bull?
Re US Dollar: The Euro jumped, so naturally the USD went the other way. That doesn't really tell us much. However, we've been watching the NBOT:DX, a USD Index Spread index to see if the USD would break below 99 after its mild correction from previous strong bull action. While it had already previously touched 99, it never sustained that level. Post-French election, it did drop close to 99, in fact falling below the previous low. If that holds (this time vs. last time), we may be looking to reevaluate our current investment stance. But it's too early to tell yet.
As the week progresses, we'll get some answers to either some, most, or all of these.
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