The euphoria of the US presidential election is
over. The market jumped under a new wave of optimism associated with an
end to fiscal austerity, tax cuts, and regulatory reform, but now the reality
has to set in and investors have to see the actual policies and believe they
will be effective. This new sense of reality may describe the current price
action for asset classes. You can call it mean reversion or a response to an
earlier over-reaction.
Stocks have become more range-bound. Bonds and
rates have improved after a disastrous rate rise this fall. The dollar trend
has lost momentum and precious metals do not show clear direction. The strong
gains in base metals have reversed and commodities are showing more
de-correlation.
Our general view is that this month is not a
good trend-following environment give the directions shown at the end of last
month. This should not be surprising. We expect that on a probability weighted
basis most time is spent in trend-less markets. There may be gains in selected
markets but there are no strong asset class directions that can generate strongly monthly performance.
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