The $36 trillion debt mark is crossed as the Fed meets.
The election of Trump – and the official recognition of his large victory – dates back 8 days, and it is no exaggeration to assert that on the financial markets, the election of the 47th President of the United States has already produced the impossible even before the elected/re-elected person – again a first in a century – has signed his first decree.
Donald Trump’s victory, which was already visible in the trajectory of the bond markets, was greeted by a supersonic “bang” on the most speculative assets, notably the already most highly valued stocks like Nvidia and Tesla – with PERs of 65 to 115 for the first (depending on the calculation methods) and 95 to 105 for the second (narrower range). Then of course, bitcoin, with +28% to $93,300 in six sessions (eight with the weekend, purists will point out).
This is a gigantic « pump » which mainly benefits bitcoin, because Ethereum at $3,200 is still far from its zenith of $4,090 on March 10.
It is difficult to take the full measure of what has happened on the markets since November 6. So rather than trying to string together a series of superlatives, here are some numbers that say enough about Wall Street to defy the imagination:
- four consecutive absolute records;
- the three main benchmarks at their highest simultaneously, on four occasions;
- records in the form of “intraday/closing doubles”;
- Monday, November 11, 1st quintuple of simultaneous absolute records in History including the Dow Transport and the Wilshire-5000;
- each record was achieved against a backdrop of deterioration of US T-Bonds (the 10-year flirts with 4.50%);
- largest gap in history in six sessions between the S&P 500 and the Euro-Stoxx 50 (differential of +8%);
- 0% lost by Wall Street (averaging the five “broad” indices) since 11/11.
But perhaps we have just witnessed on Wednesday evening the first precursory sign of a running out of steam in “Trump-trade”, with a spectacular reversal during the session on the small caps (massively favored by the hope of relocation of industry and protectionist measures). The Russell-2000 advanced by +0.9% to 2,417 points around 4:45 p.m. this Wednesday… and it finished at the antipodes, with -0.9% towards 2,369.
But many investors consider the bullish rally in force for 15 weeks to be “unstoppable” (it started on August 6, it reactivated on September 9, then it surged by +5% on November 6).
An image comes to mind to illustrate the last of the three waves which propelled the S&P 500 from 5,150 points to 6,015 points (i.e. +17%)… This market resembles a Formula-1 car: the essence of this What happens outside of holding the steering wheel is 99% managed by the on-board electronics, starting with the engine speed.
And there, since November 6, with an additional increase of +22 basis points of the T-Bond “2034”, everything happens as if the electronic management system which limits the number of “rpm” and prevents over-revving ( therefore the motor broke) had just short-circuited.
The ceiling of 15,000 laps imposed by the FIA in competition (it still allows you to reach 330 km/h in a straight line) has just exploded, and the “Wall Street” single-seater roars at 20,000 rpm… and crosses 440 Km/h (the Dow Jones exceeds 44,000 points, the average PER of the Nasdaq 38 and that of the “Fantastic Seven”, the 60).
How many more revolutions will the molten engine last? Are we on the 59th lap out of 60 of the United States Grand Prix? Or are there still thirty more to cover and the engine will turn into a gigantic fireball within a kilometer or two?
The most optimistic claim that “it will last a few more revolutions” because the engine “is strong”… but the overheating does not date from November 6: the 10 year old has seen its performance increase by +88 points since then. mid-September (as if the Fed was preparing to raise its rates three times… and we are even closer to four now).
Even if the narrative claims that the rate hike that began 8 weeks ago is the precursor to a roaring US economy next year (let’s forget the risks of recession and put aside inflation, it’s a secondary subject for Trump), it has smelled of sulfur for weeks, and especially since last Tuesday.
The Fed’s decision to lower rates or not this Thursday will coincide with the official crossing of the $36,000 billion debt mark… against a backdrop of rates at 4.50%.
But all the reasons to worry about the situation for a reasonable investor, Wall Street has warded off by setting absolute records since Wednesday, November 6… illustrating the metaphor of markets “climbing” the “wall of fear” (the Wall of Worry).
And in today’s climate of complacency…the higher it is, the more promising it is!
