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Financial Stability & Dynamics
Donald Trump’s first 200 days in office recently concluded with no major legislative victories to speak of. Despite this, more than half a year after his election, the Dow and S&P 500 rose to hit record highs. Markets largely sustained their gains through the new president’s first few months in office. The S&P 500 has limited patience, however.
In the fast-paced days since Donald J. Trump clinched the U.S. Presidency, financial and media analysts have scrambled to list areas in which the new Trump Administration is likely to upend current policy orthodoxy. President-elect Trump has criticized the Fed’s low interest rate policies as ineffective and distorting, a corner of the U.S. policy arena only now getting serious attention.
Oil has staged a marked rebound from its February 2016 low, albeit on a somewhat bumpy path.1
Nevertheless, the market remains conflicted about the future of oil prices, with bulls and bears pointing to their own set of supporting facts on opposing sides of the issue. The trend in energy stocks tells us a lot about the future of oil prices, however.
Fed policy is producing financial market uncertainty, but few results in the real economy.
The Fed is historically reluctant to raise rates close to a presidential election.
The Fed’s hesitancy to act without uniform data leaves it in a state of paralysis.
Elections often disrupt financial markets, which prefer continuity and stability.
High correlation between oil and stock prices show that 2016 could be a buy year for stocks.
Labor markets signal strength; commodities and financial markets signal weakness: what’s a central bank to do?
U.S. stocks are a buying opportunity.
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